KEY HIGHLIGHTS
The Franchize Consultants’ January 2019 Franchising Confidence Index demonstrates cautious sentiment in some areas whilst neutral in others.
- Franchisors sentiment toward general business conditions, whilst still negative, improved to be similar to January 2018 results with Franchisors at net negative 3% and Service Providers at net 19%.
- Franchisors sentiment for franchisor growth prospects also saw improved sentiment after dropping each of the last four quarters at net 23%, up from the previous quarter’s net 7%. Service Providers net 19% improved even more up from net negative 27% in October.
- Responding Franchisors and Service Providers both reported less negative sentiment towards operating costs per franchisee; Franchisors at net negative 56% up from net negative 70%, and Service Provider sentiment at net negative 25% up from net negative 56%.
- Franchisors and Service Providers forecasts indicated access to suitable staff (Franchisors at net negative 31% and Service Providers at net negative 38%) and access to suitable locations (Franchisors net negative 3% and Service Providers net 0%) remain a key area of concern.
- Franchisor outlook commentary was mixed, with positives for some regarding obvious strength in demand and sales. Those more challenged cited issues, such as immigration, tightening demand, competition, margin compression, uncertainty and challenges finding franchisees and staff.
- Franchisors identified top three challenges to franchise system development in 2019 as 1) finding franchisees, 2) finding suitable staff and 3) access to finance.
- Franchisors identified many improvement opportunities for the year ahead covering areas, such as technology, existing franchise growth, better selling and marketing and efficiency improvements.
Greatest Challenge to Franchising Development in 2019
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 finding suitable staff and access to finance. Other notable challenge themes included franchisee investment & cost containment, and economic concerns & uncertainty.
Greatest Opportunity for Franchising Development in 2019
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, better selling to established customers, growth through existing franchisees, continued strong demand (in certain sectors), potential improvements to labour, franchisee and site availability, franchise business optimisation, commercial developments (e.g., Newmarket 277) with new locations, brand / marketing investment, focus on processes and systems, new products, and, potential recession (leading to improved franchisee recruitment and labour availability).
Concluding Comments
Franchize Consultants’ Franchising Confidence Index in January 2019 demonstrated a hint of optimism – albeit many sentiment measures still remained net negative. General business conditions, access to suitable franchisees, operating costs per franchisee and franchisor growth prospects, whilst still showing negative sentiment, all indicated some improvement compared with the previous quarter. Meanwhile, declines were noted for access to suitable staff and availability of suitable locations.
Franchisor outlook commentary was mixed, with positives for some regarding obvious strength in demand, sales and sales growth. Those more challenged, however, referred to a number of issues such as immigration challenges, tightening demand, new competition, margin compression, legislative compliance, retail sentiment, projected house price declines, and, difficulties finding franchisees and staff.
Separately, and more specifically, franchisors identified their greatest challenge to franchising development (in the year ahead) as finding suitable franchisees, finding suitable staff, access to finance, franchisee cost containment, and uncertainty regarding the economy. Challenges finding suitable franchisees has been the top-rated challenge in each of the past seven surveys.
On the positive side, franchisors provided a rich set of opportunities relating to franchise development in the year ahead, with examples including technology, better selling and more marketing, growth through existing franchisees, potential improvements to labour, franchisee and site availability (largely driven by a potential slow down, a focus on efficiency improvements, and new products.
Franchising is not alone in lacking strong confidence toward future business conditions, as earlier comparisons to key New Zealand general business surveys have indicated. Key will be ensuring that this backdrop of somewhat dour sentiment does not dampen positive steps, innovation and investments directed toward continually improving franchise system performance and associated franchisor and franchisee returns.
We at Franchize Consultants note the general resilience of franchising systems; however, it remains our view that much can be done to better future-proof franchise networks and build more valuable and sustainable businesses for franchisors and franchisees alike. We maintain that vigilance in identifying and acting on making improvements and change, where required, is imperative to ensure the sustainability of your franchise system.
Franchize Consultants notes, within such steps, the criticality of understanding gaps and opportunities relating to franchise system structure and management – from a franchisor and franchisee perspective. Franchising companies established for more than five years should consider a comprehensive Franchise Review, as part of their overall planning and improvement initiatives.
For a copy of the full report: www.franchisingconfidence.co.nz or www.slideshare.net/franchizeconsultants
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 34 franchisors and 16 Service Providers collected between Monday 14th January and Friday 25th January 2019. 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.’
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