Business & Economy

Franchising growing 30% in 2014 but players cautioned on sustainability

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The number of franchisees in the country is expected to grow 30 percent next year from 20 percent this year with a “tsunami” of foreign companies swarming the local market even as local franchise leaders cautioned both foreign and local firms to be careful to ensure their sustainability.

 

Samie Lim, chairman emeritus of the Philippine Franchising Association (PFA), told reporters at the APEC workshop in International Franchsing for SMEs said there are an estimated 1,300 franchisors. These translate to a total of 125,000 local franchisees employing 1.5 million Filipinos.

Lim, who is known as the father of Philippine franchising, said there are already about 500 international brands in the country and an estimated 30 new foreign franchise concepts are opening in the market this year alone. An estimated 50 foreign franchises are also participating in the upcoming three-day Franchise Asia 2013, which will open this Wednesday at the SMX Convention Center.

The latest study by the University of Asia and the Pacific showed that of the total retail sales of $36 billion in the Philippines in 2011, the franchising sector accounts for $13 billion or 30 percent of total.

Based on the PFA data, there are now more Filipino brands that are franchising their businesses accounting for 64 percent of the estimated 1,300 franchisors in the country today. The foreign franchisors have been limited to 36 percent from 70 percent a couple of years back.

Faster growth in franchising is also expected especially in the countryside because of the development of more malls in the regions providing new venue for new concepts.

Lim, however, cautioned foreign franchisors who are trying to short cut the processes are doomed to fail.

“Their potential of success is not very good. I dare say half of them are going to close down in one and a half years,” he said as he advised these foreign companies to pass through the proper entities like the PFA to ensure they are guided properly.

“They have high rate of failure because they don’t know the market and there is a strong chance of them getting the wrong local partner, which are very critical to have successful franchise operations,” he said.

Lim noted that there were 550 restaurant franchise concepts that entered Singapore last year but 70 percent of them already closed down.

“These restaurant concepts perhaps think that they are going to make it in Singapore only to fail because Singapore has a small market and insufficient labor supply,” he said.

Lim said that the private sector’s strong promotion and focus to promote the Philippines as a good franchising destination has put the country on the radar of foreign brands.

“One of the growth drivers is our aggressive promotions in the US and the EU that franchising in the Philippines is more fun,” he said.

Food concepts would remain to fuel franchising growth and to account for the bulk of new franchises followed by retail, Lim added.

But Lim also noted that the franchising services is also fast catching up because as the country becomes more progressive, demand for services will also improve.

“Besides, services is more profitable than food,” he said. There are 100 food stores as against 10 services. This makes competition in food very rigid as against a fewer number of services firms that cater to a growing demand.

Growth in the services franchising is also attributed to the growing tourism industry in the country. 

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