Expert Office Advice

Quite often you hear news stories which divulge details about the latest new company to hit our shores, but why in our current economic climate are overseas companies opening branches in the UK? This is indeed a very good question, because as we know, the pound is incredibly strong against almost every other major currency, so moving, setting up and staffing a UK venture can be very costly for the overseas investors. Yet still they come.

Taking a quick walk down any high street in a major city will help to explain. Using London as my example, a gentle stroll on a Saturday afternoon will yield a popular coffee shop on almost every corner; yes you guessed it - Starbucks. Starbucks hit our shores 9 years ago with its first shop in Kings Road, Chelsea, and in that time have grown from strength to strength, popularised by international television and sitcoms, the English people are no longer satisfied in the café anymore, instead we want elegance, we want choice and more importantly we want it now. Furnished better than many homes, it’s a place to meet, share and enjoy while taking in the atmosphere and of course, get a cup of gourmet coffee.

So why are they intent on domination? Simply put, they have an extreme business model which takes the high investment from an overseas perspective and almost guarantees profits in excess of its investment over 5 years. Many other franchise chains have the same business model, Costa Coffee, Subway, McDonalds, Burger King, KFC, Baskin Robbins, you name it they all have the same business plan. The truth about why they work however isn’t so clear. Unusually the British population have gone from a ‘work hard and earn it’ psyche to a ‘I want it now at any cost’ approach, which is fuelling the fast food boom.

To give you an idea how much investment will go into overseas business into specifically the fast food market we’ll take a brief look at our well known friends Starbucks. They have recently been quoted as taking over London with their plans of opening a new store every fortnight for the next ten years! When asked about it’s relentless expansion plans a spokesperson went on to explain that they cannot foresee a limit to the amount of branches already stretching the wallets and the minds in the capital.

“We don’t think we’ve reached saturation point and we certainly don’t see London as finished yet.” Says Phil Broad, the company’s managing director for Britain and Ireland.

Of course Starbucks isn’t just limited to London, currently they have 530 branches throughout the UK, but for overseas investors London looks like the place to be with a staggering 256 of the 530 within the M25 motorway. They must be doing something which we as a nation like, their 2005 sales figures came in at £244 million which was up by 20 percent on 2004. But what about independent, British business, where do they fit in? Well despite what appears to be a national takeover, Mr. Broad, aged 44, insists “There is space for us and independents in the same high streets, we are not in the business of coming in and driving up rents.”

He further goes on to say that 20 percent of all independent coffee shops in the UK have been started within 12 months, and even with Starbucks dominating the market were still able to become established. Mr. Broad continues, “For ‘the foreseeable future’ 50 Starbucks branches will open each year, of which typically 20 to 25 will be in the South-East. When we opened in Lamb’s Conduit Street initially there was opposition, but we are now an accepted part of the community. We are often open when other coffee shops aren’t.”

The company receives many approaches from communities asking them to open locally, and rejected claims that the Seattle-based multinational ruins neighbourhoods. In poorer areas, the opening of a Starbucks often acts as a “vote of confidence” encouraging other businesses to follow suit, of course the basis of this statement is being debated.

The policy director over at Think tank, Andrew Simms said: “Starbucks on-the-ground techniques push the cloning of the high street and lead to the closure of genuinely local coffee shops” but with big brand coffee shops set to hit an enviable £1.4 billion by the end of next year their plans surely won’t be stopped by something so trivial. Last year alone saw the opening of over 100 Costa Coffee shops and 45 Café Nero branches, business in a cup is booming with no sure way to measure its advantages or disadvantages, but one thing is measurable and that’s the success of the franchises. Fast food magnate Ray Crock, owner of McDonalds, has known the power of franchises for over 20 years. When McDonalds opened its doors on the first UK restaurant in Woolwich, 1974, the restaurants were solely owned by the company. In the mid 1980’s however they started recruiting franchisees, with the first franchised restaurant opening its doors in 1986. Today over 37% of their empire is managed by franchisees, with the average franchise agreement term of 20 years. Something not to be taken lightly, especially since to get part of the McDonalds pie you have to provide a minimum of £150,000 with £30,000 franchise fee and a further £5,000 training fee. It’s true, McDonalds can see the power of the franchise, more product and no outlay, so is this the way for overseas business to successfully open a UK branch and start digging little nuggets of profit?

According to almost all of the companies with UK branches it is, Costa Coffee wouldn’t argue either with its army of over 500 branches nationwide. In fact Costa Coffee costs a mind blowing £750,000 to start a franchise in the UK so a firm belief in the product is a must if they want to get the cost of 5 average houses in Birmingham off you. This is undoubtedly the way forward for many overseas companies to breach the UK bloated marketplace, with little up front costs and a franchisee paying the cost of outlets, staff and product all there is left is advertising and shipping, or the easiest of options of having the product made here.

When you put the whole picture together though, the cost of overseas business intruding on the high street isn’t a bad one, in fact they are providing jobs, and in more cases than not, they are also helping to regenerate the buildings and surrounding areas that they occupy. The downside is that true British shops are becoming a thing of the past, like the proverbial dinosaur, they have had their day. What the British public should be thinking about now is that if a business can come here and be successful maybe we can go overseas and promote truly British products and values. After all what goes around comes around and it won’t be long before the Brit culture strikes back and dominates Manhattan, cream teas on Sunset strip, or maybe fish and chips in Central park. It could happen.