The Franchize Consultants’ January 2018 Franchising Confidence Index demonstrates cautious sentiment.
Key highlights include:
- The latest results indicated neutral franchisor (net 3%) and Service Provider (net 0%) sentiment toward general business conditions.
- Franchisor growth prospects dipped slightly (net 23%), down 5% from the previous quarter. Service Providers reported similar sentiment movement at net 0%.
- Franchisors sentiment toward accessing financing were neutral at net 0% up from net negative 13%. Service Providers were also neutral at a net 7%, albeit up from a net negative 7%.
- Franchisor sentiment toward access to suitable franchisees continued to remain the key challenge at a net negative 28% this quarter, from net negative 20% previously. Service Providers were neutral at net 7%.
- Franchisor confidence in access to suitable staff dropped slightly, to a low net negative 16%, however remains more positive than recent quarters. Service Providers reported a similar result at a net 0%
- Franchisors and Service Providers were slightly more subdued in their sentiment towards access to suitable locations this quarter reporting net 7% and net 14% respectively.
- Franchisors and Service Providers were similar in their sentiment towards franchisee sales levels, both dipping slightly. Franchisors recorded a still positive net 28% and Service Providers a net 7%.
- The greatest challenge for both Franchisors and Service Providers is Operating Costs per Franchisee – both reporting declines to a net negative 29% and 50%, respectively.
- Franchisors, whilst still subdued, reported slightly more positively on Franchisee Profitability Levels, at a net 9% up from net 7%. Service Providers were less positive at a net negative 39%, down from a net negative 7%.
Greatest Challenge to Franchising Development in 2018
For the eighth year running franchisors were asked what they perceived to be the greatest challenge to franchising development in the year ahead. The number one challenge continued to be finding suitable franchisees, followed by increasing compliance and other legal requirements. Other notable challenge themes included franchisee business model challenges, franchisee investment & cost containment, and economic concerns & uncertainty.
Greatest Opportunity for Franchising Development in 2018
Franchisors and Service Providers were asked what they perceived to be the greatest opportunity related to franchising development in the year ahead. A wide variety of internal and external factors were cited. Key themes identified by Franchisors and Service Providers included use of technology (including social media), continued strong demand (in certain sectors), new retail locations offering new locations, franchisee profitability, franchisee performance reviews, opportunities arising from legislation changes and reviewing systems with agreement renewals coming due.
Overall, Franchize Consultants’ Franchising Confidence Index in January 2018 demonstrated subdued sentiment overall, when compared to many previous years. However, there was equally a lot of opportunity identified and we were led to suggest a degree of the subdued sentiment may relate to a fear of what could happen rather than major issues currently being experienced.
It is clear that whilst demand is strong, there are forces variously and gradually eroding confidence – such as the global economy, intensifying competition (in some sectors), access to funding, concerns around future legislative changes (potentially related to a new Labour government), increasing input prices, technology, and compliance to existing legal requirements (e.g. relating to Health & Safety, Employment etc).
At the same time, however, there was also positivity, with half of responding franchisors citing a positive outlook couched in good trading and future demand. And the opportunities cited for franchise system development also pointed to a more positive outlook and levers to drive the business. Examples of the latter included working with existing franchisees to improve profitability, better use of technology (including social media), brand extension, innovation, and increasing franchisee quality.
We at Franchize Consultants note the general resilience of franchising systems; however, much can be done to better future-proof franchise networks and build more valuable and sustainable businesses for franchisors and franchisees alike. It is our view that actions to better plan, identify and implement improvements should be a strong existing and immediate priority for all franchise systems.
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 32 franchisors and 14 Service Providers collected between Monday 22nd January and Friday 26th January 2018. 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.’