New Zealand Franchising Confidence Index | July 2015

Responding Franchisors and Service Providers sentiment provides a less optimistic outlook across many key growth drivers.
Franchisors sentiment toward general business conditions remains slightly positive, albeit down from last quarter.
Franchisors still remain positive about franchisee profitability levels – arguably franchising most important key performance indicator, however sentiment has decreased this quarter.
Franchisor sentiment for franchisor growth prospects decreased this quarter, and sentiment for sales level per franchisee, access to suitable staff and operating costs also remained at lower levels.
The Franchize Consultants’ July 2015 Franchising Confidence Index demonstrates a less optimistic outlook across overall sector growth drivers.
The latest results indicated still slightly positive franchisor (net 14%) sentiment toward general business conditions. These results were higher than the latest results of other more general business surveys including the ANZ Business Outlook (negative net 2% in June) and NZIER (5% in June) business confidence surveys.
Franchisors (net 35%) remain positive about prospects for franchisor growth, however, these results decreased from 59% in the previous quarter.
Franchisors sentiment toward access to financing decreased from a 28% to 19%, Service Providers are slightly more positive than franchisors at a net 30%.
Franchisor sentiment toward access to suitable franchisees dropped this quarter, from a net 17% to negative net 8%. Service Providers, meanwhile, were more optimistic at a net 40%.
Franchisor sentiment towards access to suitable locations decreased from net 7% to negative net 3%. Service Providers reported a net 20%.
Franchisor sentiment towards future franchisee sales levels remained at a positive level, at a net 32%. Service Providers reported a net 10%.
Franchisor confidence in franchisee operating costs remained negative during this quarter at a net negative 16%. Service Provider sentiment was reflective of this at a negative net 20%.
Sentiment toward future franchisee profitability remained positive and but decreased from last quarter. Franchisors reported a net 19%, and Service Providers a net 20%.

Summary & Implications

Franchising sentiment has dropped in July, which should not be a surprise given the economic backdrop and the view of many economic forecasts variously noting headwinds and challenges.

Examples of negative drivers are the impact of falling (and potentially low sustained) dairy prices, a possible peak in the Canterbury rebuild stimulus, and global economic uncertainties.

Not surprisingly, Franchize Consultants’ Franchising Confidence Index in July 2015 demonstrates a more subdued outlook than the previous quarter. Although confidence is down from the extremely high levels reported last year, franchisors and service providers do remain reasonably optimistic.

As reported, franchisors, on balance, still remain positive in their outlook for general business conditions, access to financing, sales levels per franchisee, franchisee profitability levels and franchisor growth prospects – although outlook for general business conditions deteriorated most (i.e. from 41% to 14%).

Meanwhile, franchisors held a negative toward the availability of suitable franchisees, suitable staff and locations, and, operating costs per franchisee.
Importantly, overall, net franchisor sentiment for future franchisee profitability was positive – but reduced.

Franchize Consultants is of the view that franchisors should be including challenged scenarios within their forward planning, including forecasts on sustainability. At the same time, all viable initiatives should be considered and undertaken at this time to ensure a solid franchise structure and system is in place, key franchising processes are optimised, and support staff and franchisee capability and execution is continually developed.

For a copy of the full report: www.franchisingconfidence.co.nz or www.slideshare.net/franchizeconsultants

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