Franchisors See Another Challenging Year

Franchize Consultants (NZ) Ltd
Media Release

KEY HIGHLIGHTS

Franchize Consultants’ January 2023 Franchising Confidence Index sets the stage for the year, with 30 franchisors providing a window into current and more long-term opportunities and challenges.

Franchisors are expecting another tough year ahead with net sentiment being negative on six out of the nine survey measures. Access to financing and franchisee operating costs measures remain at an all-time low - with the lowest net confidence recorded since the Franchising Confidence Index started in 2010. Compared to 2022, franchisor outlook on general business conditions continues to decline from a net negative 27% to net negative 38%.

When asked how things are looking, some are positive and upbeat citing strong demand for their products and services. Meanwhile, many expect a challenging year with major issues finding suitable staff, inflationary pressure on operating costs and declining margins.

• Franchisor outlook for general business conditions showed further deterioration to net negative 38% in January 2023 from net negative 27% in January 2022.

• Franchisor sentiment for their growth prospects softened to net 0%, from net 14% in 2022.

• Franchisor sentiment towards access to suitable franchisees remains at a similar level from 12 months ago at net negative 23% from net negative 27% in 2022. 

• Franchisor sentiment towards access to financing remains at an all-time low at net negative 70%, the lowest net confidence recorded since the Franchising Confidence Index was established in 2010. 

• Franchisor outlook on suitable locations remains largely unchanged at net 13% from net 9% in 2022. 

• Franchisor outlook towards access to suitable staff improves (whilst still remaining negative) to net negative 14% following a strong decline to net negative 78% in 2022. 

• Franchisors sentiment towards future sales levels per franchisee shows a hint of positivity at net 13% from net 0% in 2022.

• Franchisee operating costs remain a concerning area – with franchisors sentiment at net negative 73%, no change from last year.

• Franchisor outlook on franchisee profitability levels improves from net negative 43% in 2022 to net negative 13% in 2023.

Greatest Challenge to Franchising Development in 2023

Franchisors were asked for qualitative responses on how things were looking in their sector. 30 franchisors responded from a variety of self-reported industries such as construction, retail, hospitality, home services, education, and health and fitness. 

Some franchisors, depending on the sector they operate in, are positive and upbeat with strong demand for their products and services. On the other hand, some franchisors are expecting a challenging year ahead with major issues with finding staff, inflationary pressure on operating costs and squeezed margins.

Greatest Opportunity for Franchising Development in 2023

This year we once again asked franchisors what they perceived to be the greatest opportunity related to franchising development in the year ahead. Key themes identified include better availability of premises/sites (potentially with better terms), a focus on reducing costs and improving labour efficiency, launching new products, developing existing franchisees into multi-site owners, and securing work for franchisees with national coverage. Some franchisors feel the slowdown in the economy may lead to instability in jobs and redundancies generating more enquiries for franchising.  

Concluding Comments

The current operating environment and associated outlook is clearly tough for many businesses and franchise systems with high inflation and climbing interest rates over the last 12 months, and the prediction of a recession in 2023.

It is therefore not surprising Franchize Consultants’ Franchising Confidence Index in 2023 indicates growing challenges for franchisors and franchisees alike with franchisor outlook on general business conditions falling to net negative 38%. Franchisors were particularly pessimistic on access to financing and franchisee operating cost levels while finding franchisees and suitable staff remain a challenge.

While franchisor sentiment on general business conditions may be in line with other New Zealand business surveys, we suggest franchisors should, if not already, be considering taking any opportunity to review and improve their franchise business model, associated franchise structure and management. Changes that can improve the outlook for franchisee and franchisor value creation are encouraged to strengthen the long-term sustainability of the system.

Franchising Confidence Index Background

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 30 franchisors collected between 13th and 31st January 2023. Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

Franchisors expect challenging year ahead

Franchize Consultants (NZ) Ltd
Media Release

KEY HIGHLIGHTS

Franchize Consultants’ January 2022 Franchising Confidence Index sets the stage for the year, with 37 franchisors providing a window into current and more long-term opportunities and challenges. 

In terms of sentiment, franchisors are expecting a tough year ahead with net sentiment being negative on six out of the nine measures collected in the survey. Franchisor sentiment on availability of staff, access to financing, franchisee operating costs, and to a lesser extent, franchisee profitability are at an all-time low with the lowest net confidence recorded for these measures since the Franchising Confidence Index was established in 2010. Compared to 2021, all nine indicators have declined.

When asked on how things are looking among franchisors, unsurprisingly, comments remain positive from certain sectors of business (e.g. construction and trade-related businesses, logistics and retailers). However most franchisors expect challenges in the year ahead, citing rising costs, staff shortages, supply issues and the uncertainty associated with Omicron as key examples.

• Franchisor outlook for general business conditions shows deterioration to net negative 27% in January 2022 from net 20% in January 2021.

• Franchisor sentiment for their growth prospects softens to net 14%, down from net 31% in 2021.

• Franchisor sentiment towards access to suitable franchisees returns to net negative 27% in 2022 following improvement to net 23% in 2021.

• Franchisor sentiment towards access to financing deteriorates further to an all-time low at net negative 70%, the lowest net confidence recorded since the Franchising Confidence Index was established in 2010.  

• Franchisor outlook on suitable locations remains largely unchanged at net 9% from net 14% in 2021. 

• Franchisor outlook towards access to suitable staff shows a strong decline to net negative 78% following from an improvement in 2021. The net negative 78% is the lowest net confidence recorded for this measure since the Franchising Confidence Index was established.  

• Franchisors sentiment toward future sales levels per franchisee declines to net 0% from net 13% in 2021.

• Franchisee operating costs remain a concerning area – with franchisors sentiment worsening to net negative 73% in 2022 from net negative 40% in 2021. 

• Following a similar trend to franchisee sales and operating costs, franchisor outlook on franchisee profitability levels decline to net negative 43% in 2022 from net negative 7% in 2021.

Greatest Challenge to Franchising Development in 2022

We asked franchisors what they perceived to be the greatest challenge to franchising development in the year ahead. 13 of the 35 responding franchisors identified finding suitable staff as the top challenge to their development. This is followed by COVID-19 and the uncertainty it brings with 11 franchisors identifying it as a challenge. 

Other challenges highlighted by franchisors include finding suitable franchisees, access to funding (or funding with reasonable interest rates), government regulations, rising inflation and supply issues.

Greatest Opportunity for Franchising Development in 2022

This year we once again asked franchisors what they perceived to be the greatest opportunity related to franchising development in the year ahead. 29 of the 37 franchisors were able to provide a response. Key themes identified by franchisors include better availability of premises/sites, increased number of potential franchisees (from people returning to New Zealand and people looking for self-employed opportunities), market share gains from failing competitors, diversification into other new products and services and new channels (e.g. e-commerce).

Concluding Comments

The first case of COVID-19 in New Zealand was reported on 28 February 2020. Now almost two years later, we await the peak of another variant and its damaging effects to the country and businesses. 

It is therefore not surprising Franchize Consultants’ Franchising Confidence Index in 2022 indicated declining sentiment among franchisors with outlook for general business conditions falling to net negative 27%. 

Franchisors were particularly pessimistic on availability of staff, access to financing, and franchisee operating costs and profitability levels. Other challenges identified for the year ahead included rising costs, issues with supply, the impact of COVID-19 and the uncertainty associated with Omicron, and, government regulations. 

Better availability of premises/sites, a potential larger pool of prospective franchisees, market share gains from failing competitors, new product/service offerings and new channels are expected to provide the greatest opportunity related to franchising development for 2022.

Franchize Consultants observe the ongoing and incredible resilience of many franchise systems, including both franchisors and franchisees, that continue to weather the COVID-19 storm. Furthermore, many franchise systems continue to adapt their offerings and operations, and provide considerable new support (in various forms) to franchisees.  

Looking ahead the immediate issue is dealing with Omicron and its effects. From there, franchisors and franchisees will hopefully [be able to] move towards more strategic planning and operating certainty.   

Examples of key management issues for the year ahead will include:

1. Continued close monitoring of franchisor and franchisee performance from both a profitability and sustainability perspective, then identifying, prioritising and actioning key performance or situational improvement opportunities and needs. This will include cost containment measures in view of price and labour cost increases. 
2. A focus on factors relating to team (franchisor and franchisee staff) wellbeing and retention, given the previous years, ongoing uncertainty and tight labour market.   We’d also note the importance of focusing on individual team learning and development, an area that has been difficult to plan during COVID-19 times. Franchise companies really need to be positioning themselves as an employer of choice. 
3. Strategic and contingency planning, planning for possible ongoing COVID-19 effects – along with changes/innovations required from other moving factors, like customer needs and behaviour, key economic variables (e.g., interest rates, inflation, economic growth, labour supply, property values, legislative changes, etc), technology, workforce trends, climate issues, etc.      
4. Franchise structure and management adaptation to a changing environment, including potential changes to franchisee and franchisor roles, resource requirements and processes, communication structures, manuals and training systems, franchise agreements, information structures, and so on. The last two years have seen a reduction in this work. Future changes will be needed. 
5. Continued high levels of franchisee engagement, including a focus on supporting group and individualised franchisee circumstances, needs, franchisee plans and objectives. Engagement will also be important for future franchisee adaptions from needed innovation and franchise structure changes.

Franchize Consultants further comments that many New Zealand franchisors continue to be incredible in their response to COVID-19, including their outstanding support to franchisees, and significant adaptive undertakings at both a franchisor and franchisee level.  

Franchising Confidence Index Background

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 37 franchisors collected between 18th January and 1st February 2022. Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

Franchising Sentiment Bounces Back

Franchize Consultants (NZ) Ltd
Media Release

KEY HIGHLIGHTS

Franchize Consultants’ January 2021 Franchising Confidence Index sets the stage for the year, with 30 franchisors providing a window into current and more long-term opportunities and challenges.

In terms of sentiment, the franchising community is more positive on most indicators compared to 2020. Franchisors’ net sentiment is positive on six out of the nine measures - with significant improvement in results covering general business conditions, access to franchisees and access to suitable staff. Whist still positive at a net position, the outlook for franchisee sales has declined compared to 2020 and franchisees’ operating costs and access to finance remained concerning for franchisors.

2021 clearly brings the additional challenge of COVID-19, with the fear of another outbreak or lockdown, closed borders, and uncertainty as to the full extent of COVID-19 impact.

When asked on how things were looking among franchisors, comments were mixed depending on the sector of the business. Unsurprisingly, positive sectors included building and construction, home improvements and logistics. Meanwhile, less positive sectors included, for example, tourism, retail and hospitality.

• Franchisor outlook for general business conditions (net 20%) shows strong improvement from 2020’s net negative 30%. Service Providers sentiment is also positive increasing from net 21% to net 62%.

• Franchisor sentiment for franchisor growth prospects, showed improvement at net 31%, up from net 17% in 2020.  Service Providers’ net 55% improved even more from net 21%.

• Franchisor sentiment towards access to suitable franchisees has seen the greatest improvement reaching net 23%, and is back in positive territory for the first time since 2017. Service Providers were also very positive at net 75%, the highest level in history of the Franchising Confidence Index.

• Franchisor sentiment towards access to financing remained unchanged from 2020 at net negative 30%. Service Providers’ confidence was more positive improving from net negative 7% to net positive 33%.

• Franchisors, at net 14%, up from net 9% in 2020, were slightly more positive this year in their outlook for access to suitable locations. Service Providers were much more positive at net 69% up from net 29%.

• Similar to access to franchisees, franchisor outlook towards access to suitable staff has seen strong improvement reaching net 7% from net negative 36%, bouncing back to positive territory since 2014. Service Providers were also positive at net 17%, from net negative 36% in 2020.

• Franchisors sentiment toward future sales levels per franchisee has taken a hit, declining to net 13% (from net 39%). Meanwhile, Service Providers sentiment toward the same improved slightly from net 29% in 2020 to net 33%. 

• Franchisee operating costs continue to be a concerning area – with franchisors recording a net negative 40%. Service providers were similarly dismal, recording a net negative 58%.

• Franchisor outlook toward franchisee profitability levels remained largely stable at net negative 7%, compared to net 0% in 2020. Service Providers changed from net negative 21% in 2020 to net negative 17%. 

Greatest Challenge to Franchising Development in 2021

We asked franchisors what they perceived to be the greatest challenge to franchising development in the year ahead. 11 of the 27 responding franchisors identified COVID-19 and the uncertainty it brings as the top challenge to their development. The fear of another outbreak or possible lockdown, closed borders and unknown of the full extent of the impact of COVID-19 were included within the comments made.

The next greatest identified themes, each with six responses were finding suitable/good quality staff (for both franchisor and franchisees) and access to finance. A perception that banks have tightened up on lending was mentioned by some franchisors. 

High operating costs (associated with increasing wage cost and rent in mall locations), and access to good franchisees remained as challenges highlighted by three responses each.

Greatest Opportunity for Franchising Development in 2021

This year we once again asked Franchisors and Service Providers what they perceived to be the greatest opportunity related to franchising development in the year ahead.  A wide variety of internal and external factors were cited. Key themes identified by Franchisors and Service Providers included increased number of potential franchisees (from returning New Zealanders, corporate redundancies and former employees), focus on financial metrics (e.g. profitability and costs) and franchisee benchmarking, site and asset availability from failing businesses, market share gains from shrinking competitors, leveraging value of being part of franchise system (e.g. strong systems and procedures, franchisor support), low interest rate, border opening, growth of the New Zealand brand and local tourism.

Concluding Comments

Franchize Consultants’ Franchising Confidence Index in 2021 indicated improvement in sentiment, particularly relating to general business condition, access to franchisees and access to suitable staff. There were, however, continued negative sentiment towards franchisees’ operating costs and access to finance. Increasing wages and rent appear to be most concerning regarding franchisee operating costs. 2021 has the added challenge of COVID-19 and the uncertainty it brings with mixed outlook among franchisors dependent on sector. A potential larger pool of prospective franchisees from returning Kiwis, corporate redundancies and former employees, a greater focus on franchisee benchmarking and financial metrics such as profitability and costs, and the availability of sites and assets from failing businesses, were expected to provide the greatest opportunity related to franchising development for 2021.

Franchize Consultants observes that many franchise systems have weathered the COVID-19 storm, along with many other changing factors, extremely well over the last 12 months.

Thinking ahead to the survey result, the responses highlight the importance of many important franchise system management practices over the year ahead. Some of these practices will be business as usual for many franchisors, however, some which are more strategic will need a much close focus to ensure franchise networks continue to be positioned well for the long term.

Examples of key management practices for the year ahead will include:

1. Close monitoring of franchisor and franchisee performance from both a profitability and sustainability perspective, then identifying, prioritising and actioning key performance or situational improvement opportunities and needs. 
2. Strategic and contingency planning, planning for possible ongoing COVID-19 effects – along with changes/innovations required from other moving factors, like customer needs and behaviour, key economic variables (e.g., interest rates, inflation, economic growth, unemployment, property values, legislative changes etc), technology, workforce trends, etc.
3. Franchise structure and management adaptation to a changing environment, including potential changes to franchisee and franchisor roles, resource requirements and processes, communication structures, manuals and training systems, franchise agreements, information structures, and so on.
4. Increased franchisee engagement, including a focus on supporting group and individualised franchisee circumstances, needs, franchisee plans and objectives.
5. A focus on total franchise system team (i.e., Franchise Support Office leadership and staff, franchisees, franchisee staff, suppliers etc) wellbeing, given the previous year and ongoing uncertainty.   

Franchize Consultants further comments that many New Zealand franchisors have been incredible in their response to COVID-19, including their incredible support to franchisees, and their significant adaptive undertakings at both a franchisor and franchisee level.  

Franchising Confidence Index Background

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 30 Franchisors and 13 Service Providers collected between Wednesday 20th January and Tuesday 2nd February 2021.  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.’

Franchisors Brace for 2020 and Beyond

Franchize Consultants (NZ) Ltd
Media Release

KEY HIGHLIGHTS

Franchize Consultants’ January 2020 Franchising Confidence Index sets the stage for the next decade, with 24 franchisors providing a window into current and more long-term opportunities and challenges. Declines in positivity, apparent since 2015, continued to hold. Franchisors remained negative, on balance, in five out of nine measures. There were, however, important positives. In particular, franchisors had a strong positive outlook for sales levels per franchisee and, whilst to a lesser extent, their own growth prospects. Standout challenges this year relate to finding franchisees, and, increasing regulations and compliance. Both challenge areas also important for the next decade, along with adaptation to threats and opportunities provided by technology.

• Franchisor outlook for general business conditions (net negative 30%) showed slight improvement from the October 2019 of net negative 32%, whilst Service Providers sentiment stayed the same at net 21%. 

• Franchisor sentiment for franchisor growth prospects, showed improvement at a net 17% up from net 4% bringing it in line with January 2019 sentiment.  Service Providers' net 21% also improved from net 7% in October

• Franchisor sentiment toward access to financing worringly also remained negative, at a net negative 30%. Service Providers confidence was less positive dropping from 7% to a net negative 7%.

• Franchisors sentiment toward  access to suitable franchisees has been seen as the greatest challenge for some time. This remains at net negative 30% (previously net negative 60%). Service Providers at a net negative 7% ( down from net 7%) were more positive, on a relative basis.

• Franchisors continue to indicate their outlook for access to suitable staff remains a critical challenge at net negative 36%. Service Provider confidence met with that of franchisors at a net negative 36% (down from net negative 7%).

• Franchisors, at net 9%, up from net 4%, were slightly more positive this quarter in their outlook for access to suitable locations. Service Providers were more positive at net 29% up from a net 14% in October.

• Franchisors sentiment toward future sales levels per franchisee has been steadily increasing with current view at a positive net 39% (from net 24%). Service Providers sentiment also increased to net 29% up from 14%.

• Franchisee operating costs continue to be a concerning area – with franchisors recording a net negative 43%. Service providers were similarly dismal, recording a net negative 57%. 

• On a more positive note, Franchisor outlook toward franchisee profitability levels recorded a net 0%, up from net negative 12%. Service Providers were improved from a net negative 43% in October 2019 to a net negative 21%.  

• Franchisors identified top three challenges to franchise development in 2020 as 1) finding franchisees, 2) increasing regulation and compliance, and 3)access to finance

• Franchisors identified many improvement opportunities for the year ahead covering areas, low interest rates, site availability, technology, government policy changes and growth through new offerings. 

Greatest Challenge to Franchising Development in 2020 

For the ninth year running franchisors were asked what they perceived to be the greatest challenge to franchising development in the year ahead. The number one challenge continued to be finding suitable franchisees, followed by increasing regulation and compliance and access to finance. Other notable challenge themes included finding suitable locations and franchisee investment and costs. 

Greatest Opportunity for Franchising Development in 2020

This year we once again asked Franchisors and Service Providers what they perceived to be the greatest opportunity related to franchising development in the year ahead.  A wide variety of internal and external factors were cited. Key themes identified by Franchisors and Service Providers included low interest rates within a stable economy, site availability due to demise of smaller businesses, growth through new offerings, generational changes in franchisees, review of model to assess all areas of opportunity, investment in infrastructure, technology, and, government policy changes including potential election outcomes. 

What do you expect to be the greatest challenge/opportunity for franchising this decade? 

This year we also sought insights from Franchisors and Service Providers into what they regard as key challenges for the new decade, which were different from just the 2020 year. Challenges associated with finding suitable franchisees continued. In addition, other key challenges cited included changes to business and franchising legislation (including the impact from Australian franchising regulations), rising operating costs, innovation and adaptation relating to technology, and, changing population demographics.

Concluding Comments

Franchize Consultants’ January 2020 Franchising Confidence Index sets the stage for the next decade, with 24 franchisors providing a window into current and more long-term opportunities and challenges. In terms of sentiment for the year ahead, declines in positivity apparent since 2015 continued to hold. Franchisors remained negative, on balance, in five out of nine measures. There were, however, important positives. In particular, franchisors had a strong positive outlook for sales levels per franchisee and, whilst to a lesser extent, their own growth prospects. Standout challenges this year relate to finding franchisees, and, increasing regulations and compliance. Both challenge areas also important for the next decade, along with adaptation to threats and opportunities provided by technology. 

Franchising is not alone in lacking strong confidence toward future business conditions, as earlier comparisons to key New Zealand general business surveys have indicated. Key will be ensuring that this backdrop of general poor sentiment does not limit positive steps, innovation and investment directed toward continually improving franchise system performance and associated franchisor and franchisee returns.

We at Franchize Consultants note the general resilience of franchising systems; however, it remains our view that much can be done to better future-proof franchise networks and build more valuable and sustainable businesses for franchisors and franchisees alike. We maintain that vigilance in identifying and acting on making improvements and change, where required, is imperative to ensure long-term franchise system returns 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 23 franchisors and 14 Service Providers collected between Monday 20th January and Monday 2 February 2020.  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.’

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.’