Page 40 - #184 September 2023

SPECIAL FEATURE - EXPANSION & FRANCHISING

Franchising in 2023: A Better

Option for Business Growth?

Big names in retail are allocating greater resource to franchise expansion. A sign of the
times, or recognition of franchising as a lower risk alternative for business growth? John
Burns, a Partner at Gateley Legal, discusses the franchising model and its benefits.

dds are you are probably familiar with Subway, home of Mutual benefit
‘Hearty Italian’ bread and meatball marinara. What you may The unique functionality and mutual benefit of the franchisor-
Onot know, however, is how its founders took their ‘submarine franchisee relationship plays a big part in the business model’s
sandwich shop’ from a single store in Bridgeport, Connecticut, to a impressive success rate.
global business counting more than 44,000 branches around the world. Instead of investing their own capital, time and resources in opening
new businesses in different locations, a franchisor develops a franchise
Capital-light expansion agreement that essentially passes the responsibility of launching and
Franchising as a business model has been popular for some time. running the new business onto the franchisee.
Recently, however, more businesses are announcing their intentions to Providing this relationship is built on solid foundations of trust and
invest in and expand their franchise-based strategies. a watertight franchise agreement, both franchisor and franchisee stand
Convenience retailer Co-op, for example, plans to triple the number to benefit.
of franchise stores over the next three years as part of a “capital-light For the franchisee, investing in a franchise can provide all the benefits
expansion programme”, taking its number of franchise stores from 43 of entrepreneurship – independence, flexibility and self-sufficiency,
to 150. for example – without taking on the risks as well. The franchisee also
In the current business climate, franchising’s increasing popularity is has access to support, resources, a proven business model and brand
understandable. It is more likely to succeed than traditional business awareness, all of which makes it easier for a franchisee to hit the
models, with only seven per cent of franchises failing within their first ground running and achieve profitability.
three years, according to the British Franchise Association (BFA). That’s Providing a franchisor is willing to let a third-party ‘hold their baby’,
compared to the 90 per cent of start-up businesses that fail within the they also stand to circumvent the traditional challenges of expanding a
same period. business without additional support.
It also offers high potential to be profitable, with 60 per cent of In the franchise model, for example, the cost and resource required
successful franchises exceeding a turnover of £250,000. Small wonder, to establish the business in a new location is largely passed on to
then, that the UK franchise industry is now worth around £17.2bn, the franchisee. They provide the fees and royalties stipulated in the
according to Franchise Direct. agreement to operate a separate legal entity under the umbrella of