Hurragh, some encouraging GDP data. A 0.8% increase in national output in the third quarter of 2013 means that the British economy is growing at its fastest pace in more than three years. The Office for National Statistics has announced that expansion occurred across all four sectors; solid performances that are leading to declarations from optimists such as chancellor George Osborne that the economy has “turned a corner”.
While these growth figures may be of particular use to the Conservatives in the future general election battle, obviously their value is not lost on the franchising industry either. Poor sales and restrictive lending conditions are always concerns for small businesses, even those that are franchised. However, there is evidence that the franchise industry is a recession-proof one.
Franchising Still Flourishes
According to the NatWest bfa Franchise Survey 2012, franchising will largely defy general economic pain. “Over the last few years we have examined the evidence within our survey with regard to the impact of the economic downturn,” write the principal authors Richard Smith and Maria Fei (with market researchers BDRC Continental), “and thus far, franchising has proven to be extremely resilient. There has been little evidence of widespread business failure and few signs of the business model breaking down. Both of these conditions were observed…during the previous recession (early 1990s).”
This is reflected by the fact that the number of franchise systems continues to grow. Although 35 franchise systems withdrew from franchising in the UK between 2010 and 2011, during the same year 64 businesses adopted the franchising model and backed at least one independently franchised business unit. The table below shows how in every year from 2004 to 2011, even at the bottom of the recession, the new businesses minus the withdrawals was always a positive number:
There are a few possible reasons why the franchise business model surpasses its non-franchise counterparts in times of recession. One is the rising unemployment rate and the fear of losing one’s job. While this is not good for the economy as a whole, it actually results in a larger group of franchisee candidates to choose from, many of whom have been granted a nice redundancy package providing the capital required to cover the franchise fee. Speaking of investment, there is also the stock market – people are only reluctant to take money out of successful shares, and those shares will lose value when the bubble bursts, leading to the money being invested elsewhere. Finally, small businesses and entrepreneurships are seen as a method of generating new employment and competitiveness and therefore are supported by the state, while a potential franchisee of a successful brand is more likely to gain a small business loan than those who are starting completely from scratch.