Franchisors Forecast Improved Top Line. Margin Pressure Continues

The Franchize Consultants’ October 2012 Franchising Confidence Index demonstrates a continuation of mixed results across overall sector growth drivers.

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• The latest results indicate a consolidation in franchisor and service provider (views for franchisors generally) forecasts for general business conditions. Franchisor responses improved to a net 28%, compared to 22% in July. Similarly, service provider sentiment improved to 42% (current) from 34%.

• Franchisor sentiment toward their own growth prospects declined from a net positive 54% (in July) to 28%. By contrast, service provider sentiment toward the same increased from 20% (in July) to 38%, regaining some ground from the relative highs reported in April.

• Both franchisor and service provider sentiment toward access to suitable franchisees showed an increase from July. Franchisors seem to be slightly more cautious, however, with only a slight increase from a net 7% to 14%. The increase in service provider opinion was a lot more marked, from net 4% to 35% (a substantial 31% gain from the last survey).

• Service providers’ higher confidence levels continued toward accessing suitable staff with an increase of net 22%, but were not shared by franchisors who displayed a loss of confidence with a drop from net 12% to 6%.

• There was a notable increase in confidence from both groups of respondents towards perceived access to suitable locations. Franchisors, however, were again more reserved with a small net 2% increase, compared to service providers’ 21% net gain since July. The two groups ultimately displayed similar levels of confidence despite these differences, at net 23% and 27% respectively.

• In relation to access to funding, franchisors appear to have kept relatively stable levels of confidence since July, with only a small drop of net 1% to 14% this quarter. Service providers, on the other hand, have become a lot more optimistic towards franchise funding with a considerable net 35% increase.

• Franchisor sentiment toward sales decreased further this quarter, from a net 34% to 22%. Service providers echoed this downward trend at a net 19%.

• Both franchisors and service providers continue to forecast stormy waters for franchisee operating costs, ending at a net negative 17% and 23%, respectively.

• Not surprisingly, overall sentiment toward future franchisee profitability levels also declined. Franchisors forecast a net negative 3%. Service providers forecast a net 0%. Both groups are clearly concerned.