Franchisers take out a licence on a rosy future: All is not gloomy in one sector linked with the retail industry, writes Roger Trapp

SINCE it is closely associated with the retail sector, the franchising industry might be expected to be suffering at the moment. Overall turnover was estimated in the 1992 NatWest- BFA (British Franchising Association) survey at pounds 4.5bn, down 5.7 per cent on the previous year.

But in spite of difficult conditions, 77.5 per cent of those involved said they were trading profitably.

While consolidation is still rated a priority, the proportion of businesses that are profitable within two years' trading rose from 58 per cent to 73 per cent.

There is also widespread optimism - 79 per cent of franchisers forecast an improvement in their business within the next year. Even franchisees are hopeful for the longer term. In particular, 53 per cent said they intended to be operating in mainland Europe by 1997, compared to 15 per cent there at present.

The South-east remains the main focus of activity, accounting for 36 per cent of all franchise systems and 43 per cent of new ones. The rest of the industry, which amounts to 373 active franchise systems operating about 18,100 units, is spread evenly around the country.

This lends support to the view of Brian Smart, director of the British Franchise Association, that the industry plays 'a highly significant role, not just economically but also socially, in enabling people to realise their business, as well as personal, aspirations'.

Under the strict definition, business format franchising is limited to systems meeting various criteria - a trade mark, a method of trading and a licence to use them, with support, in return for a fee. But the definition is becoming blurred as brewers, petrol companies and car manufacturers move closer towards meeting the requirements - as has been the case in the United States.

As a result, although true business format franchising contributed 3.2 per cent of total UK retail sales of pounds 140bn in 1992, the broader definition increases the proportion to 29 per cent.

But, while observers see more signs of big companies using the concept as a means of expansion, Mr Smart and others view franchising as a way to provide 'opportunity and support' to entrepreneurs and small- business people.

(Photograph omitted)