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Franchisor Sentiment Improves
Franchize Consultants (NZ) Ltd
The Franchize Consultants’ July 2019 Franchising Confidence Index indicates continued subdued, albeit mostly improved sentiment.
- Franchisor outlook for general business conditions (net 10%) saw a lift from net negative 15% in April to be in positive for the first time since January 2018. Service Providers sentiment toward general business conditions remained neutral.
- Franchisor sentiment for franchisor growth prospects, showed a positive improvement at net 50% up from net 35%. Service Providers perspective of the same was net 6%, up from net negative 11%.
- Franchisor sentiment toward access to financing remains a key challenge. That said, sentiment this quarter was less negative (at net negative 5%) than the previous three quarters. Service providers sentiment improved in line with franchsiors at net 6% up from net negative 22%.
- Franchisor sentiment (net negative 10%) toward access to suitable franchisees has been a key challenge since October 2017. We note, however, the sentiment is less negative than the previous seven quarters. Service Provider sentiment toward access to suitable franchisees was neutral.
- After hitting an all-time low Franchisor sentiment towards access to suitable staff has eased slightly to net negative 37%. However, this still remains a key area of concern. Service Providers sentiment was very similar at net negative 25% down on the net negative 11% previously.
- On balance franchisors expected access to suitable locations to improve (net 11%) Meanwhile, Service Providers were considerably more positive at net 53% (up from net 13%) matching previous high levels in 2011 and 2016.
- Franchisor sentiment toward future sales levels per franchisee have remained relatively positive in comparison to other key areas. July saw an increase in sentiment from net 23% to net 50%. Service Providers sentiment showed similar trends albeit with a smaller increase to net 25% up from net 11%.
- Franchisee operating costs remains the most challenging area from both Franchisors and Service Providers viewpoint. Franchisors sentiment eased slightly, after dipping to all time low in April of net negative 58%, to a net negative 30% for July. Service Providers sentiment eased slightly but remains at very low levels with net negative 69%.
- Franchisor sentiment regarding franchisee profitability levels has seen a steep increase to net 25% up from net negative 23%. Service Providers sentiment toward the same however remained low at net negative 50% in comparison to net negative 56% previously.
Franchize Consultants’ Franchising Confidence Index in July 2019 indicated some positive sentiment, particularly relating to general business conditions, franchisee sales and profit levels, and franchisor growth prospects. There were, however, continued negative sentiment toward selected important areas; in particular, franchisee operating costs and finding suitable staff. Increasing wages and rents appear to be most concerning regarding franchisee operating costs – potentially pressuring both franchisee and franchisor models.
Franchize Consultants’ comments that the current environment is particularly dynamic and likely only to become more challenging. At this time some progressive franchisors are taking active steps to future proof their franchisor and franchisee unit-level business models. Meanwhile, there remains an opportunity for many to consider a formal review of their franchise system and embrace many important best practices.
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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 20 franchisors and 16 Service Providers collected between Monday 24 June and Monday 1 July 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.’