Franchisor Business Sentiment Challenging

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KEY HIGHLIGHTS

The Franchize Consultants’ October 2018 Franchising Confidence Index continues to suggest a challenging outlook, as perceived by responding franchisors. 

• Franchisors’ sentiment towards general business conditions dropped, after lifting very slightly last quarter, from net negative 9% to net negative 22%.  Service Providers sentiment showed a mirror effect dipping to net negative 23% from a net negative 7%

• Franchisor sentiment toward access to suitable franchisees remained challenging - at a net negative 48% down from net negative 36%. Service Providers sentiment indicated a softening in this area improving to a net negative 15% from net negative 21%.

• Franchisors and Service Provider sentiment toward the availability of suitable staff saw some buoyancy despite comments of continued concern. Franchisors improved from a net negative 34% to a net negative 31%, whilst Service Providers improved more positively from a net negative 43% to net negative 31% this quarter.

• This quarter’s Franchisors and Service Provider sentiment towards accessing suitable locations, saw a decided improvement at a net 13%, up from net 0% for Franchisors. Service Providers’ sentiment was similar at a net 8% up from net negative 7% 

• Franchisor and Service Provider sentiment towards franchisee sales levels, whilst fluctuating, has remained the most consistently positive area over the past 12 months. Overall sentiment remains positive, despite Franchisor expectations declining very slightly from net 33% to net 30%, and Services Providers improving from net 7% to net 15%.

• Whilst franchisee sales perceptions are stable that sentiment is not extended to Franchisee Operating Costs.  That area continues to create concern, currently at a net negative 70% down from net negative 42%.  Clearly there is huge concern. Service Providers show equal concern in sentiment at net negative 54% down slightly from July’s net negative 50%.

• Franchisors’ sentiment towards Franchisee profitability levels, which are a strong indicator of the economic climate, have remained relatively stable over the past five quarters, at a net negative 4% after a previous increase to net 3%. Service Providers sentiment remains stable although at a lower level of net negative 31%, down from net negative 29%.

• Franchisor sentiment toward access to financing is continuing to fluctuate quarter to quarter dipping to net negative 30% from a net 0% previously. Service Provider sentiment had previously remained in the positives but dipped to a net 0%.

Summary & Implications

Franchize Consultants’ October 2018 Franchising Confidence Index indicates growing future uncertainty and challenge.

Most notably responding franchisors indicated current and future challenges concerning finding and retaining quality staff, franchisees and accessing funding – all key growth constraints. Comments also included concerns around the impact legislative changes (although this included some positive sentiment), immigration changes and minimum wage changes on their businesses.  Comments also touched on the intensity of competition, tightening demand and tightening margins.

However, while sentiment towards general business conditions has taken a slightly larger hit this quarter, there are indications in comments that some industries are seeing growth. Finally, franchisor sentiment toward their own growth prospects, whilst lower, remained positive on balance.

Overall, we believe that whether the challenges are more perceived than real (or not), franchisor and franchisee businesses would be diligent to prepare for a tougher business environment. That means ensuring franchise system foundations, processes and management are sound – at a franchisor and franchisee level. Typically, we note both sides have a multitude of improvement opportunities. We caution that now is a time to understand both shortcomings and opportunities, and to prioritise those areas together that can enable growth and sustainability.

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 27 franchisors and 13 Service Providers collected between Monday 15 October and Friday 19 October.  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.’