Franchises facing tough times

Franchises have been known as a low-risk business but in Thailand, the failure rate is exceptionally high. One in every four franchises do not make it, said International Retails and Franchise Business R&D Centre (IRF) director Peerapong Kitiveshpokawat.

Peerapong said the average failure rate of franchise businesses in Thailand was 26 per cent, compared to less than 3 per cent in the United States. The problem stems from a lack of real understanding of the business and also from operators who set up franchises as a means to cheat small investors, he said.

According to an IRF survey, the revenues of Thai franchise businesses last year totalled Bt72 billion, down from Bt84 billion in 2006. Peerapong said it was the first time since 2000 that the industry has seen a drop in business. The number of franchisers also fell by 50 to 406 companies, he said.

Peerapong said a total of 456 survey questionnaires were sent to chief executives of franchise companies, of which 112 returned them, so the results represent the industry - although big franchise companies, including Yum Restaurants and McDonald's, declined to provide sales figures or take part in the survey.

The uncertain political situation was a cause for the drop in business last year, but this year, investments have begun to pick up. Business is expected to grow 12 per cent this year, still lower than the historical annual growth rate of more than 20 per cent, he said.

The food industry saw one of the sharpest drops, with sales decreasing 15 to 17 per cent. Beauty-related businesses performed well, except spas whose 12-per-cent sales drop reflected an oversupply situation, he said.

"This is worrisome, considering the franchise is a business opportunity for the general people and a foundation of small businesses," he said.

The IRF, which is part of Sripatum University, decided to set up a hotline centre to gather information and help with the problems of franchise operators. The centre will coordinate with related agencies to help solve problems for franchise operators, sort out conflicts between partners and develop a knowledge base for the franchise industry through a franchise club. It will also publish the names of cheating franchise operators on its website.

In conjunction with the International Institute for Franchise Education and the Nova Southeastern University in the US, the IRF is launching Thailand's first mini- MBA programme in franchise

management.

Peerapong said franchises accounted for 2 per cent of Thai gross domestic product and 10.9 per cent of the retail sector, a small portion compared to nations such as Japan, where they account for 38 per cent of the retail sector.

      At a glance

n Franchise revenues fell from Bt84 billion in 2006 to Bt72

billion last year.

n Food franchises saw sales fall 15 to 17 per cent

n Beauty-related businesses did well, although spas saw sales fall  12 per cent.