Franchisors recognise the rise of the ‘international’ market as the world is getting smaller and the need for products and services is getting larger. Rod Young assesses the emerging global franchise trends and the significant opportunities they create
Over time, experienced franchisors have learned that a focus on establishing profitable businesses that create greater value at the customer end is critical to building long-term enterprise value for a franchise network.
However, the trend for well-run franchisors to recruit, screen and select better quality franchisees—and those better quality franchisees gravitating towards well-managed franchises—will drive the growth of substantial franchised networks on a global scale.
Heavily populated emerging economies in Asia, Eastern Europe and South America are starting to create a substantial consumer class fuelled by manufacturing and service jobs being exported from Western markets.
Established economies have allowed Western consumers the luxury of indulgence and there is no end in sight for the growing foodservice categories that are now starting to populate the business environment in emerging markets. Franchised food businesses will continue to offer up more and more niche products, and the services that go with them.
Man-in-a-van franchises, such as PoolWerx, Molly Maid and Mr. Handyman, educated the time-poor consumer about the use of domestic services in the home. This frees us up to consume franchised personal services in the form of weight-loss services, day spas, hairdressing services, hair removal and hair restoration treatments, beauty treatments ranging from pedicures to facials, dating services and medical procedures including IVF services, cosmetic surgery and laser vision correction.
Demand for services are not only focused on ourselves, but will expand into the growing markets of childcare and child development. As we wish more for the fewer children that singles and couples are having, we will be spending more on our offspring in all forms of child development and education.
As baby boomers and their parents get older, the development of franchised in-home carers, and other hospital-in-the-home concepts will not only reinforce the opportunities for the cleaning, and other home maintenance, brands of today but create a raft of more tailored healthcare services designed to allow us to live independently well into our final years.
{mospagebreak}
Financial services are undergoing a revolution, and franchising will provide a personal link between the huge financial service organisations and the service expectations of the emerging new rich and the established, well-heeled consumer. In the future, franchised mortgage broking networks will write over half of the world’s mortgage business and more banks will have franchised branches and wealth managers to maintain and expand their networks and build better and deeper customer relationships.
As competition intensifies in each market segment, the top players will seek to establish market dominance by acquisition of competitors and customers to push growth past that which is provided by organic development. The competition for acquisitions will not just come from competitors. There are three other emerging trends that are driving franchise network growth.
One trend is emerging from downstream suppliers seeking to secure distribution and the more attractive margins and brand value as a product or service gets closer to the consumer. An attractive feature of a franchise network is that a franchisor can also be a supplier to the franchisee, creating a tied distribution network.
The second trend is the private equity and venture capital groups, who understand the value of branded networks. As more of this capital looks for a home, these groups will facilitate or participate in acquisitions and mergers of franchised networks, which will help to drive consolidation in the franchising marketplace.
The third trend is being driven by financial markets, which are thirsty for new IPOs. The private equity and venture capital groups will look to create liquidity in the assets they have secured and the Wall Street’s of the world will continue to look for small cap floats among franchise brands that have eight-figure earnings and prospects for substantial growth on a national and international basis.
{mospagebreak}
Many franchise systems have pioneered internationalisation of their brand and demonstrated that master franchising can help a company grow on a global scale. International franchising will become a bigger part of the revenue stream of more successful franchise systems with emerging markets like China and India creating opportunities for world domination alongside the European, Middle East, and North and South American markets.
Over the next five years, the franchise sector will grow at an annualised rate of at least 10 percent per year. There will be a massive increase in the number of franchised owner operators, many of them being multi-unit owners, regional or master franchisees.
Networks and brands will become more valuable as the number of franchised networks grows more slowly than the number of franchisees in those networks.
The executive with specialist franchising know-how on his or her resume will be sought after as bigger businesses and public companies include business format franchising in their business models. Franchising is healthy and the prospects for continued global growth look good.
* Rod Young is executive director of strategy, franchising and international consulting group DC Strategy. He can be contacted by email on rod.young@dcstrategy.com
* The opinions expressed in this article are those of the author, and don’t necessarily reflect the opinions of DYNAMICBUSINESS.com or the publishers.
