The July 2016 Franchising Confidence Index by Franchize Consultants indicated a strong outlook for franchisee sales and profit.
Key Highlights – Franchisee Sales and Profit
- Responding Franchisors and Service Providers sentiment provides a more optimistic outlook specifically across franchisee sales levels and franchisee profitability.
- Franchisors sentiment toward general business conditions was slightly more sombre this quarter.
- Franchisors sentiment about franchisee profitability levels – arguably franchising’s most important key performance indicator, bounced back to levels similar to January, with sales levels showing a positive increase.
- Franchisor sentiment for franchisor growth prospects remained stable, however sentiment for access to financing decreasing sharply.
The Franchize Consultants’ July 2016 Franchising Confidence Index demonstrates a more optimistic outlook across several sector growth drivers.
- The latest results indicated a more sombre franchisor (net 26%) sentiment toward general business conditions. These results were higher than the latest results of other more general business surveys including the ANZ Business Outlook (net 20% in June) and NZIER (net 19% in July) business confidence surveys.
- Franchisors (net 46%) remained stable about prospects for franchisor growth. These results are in line with the net 45% in the previous quarter.
- Franchisors sentiment toward access to financing decreased markedly from a net 21% to net 0%. Service Providers reported a net 5%, down from net 37%.
- Franchisor sentiment toward access to suitable franchisees increased markedly this quarter, from a net negative 6% to a positive 11%. Service Providers, meanwhile, were less optimistic at a net 5%.
- Franchisor sentiment towards access to suitable locations was again positive increasing from net 3% to 6%. Service Providers dropped back to net 5%, after having experienced a spike at net 53% in the January survey.
- Franchisor sentiment towards future franchisee sales levels showed a very positive increase to a net 51%, up from net 39% in April. Service Providers featured a very positive increase from a net negative 21% to a positive net 30%.
- Franchisor confidence in franchisee operating costs remained negative dropping this quarter to a net negative 6%. Service Provider sentiment was reflected at a net 5%.
- Sentiment toward future franchisee profitability bounced back this quarter, to levels similar to January. Franchisors reported a net 40%, as did Service Providers a net 40%.
The outlook for franchisee sales and profit is particularly pleasing.
Summary & Implications
Franchize Consultants’ Franchising Confidence Index in July 2016 demonstrates a strong increase in confidence levels for many areas.
‘Franchisee sales and profit outlook is strong’
Franchisors are more positive in their outlook for, sales levels per franchisee, franchisee profitability levels and to a lesser degree franchisor growth prospects, with all showing upward trends. There was also positive outlook regarding availability of suitable franchisees and locations.
The outlook for general business conditions was still steady, albeit reducing slightly (i.e. from 33% to 26%).
Meanwhile, franchisors held a negative outlook toward operating costs per franchisee, along with the availability of suitable staff.
Franchisor and Service Provider comments confirm, overall, the level of sentiment recorded. Key challenges for 2016, identified in January, clearly remain – including finding franchisees, increasing investment or operating costs and access to finance.
This survey is notable for the commentary relating to property values and/or new lending rules, and the various impact either or both may have upon prospective franchisee sentiment and ability to raise capital. Combined with an environment where competitive intensity is high, margins are not expanding, good staff are hard to come by (a problem for expanding and static franchise systems) there is clearly a need for franchising companies (including franchisors and franchisees alike) to be structured and executing their business models to the highest possible standard.
For a copy of the full report visit: www.franchisingconfidence.co.nz
Franchising Confidence Index Background
Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.
The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.
The data and analysis presented represents the views of 35 franchisors and 20 Service Providers collected between Friday 22 and Friday 29 July 2016.. Findings from both groups are reported separately. Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’