New research highlights the impact of high inflation and interest rates on SMEs
New research by Geek Retreat, the geek culture retailer, gaming café, community hub and events venue, with owners of businesses set up in the last ten years, reveals that more than half (55%) have had to increase prices for customers in the past two years due to inflation, compared to 37% who said that this hasn’t been the case.
Higher interest rates have also affected businesses, with 36% saying they had adversely impacted the profitability of their business, and more than a third (34%) of these saying they had seen profitability decline by between 20% and 40%.
Of those that have had to pass the impact of inflation on to customers, 39% said rises have been between 10% and 20% over the past two years, 16% said rises have been between 20% and 30% and a further 12% said they had been between 30% and 40%. One fifth said that they have managed to keep price rises to under 10%.
The research highlights the challenging headwinds many UK businesses have been facing over the past two years. More than three quarters (76%) said that the cost of running the business in terms of overheads such as rent, salaries, utility bills, has increased over the past two years, with 44% seeing significant increases of between 10% and 30%.
Suppliers are also not immune from inflationary and interest rate pressures. Three fifths (59%) of business owners said that they have seen suppliers’ costs increase over the past two years, with 56% saying they had gone up by between 10% and 30%. However, only 48% said they had reviewed their suppliers in the past 12 months to reduce costs, with over half (52%) of proprietors saying they had not yet done so.
Peter Dobson, CEO of Geek Retreat, commented: “Our research really does bring home just how tough the economic environment has been for all businesses in the UK as they have faced the challenges of rising inflation and interest rates, which have put enormous pressure on profits.
“At Geek Retreat, we have managed costs very carefully over the past two years as we are mindful that many of our customers have struggled with the cost-of-living crisis. Our franchise models means that all of our stores benefit from our enhanced purchasing powers. We have fostered strong relationships with utility brokers, suppliers, distributors and publishers to ensure that we are protecting or improving prices for customers, whilst improving margin and terms for our franchisees. We have also invested in technology, recently launching the Geek Retreat App which offers our customers 20% cash back on all purchases.”
The Geek Retreat franchise, which opened its first store in Glasgow in 2013, now has 36 stores compared to ten at the end of 2019, reflecting its huge popularity on the high street because it offers local communities and individuals a safe and inclusive place to enjoy their hobbies and interests.
Benefits of joining a franchise
Reduced risk – nothing in life is risk-free but joining a franchise is a safer and more reliable way of starting your own business than setting up from scratch. One fifth of new businesses in the UK do not make it past the first year and 60% of new businesses fail within the first 3 years. Only 33% of small businesses reach the 10-year mark. According to the British Franchise Association, the rate of failure for franchisors has stayed between 8-12% for over 22 years.
Reduced costs – the initial investment required for joining a franchise is often a lot less than starting from scratch and franchisees can tap into an established brand and systems and processes – saving time and money.
An established brand and customer base – with a franchise, customers will already know about the brand, although there will still be a need to promote the business in its new territory. There is also the opportunity to tap into national marketing campaigns and enjoy access to large scale coverage, such as TV adverts, that would be prohibitively expensive to pay for on your own.
Product innovation and R&D – established franchise brands have the manpower and capital to constantly research and develop new products and services to adapt to changing consumer trends. They are more likely to invest in entirely new products and services to help to keep their business one step ahead of the competition.
Purchasing power – whether it is new merchandise or supplies for the café, franchisees benefit from the enhanced purchasing power of the bigger group. As the cost-of-living crisis bites and suppliers are asking more for their goods and services, every penny counts.
Support – many people aspire to run their own business and franchising makes this a reality. Franchisees have all the benefits of being their own boss but are also part of a larger network of like-minded individuals and industry experts who can help solve problems, share ideas and best practice. This makes maximising the earning potential of a new franchise much quicker.
