Franchisor Sentiment Falls

Franchize Consultants (NZ) Ltd
Media Release

KEY HIGHLIGHTS

The Franchize Consultants’ October 2019 Franchising Confidence Index indicates continued subdued sentiment.

• Franchisor outlook for general business conditions dropped after a brief rise in July (net 10%) to net negative 32%, the lowest seen in the history of the survey. Service Providers sentiment improved from net 0% to net 21%.

• Franchisor sentiment for franchisor growth prospects, was less positive from a franchisor viewpoint at net 4%, down from net 50%. Service Providers however remained stable at net 7% up from net 6%.

• Franchisor sentiment toward access to financing continues to be challenging with the sentiment oscillating quarter to quarter. After last quarter’s rise in sentiment to net negative 5% it has dipped to net negative 44% this quarter. Service Providers sentiment is less concerned recording net 7% up from net 6%. 

• Franchisor sentiment toward access to suitable franchisees, after a brief softening, has reverted to a key challenge once again at net negative 60%, down from net negative 10%. Service Providers again were stable in their sentiment at net 7%, up from net 0%.

• Franchisors sentiment towards suitable staff has remained stable in October at net negative 38% however still remains a key area of focus. Service Providers sentiment eased to net negative 7% up on the net negative 25% previously.

• Franchisors sentiment toward finding suitable locations at net 4% (previously net 11%), whilst still an area requiring focus, is staying stable.Service Providers continue to be more positive at net 14%, although down from a previous net 53%.

• Franchisors sentiment toward future sales levels per franchisee remains buoyant in comparison with other areas, at a net 24% (previously net 50%). Service Providers sentiment is similar at net 14%, down from net 25%.

• Franchisee operating costs has always been a very challenging area and remains so from both Franchisors and Service Provider viewpoints. Franchisors sentiment dipped slightly, from a net negative 30% to a net negative 36% for October. Service Providers sentiment eased slightly but remains at very low levels with net negative 57%.

• Franchisor sentiment regarding franchisee profitability levels, after showing a steep improvement for July at net 25%, has dipped back to net negative 12%. Meanwhile, Service Provider sentiment remained low at net negative 43% in comparison to net negative 50%. 

Concluding Comments 

Franchize Consultants’ Franchising Confidence Index in October 2019 indicates growing challenges for franchisors and franchisees alike. Key features were challenges with demand, new regulation and policy decisions, competition, rentals and finding both franchisees and staff. Some companies noted growth but were constrained by recruitment and concerned with margin compression.

The operating environment and associated outlook is clearly tough – and many businesses have been further impacted by e-commerce and changes with digital technology generally.

While the sentiment levels may be inline with other New Zealand business surveys, we suggest franchisors should, if not already, be seriously considering taking any opportunity to review and improve their franchise business model, associated franchise structure and management. Clearly, changes that can improve the outlook for franchisee and franchisor value creation and long-term sustainability are needed. 

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 25 franchisors and 14 Service Providers collected between Monday 14 October and Friday 18 October 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.’