This, the 1999 Franchising in Ireland survey, documents
McGarry Consultings 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:
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.
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.
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 franchises products/services.
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
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
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
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 OBriens 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
- 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 franchisees 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
- 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.