Franchisors Report Mixed Sentiment

KEY HIGHLIGHTS

• Franchisors and Service Providers report a mixed sentiment with decreasing confidence in general business conditions.
• Availability of suitable staff remains a key challenge.
• Franchisor sentiment for access to suitable locations drifted slightly in April, whilst Service Providers confidence increased substantially.
• Franchisor and Service Provider sentiment towards franchisee sales levels lifted to remain an area of strength.
• Franchisor growth prospects sentiment also showed strong increases from both Franchisors and Service Providers.

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The Franchize Consultants’ April 2018 Franchising Confidence Index demonstrates a mixed sentiment across several sector growth drivers.

• Franchisors view on general business conditions (net negative 11%) brought it more in line with that of other research involving general business. The ANZ Business outlook improved slightly to a net negative 20% in March, after having dipped significantly to a net negative 38% in January. The NZIER business survey also saw some improvement at net negative 9% in April up from a net negative 11% in January.
• Franchisor sentiment toward access to suitable franchisees has shown improved sentiment this quarter after hitting an all-time low in January. April sentiment at net negative 20%, improved from net negative 28%. Service Providers who had been more positive previously have dipped in sentiment dropping to a net 0% from net 7%.
• Franchisors and Service Provider sentiment toward the availability of suitable staff dipped further to a net negative 22% from net negative 16% and net negative 50% down from net 0%, respectively. Sentiment appears to be showing caution based on the perceived challenges with upcoming government changes to the immigration policy.
• Franchisors sentiment this quarter towards accessing suitable locations, which fluctuates regularly, slipped slightly to net 4%, down from a net 7%. Service Providers sentiment showed more confidence at a net 38%, up from net 14%.
• Franchisee operating costs, meanwhile, remained a challenge with Franchisor sentiment remaining stagnant at net negative 39%. Service Provider outlook dipped slightly further to a net negative 57% down from January’s net negative 50%.
• Whilst there are challenges in some areas, both Franchisor and Service Provider sentiment toward franchisee sales levels were very strong. Franchisors recorded a positive increase at a net 50%, up from 28%. Meanwhile, Services Providers improved from a net 7% to 36%.
• Franchisors sentiment towards franchisee profitability levels, which are a strong indicator of the economic climate, took a dip to net negative 4%, after lifting slightly in January to net 9%. A very negative decrease, net negative 36%, in January for Service Providers was reversed to a net negative 7%.
• Franchisor and Service Provider sentiment toward access to financing moved in opposite directions, with franchisors dipping further to a net negative 21%, down from 0%. Service provider sentiment continued to elevate from a net 7% to a net 14%.

Summary & Implications

Franchize Consultants’ Franchising Confidence Index in April 2018 shows there is still an air of caution in regard to the potential impact of local and worldwide uncertainties. There are areas where sentiment is decreasing substantially, such as access to finance and potential staff shortages. Conversely, we note some very positive sentiment toward franchisee sales levels.  There are still levels of concern regarding regulatory changes however growth prospects are still seen as being high from both Franchisor and Service Providers perspective.

As we referenced in our October survey, records show there is often uncertainty around election years, and more so when there has been a change in government. We also note that these dips in general business confidence do tend to rally again once changes settle. It will be particularly interesting to see if the next few quarters reflect what has occurred previously.

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

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 26 franchisors and 14 Service Providers collected between Tuesday 3 April and Friday 13 April 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.’