The franchise space is experiencing rapid expansion and consumer trends are shifting while technological advances are pushing franchisor boundaries. Here RLI focuses on the franchising sector, highlighting how best to grow a franchise in the digital era, what are the current key trends and what the best examples of franchised businesses are in the world in 2019.
Franchising is a very complex area, but if the research is done correctly and the right franchise opportunity can be found, it is an area that can be very rewarding. Put simply, a ‘franchise’ is an agreement between two parties which allows one party i.e. the franchisee, to market product or services using the trademark and operating method of the other party, i.e. the franchisor.
The advantages and disadvantages of franchising are numerous, but in a nutshell, the greatest advantage of a franchise system is that it reduces risk of business failure, and the greatest disadvantage is the lack of independence it offers.
Adapt To Digital Today To Ensure Success Tomorrow
Chris Aston, Marketing Director at Auditel UK, asks, when is the right time to embark on a full-scale brand transformation project? Do you wait until market pressures force you to change or do you take a more forward-thinking approach to revitalise your brand ahead of inevitable change? He argues that they chose the latter because it is the only way for even well-established brands to secure their position as pioneers and leaders in a transformed business landscape.
“Digital transformation is the fourth industrial revolution. It’s quite literally the way of the world now and isn’t something any brand can ignore. Digitisation is impacting every element of every business. If you disagree, you’re not looking in the right places. For those operating in any market, not just the B2B space, it’s no longer about ensuring future solutions are like-for-like. It’s about understanding the right requirements of the future: technology, sustainability and longevity are intrinsically linked. For our franchisees at Auditel, this means identifying which suppliers are offering greatly enhanced digital platforms as solutions so our clients can make a step-change in their business,” explains Aston. The challenges faced during any brand evolution – be it rebranding, introducing a new product or services or redefining service offerings and client relationships – is keeping everyone happy.
All organisations are at risk of a competitor innovating quicker than they do or new entrants coming into the market with advanced offerings. Managed well, innovation and evolution can reinvigorate even the most established of brands.
The State of Franchising
An outlook piece by America’s Best Franchises highlights some key points on the current state of franchising and why it’s such an exciting time for the industry:
• The economy is on the upswing – While increased wages are beginning to affect franchise business owners’ bottom line, the consequence just might be worth the reward. As the unemployment rate continues to decrease and more jobs are becoming available, consumers are becoming more confident. And more spending means more money in the franchisee and franchisor’s pockets.
• The internet is changing business practices – The internet and rise of e-commerce present several opportunities and challenges in the franchising space. It gives the franchisor much more visibility and increases brand recognition at a speed that was once nearly impossible. It also allows franchisors to build and protect their market share by offering another way to acquire new customers and stay engaged with existing ones.
• Multi-unit franchising is on the rise – The franchise industry is seeing rapid growth in multi-unit franchising as well, and it’s a trend that won’t be going anywhere any time soon. For the first time, multi-unit franchise owners outnumber single-unit franchisees. As opposed to relying on the success of one location, multi-unit operators earn revenue from multiple franchised units. More on multi-unit franchising shortly!
• Mergers & acquisitions are becoming more common – As the economy strengthens, we can expect to see more and more franchisors purchasing smaller, undercapitalised franchises with poor brand recognition.
Franchisors are merging with or acquiring smaller companies in a lateral or related industry. This gives them access to a new customer base, increasing their market share. It also diversifies their products and services, as well as reduces competition.
The Topic Of Franchising
A hot topic in the industry, franchising will also be on the agenda at this year’s MAPIC event in Cannes with its own dedicated session entitled ‘Developing profitable multi-unit franchise models in a competitive environment.’
Multi-unit franchisees are a dominant force in franchising. They control more total units than their single-unit counterparts and are increasingly adding and operating multiple franchise brands.
Franchising is a team effort. For any franchisor to succeed, the vast majority of its franchisees (obviously all would be ideal, but it’s not a perfect world) must operate profitable individual franchise units over the long-term. A brand’s success depends on an ongoing partnership between franchisor and franchisee. One of the most common sayings in the sector is: “Franchising means working for yourself, but not by yourself.”
Multi-unit franchisees purchase the rights to develop and own multiple units in an exclusive territory. In a multi-unit operation, a franchisee will typically work less in the daily operations of a single unit, instead focusing on the managing of multiple locations at a higher level.
Multi-brand franchisees are also on the rise and they are exactly what they sound like. It is the opening up of several franchises under different brand names. This is quite different than owning multiple franchise locations. Instead of operating under one umbrella, each franchise operates individually. Each brand might have a different concept. Each store might have a different target market. Multi-brand franchising means having one operator opening very different businesses.
Co-branding, in which a franchisee operates two brands from the same location, has been described as the combining and retaining of two or more brands to create a single, unique product or service. No matter how you describe it, it’s a strategy that has really taken off in franchising and an increasing number of franchisors now offer several different brands, and provide incentives to franchisees to co-brand.
Diversification is a strategy that is being adopted and becoming more and more popular among multi-unit franchise operators. From a franchisors perspective, multi-unit franchising provides opportunities for accelerated growth; a vehicle to penetrate new markets, capitalise on certain market efficiencies, reduce the training, opening and operational assistance typically provided to single-unit franchisees and a means to attract and reward productive franchisees.
Examples of Franchises
So why go international? Maybe because even the mammoth US domestic market has less than 5 per cent of the world’s potential customers! So then what are the biggest franchises in the world in 2019?
According to Franchise Direct who compiled its ranking of the Top 100 Global Franchises, the top ten is completely taken by brands from the US, and they are the following:
- Burger King
- Pizza Hut
- Marriott International
The world is slowly changing and 2019 has already brought us many new things. All industries have to adapt to the new economic demands and so do franchises. Strategies will have to change to stay on top of trends – both for doing business and finding employment.
Franchising must be viewed as a commitment much like a marriage. A good match between franchisor and franchisee sharing mutual goals over the long term is essential to the success of each franchise unit, and thus the brand as a whole. Sharing essential goals is a pivotal factor that must be considered seriously by both parties before any contract is signed.