Up to 40% of franchises seen closing due to COVID-19

The Philippine franchising sector is seen shrinking by 70,000 outlets to 130,000 by the end of 2020 from a peak of 200,000 stores at the end of 2019 due to the onslaught of the coronavirus.

By the end of the first quarter in 2021, the Philippine Franchising Association (PFA) expects that the number would further dwindle to 110,000 outlets, including those operated by franchisors and franchisees.

Samie Lim, chair emeritus of the PFA, said in a briefing the culling would be mainly due to “pseudo franchises” being purged.

“These are the businesses who present themselves as franchises but are actually not,” Lim said. “These are operators who have business plans that are about 10 pages, when a serious, legitimate franchise has 600 pages or so.”

Still, he said the pandemic does not spare legitimate franchises as these would also have to shut down outlets as demand for products and services plunge and costs weigh down on businesses as community quarantine restrictions hamper operations.

“In my estimate, 30 percent to 40 percent of franchises will close due to COVID-19,” Lim said.

Data from the PFA showed that, before the pandemic, the franchising industry was contributing 7.8 percent of the Philippines’ gross domestic product. Of such contributions to the economy, food business accounted for four-fifths or P538 billion.

Citing results of a survey conducted by PCW Philippines when the country was placed under enhanced community quarantine, PFA chair Richard Sanz said 38 percent of franchises had to let go of 60 percent of their employees.

Back then, “the forecast for when the ECQ has been lifted was that 70 percent of franchises would need P1 million to P20 million to normalize their operations,” Sanz said.