When I attended the recent European Multi-Unit and Master Franchise Conference in London, one of my consultant colleagues from the U.S. made an interesting statement which he followed with an equally interesting question.
He said: “20 years ago there were 1,500 franchise systems in the U.S., today there are around 3,500. If we assume that the average is around 300 for new systems launched every year, there should now be 9,500. Where have they all gone?”
Who knows the accuracy of the figures, though the franchisor start-up numbers are supported by published information from respected U.S. researchers FranData. Needless to say it got me thinking, so I tried to find similar figures for the UK. At the time of writing the most up-to-date figures available were in the BFA/NatWest Franchise Survey 2015.
The survey tells us there were 901 franchise systems in the UK. The earliest similar survey we had in the office was from 1996 which tells us that there were 541 systems, 14.1 per cent up on the year before. So, in 1995 there were 475; 20 years later in 2015 there were 901.
Let’s assume that only 100 new franchisors launch in the UK every year, though my guess is it’s probably higher. Therefore, there should have been 2,475 in 2015, not 901. So, where have they all gone?
This raises the tricky question of franchisor failure, or shall we say churn rate. This isn’t something our sector has ever really addressed. Even firms like ours and other BFA-affiliated development consultants can’t claim amazing success rates for franchisor client longevity. So, why is that?
The truth of the matter is that most businesses that decide to franchise haven’t got a clue what they are getting into.
- How long it will take to recruit sufficient numbers of the right franchisees.
- How to acquire the unique and necessary franchise management skills.
- The level of the investment they will have to make.
- And, they most certainly have not set aside enough working capital or arranged for it to be available.