How will Brexit impact the UK franchise industry?

We reached out to franchisors, industry experts and figureheads to see what impact it's had on their businesses, and what they have planned

Whether it’s voting against a no-deal proposal or requesting a short extension for a new exit date, the topsy-turvy nature of the Brexit political negotiations not only has the British public slightly befuddled at times, but has many business leaders and industries scrambling for concrete answers, too.

In order to gain a grasp on the franchise industry’s feelings surrounding the current Brexit situation, What Franchise reached out to franchisors, industry experts and figureheads to see what impact – positive or negative – it’s had on their businesses, and what they have planned:

Richard Beese, franchise co-owner of Flip Out

Franchising in the UK is very diverse, more so than many other countries. Overall, we are feeling upbeat about Brexit and our UK expansion plans.

So far, the effect of Brexit on our business has been minimal. However, it has created some uncertainty in the customer’s mind. For us, at franchisor level, we have concerns about the possible rising costs of goods being imported.

Post-Brexit, we believe there will be a period between 12 to 18 months where customers will spend cautiously, travel less to Europe, and in general be concerned for their future. Our solution is to offer great value and an immersive customer experience against the whole of the leisure hospitality sector, a strategy we believe will keep us at the top of our game.

Robin Auld, marketing director of Franchise Brands

In these times of economic uncertainty, it is only natural for people to worry about whether their job will be secure, but here at Franchise Brands, we have seen many of those who’ve gone through redundancy and turn this unfortunate event into a positive opportunity.

Many of our franchisees have joined because they simply don’t like putting their fate in other people’s hands. They want to be in control and create their own futures that are secure. Franchising is a great way to do this.

All of our franchises offer a cost-effective service and so don’t tend to be overly affected by the cyclical nature of the economy, which is great news, especially with all the current Brexit uncertainty looming.

Dr Hannah MacKechnie, co-founder & franchisor of Radfield Home Care

Radfield Home Care launched in the midst of the recession in 2008, and we successfully grew throughout that time – despite being a new business. As a result, the economic uncertainty that Brexit presents is nothing new to us, nor is it something we foresee presenting a huge challenge.

Healthcare is an essential service that people require regardless of the economic environment: unlike eating out, going on holiday, or moving house. As a result, we anticipate experiencing growth in the aftermath of Brexit; just like we did in 2008. There is potential for more employees to enter the marketplace as other sectors struggle and make cuts; the government may slow its healthcare spend, meaning more people turn to the private care sector that Radfield specialises in, and we are experiencing one of the fasting growing ageing populations ever, which is already increasing the demand for private at-home care service – this won’t go away just because of Brexit!

Due to the nature of franchising and the relative safety it provides franchise partners due to proven business models and additional support systems, I think people will be more inclined to invest in a franchise than start up on their own after Brexit. However, it will still be very industry-specific and prospective franchise partners will need to focus on the core business services of different franchises, reviewing how well they will continue to grow and whether or not clients and customers will still be willing to spend if finances are squeezed.

Henry Ziff, managing director of Transwold Business Advisors of London

Brexit has increased the number of opportunities for investment into the UK from external buyers. Investors are discovering it is cheaper to invest into the UK from countries such as the US, because of changes in the exchange rate. Most people focus on the large corporations, but when you consider SMEs make up over 99 per cent of the UK’s economy, seeing more small businesses choosing to invest here is a positive sign. And is a great platform for our franchisees.

Pauline Cowie, partner at UK law firm TLT

The responses to Brexit have varied among franchisors. Their approach has been informed by the type of business carried on, the complexity of their supply chain and the extent to which the franchisor has granted franchises outside of the UK. As an example, we have seen retailers setting up distribution hubs in Europe to hedge against supply and tariff issues, and clients have also been taking advice in connection with intellectual property rights – particularly European trade marks and .eu domain name registrations.

Brexit does introduce additional risks for some franchisors, particularly in a no-deal scenario if payments and receipts for goods and services are made in euros. Franchisors will also be affected if goods are imported and there are delays due to customs checks, as well as new tariffs. Cross-Europe data flows including through centralised reservation systems could also require new procedures and contractual provisions if the UK does not benefit from EU adequacy rules. Franchisors with European franchisees could face enforceability issues with contracts.

The legal and regulatory environment will change for some depending on their sector. Franchisors will need to ensure that they have carried out appropriate risk assessments to build resilience where necessary. However, from what we have seen so far, we don’t see any adverse impacts specific to UK franchising.

Simon Bartholomew QFP, franchise director of OSCAR Pet Foods

The uncertainty around what is happening has certainly dented consumer confidence. While our trading remains strong it is very obvious that consumers are unwilling to make even small decisions to alter their buying habits. On one hand this helps with customer retention but does make the process for franchisees to gain new customers much slower. In terms of franchise recruitment we are finding a lot of interest in our business and potential franchisees move through the system well but the final decision is taking longer, or in some cases is being delayed till there is more certainty in the markets. This seems to be overcautious as Brexit should have very little effect on a UK-based and UK-trading franchise business.

I believe the franchise industry has a strong future whether we get a deal, no-deal or even remain. Certainly some industries will be affected more than others, but on the whole we have strong business models and the market will respond positively to the end of all the uncertainty. Logically, all those people looking to start their own business but delaying decisions until the future is more certain will start to move forward again once Brexit Day has happened and certainty returns.

The biggest risk to our industry is what happens to the currency markets after Brexit Day and this very much depends on what the final route is. If sterling falls then that can make life more difficult for all of us, especially with procuring raw materials as even where we source in the UK most commodities are priced in US$. However, on a positive note, a weaker pound will make the UK an attractive investment for more international brands looking to expand their franchise to the UK or to invest in a franchise.

Steve Witt, co-founder of Not Just Travel and The Travel Franchise

So far in March, (the month when you would expect to see the biggest impact of Brexit,) 12 people have already invested in a travel franchise. Our franchisees are seeing record holiday sales with more and more consumers booking to travel outside of Europe, with Florida, New York, Vegas, and Abu Dhabi being our top-selling destinations.

January saw the biggest start to any year we have seen so far. Our training sessions (which run every three weeks,) are always full, and our next Millionaire’s Retreat in Portugal has a record number of new franchisees heading off to the sun to learn how to grow and expand their businesses. If Brexit is having an impact, you would expect the travel industry to be one of the most affected, but the reality is that travel sales (for us) are stronger than ever, as are franchise sales.

Shaun Thomson, CEO & master franchisor of Sandler Training (UK)

We believe that, for existing franchises in the UK, those that have a flexible business model will be able to adapt and change. Overall the franchise market actually has huge scope for growth. Many businesses across the UK are propagating a very negative culture throughout their organisations because of Brexit – employees are feeling demotivated and nervous about their job stability, which is prompting them to want to take charge of their own career destiny. Franchising is a very attractive option as they can take that leap with proven business models.

Taking advantage of Brexit is much like how to behave in a recession. For those franchises that export, this may a chance to grow, but depending on where the currency stabilises that may change. One thing is clear, franchises must market themselves as companies that can survive and thrive in the down-term.

Ultimately, having a range of products that can be flexible in a changing economy is key. Franchises should also think about how they can use Brexit to raise awareness of their own brand, such as helping local communities with challenges, and giving guidance and reassurance to local businesses and prospective customers about what Brexit means for them.

Jon White, UK managing director of InXpress

Brexit uncertainty creates many challenges which are standing in the way of those who are actively looking to create a strategic plan to moving forward, in the short, medium and long-term. People still have many unanswered questions at this point, so anyone looking to start their own business, or invest in a franchise, aren’t considering it a viable option at the moment.

For sure, there is a risk. But if you look at some of the exciting statistics relating to franchising in the UK, you may just reconsider, and realise a decision on self-employment is a very lucrative one.

In the UK there are over 44,000 franchise businesses employing some 600,000 people. There are over 900 franchise concepts available in the UK, covering every conceivable industry and service. Franchising is no longer about small businesses – over 50 per cent of franchise businesses turnover more than £250,000 a year.

Franchising generates over £15bn to the UK economy. It is not a small industry. Talking of risk, over 90 per cent of franchisees – supported by their franchisor – are profitable in their first two years, compared to a high failure rate amongst those starting their own business independently.

At the end of the day, where InXpress, our franchisees and customers are concerned, it doesn’t really matter what the final negotiations of a Brexit deal are. Our management franchise opportunities are still valued by the demand that there is always a need for shipping goods from A to B but not just in the EU – international demand is huge for both exports and imports.