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Franchising: the £17bn secret

  • Article

For brands, it’s a handy ‘third way’ to expand. For budding businesspeople, it’s a relatively low-risk option. So why does franchising still lurk under the radar?

Key takeaways

  • Franchising numbers are at a record high in the UK, from McDonald’s and Costa to dog-walking and gardening services.
  • The rise is being driven both by younger entrepreneurs, and by existing franchisees expanding across sectors.
  • With 30 years’ experience in the field, HSBC is using its profound knowledge to connect brands with potential franchisees.

A glance down any UK high street proves the success of franchising. It spans major food brands and coffee bars, popular gyms and phone shops.

Franchise units have hit record numbers, today employing over 70,000 people and contributing an estimated £17bn to the UK economy.1

Yet this sustained growth story is hiding in plain sight. As a business model, franchising has yet to achieve mass visibility.

“It hasn’t got the exposure it deserves – maybe because it’s not a sector or an industry, but a way of working,” says Andy Brattesani, UK Head of Franchising at HSBC.

But he believes this could be franchising’s breakthrough year, as major retail brands start to consider it for the first time: “People will take notice as more mainstream brands start doing it.”

Third growth option

Brattesani and his colleagues see franchising as a third growth option for businesses, alongside organic expansion and acquisition. While it requires effort in training and supporting franchisees, it is capital-efficient and low-risk compared to establishing business branches.

A franchisee’s local knowledge also boosts the chance of success. “I still find it amazing how a franchisee in a corporate store can make more money and run it better than the corporate would,” Andy says. “It’s the emotional tie, the local effect.”

For franchisees, the model offers a more accessible way of starting a business, using a tried and tested concept. This is especially attractive to younger entrepreneurs: the British Franchise Association reports sharp rises in the number of under-30s taking up franchise opportunities.2

Changing model

Franchising continues to evolve. Some big players are now varying their strategies to make for greater flexibility of local franchise footprints.

Another trend sees corporates launching programmes to put owner-managership within reach of talented employees. “That can be transformational for younger people, who might have been working in a food outlet since they were 16 and don’t have the capital to meet the standard fees,” says Marc Talbot, HSBC’s Head of International Franchising Development.

The number of so-called ‘mumbos’ – multi-unit, multi-business operators – is rising too, as franchisees straddle different sectors.

“Once they’ve expanded as far as they can in a particular territory but still want to grow the business, it can be easier for a franchisee to add different sectors to their portfolio, rather than expand to new geographical areas,” Talbot explains.

Cross-sector growth

This was the approach taken by franchisee Kash Jaffar. Having joined the Budgens convenience store franchise in South-east England 15 years ago, he has since added Pizza Hut and Costa Coffee outlets to his portfolio. His latest venture is with workspace provider Regus.

Kash makes full use of his employees’ local expertise: “I have an operations manager for every brand, and local store managers have full freedom to run their shops and hire staff,” he says. “The stores all support each other too.”

In 2005, he secured funding from HSBC for a new-build Budgens store. He has been with the bank since, relishing the expertise of its franchising team: “They really cared about my business and have always been there with support – not just the finance.”

Kash finds HSBC’s Meet the Brands events especially valuable, filling a knowledge gap for franchisees. “They bring in big brands and give them an opportunity to present to people in the franchising community who want to expand,” he says.

“That’s how I picked up the Regus brand – now I’ve signed with them to open 10 centres in the next four years.”

Hopes and dreams

HSBC’s long record in the field – it has had a dedicated franchising team for 30 years – has equipped it with a deep expertise as the model has expanded, says Andy Brattesani.

“We’re now in the position where we know what works and what doesn’t. And we have an extensive network that allows us to introduce clients to brands and brands to clients,” he says.

The specialist team is now able to assure franchisors of a consistent banking service for each of their franchisees. The scale of the franchise network can unlock preferential terms.

Franchisees benefit from a central helpdesk, offering advice and liaison with local banking managers. Funding of up to 70% of start-up costs is available for franchisees joining an established network.

Brattesani relishes his team’s ability to get new enterprises up and running. “We signed 510 franchise deals last year – two new businesses for every working day,” he says. “This is the best job I’ve ever had, supporting people’s hopes and dreams.”

We’re now in the position where we know what works and what doesn’t. And we have an extensive network that allows us to introduce clients to brands and brands to clients.

Andy Brattesani | UK Head of Franchising, HSBC

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