Franchisor Quarterly Sentiment Fluctuating

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KEY HIGHLIGHTS

Franchisors sentiment towards general business conditions lifted slightly. In comparison other research sources showed considerable reductions.

Availability of suitable staff and availability of franchisees continue to be a key challenge.

Access to financing showed improved sentiment from a franchisor perspective whilst Service Providers were less confident.

Franchisor showed improved confidence in franchisee profitability levels with Service Providers more subdued.

Franchisor growth prospects sentiment showed a drop, back to post election levels for both Franchisors and Service Providers. 

The Franchize Consultants’ July 2018 Franchising Confidence Index demonstrates a fluctuating sentiment across a number of growth drivers

• Franchisors’ view on general business conditions was considerably better, as it often is, from that of other research involving general business confidence. The ANZ Business outlook dropped markedly to a net negative 39% in June, back to levels seen in January, after confidence had improved to net negative 20% in March. The NZIER business survey which was released on July 3 also saw a drop to net negative 19% from a net negative 10% in April.   

• Franchisor sentiment toward franchisor growth prospects has, after a strong improvement to net 39% in April, dropped back to net 18%, similar to the levels seen immediately after the election. Service Providers sentiment followed a similar trend, dropping from net 21% in April to net 7% this survey.

• Franchisor sentiment toward access to suitable franchisees has shown decreased sentiment this quarter to a new all-time low of net negative 36% down from net negative 14%. Service Providers sentiment also dropped to a net negative 21% from net 0%.

• Franchisors and Service Provider sentiment toward the availability of suitable staff remains low, in negative territory. Franchisors dipped from net negative 22% to net negative 34%, whilst Service Providers improved moderately from net negative 50% in April to a still very low net negative 43% this quarter.

• This quarter’s Franchisors and Service Provider sentiment towards accessing suitable locations, saw a small dip from franchisors down from net 4% to net 0%. Service Providers’ sentiment saw a severe drop, down from a high net 38% to a net negative 7%

• Sentiment towards expected franchisee sales levels fluctuates quarter to quarter with a reduction reflected this quarter. Overall sentiment remains positive, despite Franchisor expectations declining from net 50% to net 33%, and Services Providers declining from net 36% to net 7%.

• ·        Anticipated Franchisee operating costs remain challenging with

• ·        Franchisors’ sentiment towards Franchisee profitability levels, which are a strong indicator of the economic climate, lifted back into a positive net 3% after a previous dip to net negative 4%. Conversely, after a temporary lift in April, Service Providers' positive sentiment has dropped back to net negative 29%, putting it back again into levels not seen since 2011.

• Franchisor sentiment toward access to financing improved to net 0% from a net negative 21% previously. In contrast Service Provider sentiment reduced from net 14% to net 7%.

Summary & Implications

Franchize Consultants’ July 2018 Franchising Confidence Index continues to reflect the air of economic uncertainty commented on in the last few quarters.

As we referenced back in our October survey, records show this is common around election years, and more so when there has been a change in government.

Nine months on from the last election, there is still an air of uncertainty mainly driven by changes to government policy (minimum wages, immigration, fuel cost increases) and the speculative effects these will have on the economy.

With regulatory changes coming into effect early in July the cautionary sentiment towards general business conditions may have been influenced by the unknown outcomes of these changes, which could settle over the next few quarters – but more policy changes and policy amendments may yet be to come.

The franchising sector covers a diverse range of business enterprises, and as to be expected, policy changes can have both positive and negative impacts, depending on the individual business activity. The survey reflects some Franchisors are seeing or expecting a lot of growth, whilst others are experiencing a flat or slightly declining base and continuing or increasingly difficult trading conditions.

There are areas where sentiment is decreasing markedly one quarter, only to increase back in the next, such as access to finance and Franchisor growth prospects, reflecting the uncertainty. However, as mentioned previously, Franchisor sentiment towards general business conditions improved slightly this quarter, bucking the trend of other general business sentiment surveys.

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 33 franchisors and 14 Service Providers collected between Monday 25 June to Friday 29 June 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.’