FRANCHISING IN IRELAND

Introduction

This, the 1999 Franchising in Ireland survey, documents McGarry Consulting’s sixth research study among franchisors and franchisees of franchise systems operating in Ireland. As has been the case since the first study in 1988, this survey is sponsored by Bank of Ireland.

The principle audience for this publication on the survey results is those already involved in franchising. The survey incorporates the findings of the most recent research carried out by the company among Irish franchisors and franchisees and thus holds a mirror up to franchising in Ireland. The report should also be of interest to those who have an academic need for information on franchising in Ireland. In the past, franchising has been a much neglected element of business-related study. This is a situation that has changed in the past few years, with many national franchise associations and interested parties sponsoring research into franchising. McGarry Consulting is delighted to add this latest survey to the growing world-wide pool of information on franchising.

The report is divided into the following sections:

Section One
The economic impact of franchising on the Irish economy is evaluated. The report reviews the contribution of franchising in terms of numbers of systems and units, turnover of the industry and numbers employed.

Section Two
The cost of establishing a franchise in Ireland is examined. This includes a review of all costs from start-up costs such as franchising fees to ongoing running costs such as working capital requirements.

Section Three
The results of the consumer survey are examined. This provides an overview of the end consumers’ awareness of the top franchise systems in Ireland, their knowledge of the products/services sold and how often the consumers avail of each franchise’s products/services.

Section Four
Section four contains useful contact lists and various statistical appendices outlined in the foreword.

Key Survey Findings

The following are the key findings from the 1999 survey.

Franchise Systems in Ireland

• The economic impact of franchise systems in Ireland is increasingly significant
  The turnover of franchise systems operating in Ireland is estimated at £450 million for the year 1998. This represents an increase of over 20% per annum which few industries in Ireland can match. Its turnover is now similar in size to either that of the frequently commentated on Irish-owned software industry or the rapidly growing furniture manufacturing industry.
  
  The industry directly provides employment for an estimated 6,000 full-time workers and a further 7,200 part-time workers. This amounts to 9,600 full-time equivalent workers, a 30% increase over the past two years. In employment terms the industry is now larger than many traditional sectors such as the Irish-owned clothing manufacturing sector, and double that of the Irish-owned chemicals sector.
  
  The franchise industry is now a very significant contributor to job creation. It also facilitates greater workforce participation, particularly among women because of its policy of flexible working hours. Again, the latter policy enables many more people to participate in further education.

• Number of franchise systems operating in Ireland continues to grow
  Franchising continues to grow rapidly in Ireland. Currently some 140 franchise systems have a presence in Ireland. The growth since the 1997 survey represents some real growth in the number of franchise systems and a better survey response. The number has more than doubled in ten years. Very few franchises failed in the past few years. Most failures were small operations.

• Short-term outlook is highly positive
  The major players have aggressive expansion plans for the next two years. Turnover is forecast to increase by over 30% to some £600m. Employment is forecast to increase to over 12,800 full time equivalents. Some 60% of current economic activity in the franchise industry is accounted for by food related outlets and this again is where the main growth is.

• Systems originating in the UK dominant in Irish franchising
  As expected in such a short timeframe there is no change in the origin of franchise systems. Some 50% originate in the UK with 27% of systems in Ireland originating in the USA. While indigenous Irish systems account for 12% of franchise systems their economic impact is greater as they are concentrated in the food sector.

• Home-grown franchise systems show growth
  The performance of indigenous systems continues to impress. Irish franchisors, such as O’Brien’s Irish Sandwich Bars, Abrakebabra and Supermacs, have grown significantly, O'Brien's in particular, and are leading the way with expansion plans in place for the UK and the USA. This in turn will lead to the creation of head office jobs in Ireland.

• Dublin – still the preferred choice but changes coming
  Both Dublin and Northern Ireland have representation from over 70% of the 140 franchise systems. Based on the development plans of the major players the food related franchises have highly ambitious plans for expansion in areas particularly outside Dublin.

The Franchisor in Ireland

• Reasons for franchising
  Franchising is chosen as a means of expanding a business for two reasons in particular. It involves low capital investment by the franchisor as the capital used to expand the network comes from franchisees, and the franchisor places the expansion of his/her business in the hands of owner-managers who are motivated to make the business successful.

• Sourcing franchisees
  Not all franchise systems operating in Ireland are actively looking for franchisees. A number of systems do not, for a variety of reasons, provide franchise opportunities for potential franchisees. Of those actively looking for franchisees, over 60% use advertising in local and national press, trade magazines and franchise magazines as their primary recruitment method. Franchise exhibitions are also a popular method of attracting enquiries from the public.
  
  Ireland now has one of the top international Web sites in Franchise Direct (www.franchisedirect.com).

• The operating manual
  Over 80% of franchisors provide franchisees with an operating manual for conducting the franchise business. All the major operational issues such as customer service, advertising and promotion, and equipment are covered in the manual.

• Piloting the operation
  Less than one third of franchisors operated a pilot franchise unit in Ireland before offering franchises here. In most cases, a pilot operation was not considered necessary as the system was already well established elsewhere. The perceived similarity of the Irish market to the UK could be the explanation for the low level of piloting here.

• Choosing the franchisee
  While franchisors place different emphases on the variety of factors deemed important when selecting franchisees, among those most mentioned by franchisors are the franchisee’s financial status, their commitment to the business venture, previous experience in the franchise business area or the skills they can apply to the new business from their previous employment.

The Franchisee in Ireland

• Men still predominant among franchisees
  More than 80% of franchisees are male but many franchise businesses are, in reality, family enterprises.

• Franchisees’ employment prior to franchising
  A quarter of franchisees responding to the survey were self-employed prior to buying their franchise. Another quarter were employed in a large private company, with a further 19% employed by a small private company. While some 15% were unemployed immediately prior to operating the franchise most had recent employment.

• Age profile of Irish franchisees
  The industry also continues to be managed predominantly by young business people, with the vast majority (84%) of franchisees being under 50 years of age.

• Education levels among Irish franchisees
  The franchisee in Ireland is well educated, with 30% of franchisees holding at least a Leaving Certificate and a further 40% holding higher education qualifications.

• Previous business experience of Irish franchisees
  Over 20% percent of franchisees ran or owned their own business before starting in franchising.

The Cost of Franchising in Ireland

The cost of buying into and establishing a franchise unit varies widely, depending on the franchise business, the market it serves and the size of the unit . Because of the buoyancy of the food sector, those looking for a franchise opportunity are more likely to find it in this sector with an initial investment of c £100,000 upwards.

• Total investment cost
  The average total initial investment in a franchise, excluding franchisee fees and initial working capital, is estimated at almost £70,000. The actual total investment cost among franchise systems operating in Ireland ranges from £15,000 for a 'job' type franchise to £900,000 for a significant food outlet.

• Initial working capital requirement
  To commence trading, each franchise system specifies the amount of working capital that the franchisee needs. This can vary from a low of £5,000, again for a 'job' type franchise, to a high of £150,000. The average requirement is £20,000.

• Franchise fees
  The initial franchise fee can vary from zero to a high of £37,000. The average initial franchise fee is estimated at just over £11,000.

• Continuing fees - MSF
  In addition to the initial fee, the franchisee will usually pay continuing fees to the franchisor. The average management services fee paid by Irish franchisees is 6.5% of gross turnover.

• Continuing fees – advertising levy
  In addition to the MSF, the franchisee may be required to pay an advertising or a marketing levy to the franchisor. Nineteen percent of franchisors collect such a fee from their Irish franchisees. In these cases, the average fee paid by Irish franchisees is 3%.

The Consumer Survey

• Franchise recognition among consumers is high
  Overall recognition of franchise systems in Ireland and the products or services they sell is quite high. The average recognition of franchise brands is 54%.

• Irish franchise recognition among consumers is high
  Five of the most recognised franchise systems in Ireland are indigenous Irish franchise systems. Eddie Rockets has joined Bewleys, Abrakebabra, Golden Discs and Supermacs in the top ten most recognised brands.

• Strong link between recognition and purchase
  There is a strong link between consumer recognition of franchise brands and actual purchase. Eight of the eleven most recognised franchise brands are among the top ten most used brands where O'Brien's Irish Sandwich Bars also features.