Franchising in Scotland

Andrew Fraser

Blog by Andrew Fraser

New figures from the Natwest British Franchise Associate Survey 2012, show that franchising is now a major factor in business growth in Scotland and the rest of the UK and these numbers are set to keep on growing.

Franchising might be something that isn’t always immediately associated with helping your business grow, in fact when you hear the word ‘Franchise’ what do you think of? The latest Batman movie, an American sports team, McDonalds?

The term ‘franchising’ has been used to describe many different forms of business relationship. However, the form we are most concerned with, is what is called ‘business format franchising’ (If you answered McDonalds to the question above, you are thinking along the right lines!)

Put simply, ‘Business Format Franchising’ is the granting of a license by one person (the franchisor) to another (the franchisee), which entitles that franchisee to run their own business following the processes, procedures and training set out by the Franchisor.

The Franchisor allows the franchisee to trade under the name of the franchisor and gives them a complete package containing all that the franchisee needs to run their business. In short, franchising let’s you set up and own a business simply by paying money for the right to do so.

It is an increasingly popular activity in Scotland and the UK more generally; here are some quick facts from the aforementioned NatWest British Franchise Association Survey 2012:

  • It contributes an estimated £800 million to the Scottish economy per year (and £13.4 billion to the UK economy as a whole).
  • There are over 500 franchise systems in operation in Scotland (929 in the UK altogether).
  • There are more than 2,000 individual franchise units in Scotland (40,100 franchise units in the UK).
  • There are an estimated 36,000 people employed in franchising in Scotland (594,000 in the UK)
  • 91% of franchisees claim to be profitable even during this time of economic uncertainty.
  • Relationships between franchisees and franchisors are healthy, with 90% reporting satisfaction in their dealings.
  • 4 in 5 franchises (81%) believe they have a competitive advantage (over other small businesses) as a result of running a franchised business.

All of this has grown from an industry that 20 years ago had a turnover of just over £5 billion, had 379 different brands and represented 18,300 franchisee outlets.

The importance of franchising is also being acknowledged by Scotland’s politicians, with David Kaye and Andy Fraser of Harper Macleod’s Franchising team recently invited to a dinner with MSPs at the Scottish Parliament to discuss the future of franchising in Scotland.

The MSPs, from the three major political parties, pledged to hold a parliamentary reception later this year after learning of the compelling advantages inherent in the franchising model, of the significant contribution franchising makes to the Scottish economy.

They were eager to hear more about the industry’s long-term sustainability, resilience and robustness throughout the economic downturn.

The focus of the briefing will be to increase the education and understanding of the strengths of franchising within both parliament and the business world, at a time when politicians from all parties are looking for ways to help the economy grow.

Brian Smart, director general of the British Franchise Association, said: “Franchising is a key component of the Scottish economy and I am hugely encouraged by the levels of appreciation, enthusiasm and commitment being shown towards the industry. If we can promote ethical franchising and educate people about its merits, together with the help of MSPs and Scottish business leaders, then the industry in Scotland will be well-placed to go from strength to strength.”