Franchising Confidence Index April 2016 – Strong But Mixed

Franchize Consultants Franchising Confidence Index April 2016 demonstrates sustained strong franchisor confidence levels for many areas, like general business conditions, franchisor growth prospects, franchisee sales levels and, to a lesser extent, franchisee profitability. However, sentiment reductions were evident across many of these and other measures.

 

• Franchisors were still on balance quite positive about general business conditions (net 33%), the same as the previous quarter. Service Providers reported similar at a net 37%, but down from January (net 53%).
• Franchisor sentiment for franchisor growth prospects decreased from a net 56% in January to a still strong 45% here. Service Providers perceptions were equivalent and held at a net 47%.
• Franchisor sentiment toward  access to suitable franchisees deteriorated further from a net 0% to -6%. Meanwhile, Service Providers remained more positive at a slightly improved 21%.
• Franchisor sentiment toward access to financing decreased from 30% to 21%. Service Provider perceptions of the same fell faster, from a positive 53% in January to 37% now.
• Franchisors were more positive this quarter in their outlook for access to suitable locations, improving from a net negative 16% to a positive 3%. Meanwhile, Service Providers outlook improved dramatically from 0% to an extremely positive net 53%.
• Franchisors remained constant and subdued in sentiment toward the availability of suitable staff at a net negative 9%, down from -7%. Service Providers were moderately more positive at a net 11%, up from 0% in January.
• Franchisor perceptions of franchisee sales levels decreased from a very positive net 53% to a still strong but reduced 39%. Meanwhile, Sevice Providers were particularly negative falling from a similar starting position of 53% in January, to a net negative 21% now in April.
• Both Franchisor and Service Provider groups see the outlook for franchisee operating costs as more positive, albeit Franchisor views improve from a net negative -19% to only just positive 3%, and Sevice Providers move from 20 to 26%.
• Finally, it is somewhat pleasing to see the outlook for franchisee profitability levels remaining in net positive territory. However, Franchisor perceptions reduced from a high net 44% to 21%. By contrast, Service Providers were increasingly optimistic, improving from a net 33% in January to 47% here in April.

Franchisors were asked for qualitative responses on how things were looking in their sector. Positive comments included stable operations, regional strength, specific sector strength (e.g. building, food & beverage growth), improved franchisee enquiries, positive impacts from house price inflation, and an abatement of price sensitivity (sector unknown). By contrast, less positive responses (often individual) related to weakness in Auckland, difficulties finding qualified staff and franchisees, increased lease and operating costs, down phase of annual cycle, and, sector competitive intensity.

Franchising Confidence Index April 2016- Concluding Comments

Franchize Consultants’ Franchising Confidence Index April 2016 continues to demonstrate a generally positive outlook overall. However, many measures softened this quarter including, importantly, franchisors outlook for franchisee sales levels, franchisee profitability, and, franchisor growth prospects.

Franchisor and Service Provider comments confirm, overall, the level of sentiment recorded. However, challenges clearly remain – particularly in competitive sectors, but also relating to areas like finding staff and franchisees, and operating costs.

Franchise systems cover a huge diversity of industry sectors and often vary in strategy, structure, management and performance – even within sectors.  In turn, we believe this helps explain why some responses in common sectors do vary.

Some Service Providers also point to potential differences in the quality of franchise system leadership and performance, including some poor performing franchisors, and franchisee failures.

Franchize Consultants comments and adds, based on more than 25 years specialist franchising & licensing consulting, that not all franchise systems were created properly, and not all franchise systems are equally managed. Those establishing a franchise system must, in the simplest sense, ensure the right franchise structure is developed, select the right franchisees, and provide the right on-going management and leadership.

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index

The Franchising Confidence Index represents the views and expectations of franchising, an important domain of business within the New Zealand economy.

Franchising is a substantial and growing domain of business making up an important part of the New Zealand economy. TheFranchising New Zealand 2012 survey, conducted by Massey University in collaboration with Griffith Business School, indicates New Zealand has 446 individual franchise systems comprising some 22,400 units (owned mostly by franchisees).  The survey also suggests local franchise systems employ some 100,000 people. Finally, local expert estimates of total franchise system turnover range from $15 to $25 billion – suggesting franchising is a strong contributor to New Zealand GDP – as it is around the world. Companies involved in franchising are as diverse as Foodstuffs (New World, PAK’nSAVE, Four Square), NZ Post, Fisher & Paykel, Contact Energy, McDonald’s, Columbus Coffee, Fastway Couriers, Harcourts and Fletcher Building.

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 33 franchisors and 19 Service Providers collected between Monday 11^thApril and Sunday 17^th April 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.’

Special thanks to our Office Manager, Shelley Cross.