Franchising Starts 2018 with Subdued Economic Outlook

The Franchize Consultants’ January 2018 Franchising Confidence Index demonstrates cautious sentiment.

Click [here] for a copy of the full report 

Key highlights include:

• The latest results indicated neutral franchisor (net 3%) and Service Provider (net 0%) sentiment toward general business conditions.

• Franchisor growth prospects dipped slightly (net 23%), down 5% from the previous quarter.  Service Providers reported similar sentiment movement at net 0%.

• Franchisors sentiment toward accessing financing were neutral at net 0% up from net negative 13%. Service Providers were also neutral at a net 7%, albeit up from a net negative 7%.

• Franchisor sentiment toward access to suitable franchisees continued to remain the key challenge at a net negative 28% this quarter, from net negative 20% previously.  Service Providers were neutral at net 7%.
  
  
• Franchisor confidence in access to suitable staff dropped slightly, to a low net negative 16%, however remains more positive than recent quarters. Service Providers reported a similar result at a net 0%.
   
• Franchisors and Service Providers were slightly more subdued in their sentiment towards access to suitable locations this quarter reporting net 7% and net 14% respectively.
  
  
• Franchisors and Service Providers were similar in their sentiment towards franchisee sales levels, both dipping slightly. Franchisors recorded a still positive net 28% and Service Providers a net 7%.

• The greatest challenge for both Franchisors and Service Providers is Operating Costs per Franchisee -  both reporting declines to a net negative 29% and 50%, respectively.

• Franchisors, whilst still subdued, reported slightly more positively on Franchisee Profitability Levels, at a net 9% up from net 7%. Service Providers were less positive at a net negative 39%, down from a net negative 7%.

Greatest Challenge to Franchising Development in 2018

For the eighth 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 compliance and other legal requirements. Other notable challenge themes included franchisee business model challenges, franchisee investment & cost containment, and economic concerns & uncertainty.

Greatest Opportunity for Franchising Development in 2018

Franchisors and Service Providers were asked 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 use of technology (including social media), continued strong demand (in certain sectors), new retail locations offering new locations, franchisee profitability, franchisee performance reviews, opportunities arising from legislation changes and reviewing systems with agreement renewals coming due. 

Concluding Comments

Overall, Franchize Consultants’ Franchising Confidence Index in January 2018 demonstrated subdued sentiment overall, when compared to many previous years. However, there was equally a lot of opportunity identified and we were led to suggest a degree of the subdued sentiment may relate to a fear of what could happen rather than major issues currently being experienced.

It is clear that whilst demand is strong, there are forces variously and gradually eroding confidence – such as the global economy, intensifying competition (in some sectors), access to funding, concerns around future legislative changes (potentially related to a new Labour government), increasing input prices, technology, and compliance to existing legal requirements (e.g. relating to Health & Safety, Employment etc). 

At the same time, however, there was also positivity, with half of responding franchisors citing a positive outlook couched in good trading and future demand. And the opportunities cited for franchise system development also pointed to a more positive outlook and levers to drive the business. Examples of the latter included working with existing franchisees to improve profitability, better use of technology (including social media), brand extension, innovation, and increasing franchisee quality.

We at Franchize Consultants note the general resilience of franchising systems; however, much can be done to better future-proof franchise networks and build more valuable and sustainable businesses for franchisors and franchisees alike. It is our view that actions to better plan, identify and implement improvements should be a strong existing and immediate priority for all franchise systems. 

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 32 franchisors and 14 Service Providers collected between Monday 22nd January and Friday 26th January 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.’

Franchisors Cautious of Economic Environment

KEY HIGHLIGHTS

• Franchisors and Service Providers demonstrate a strong shift in confidence levels, with changes prevalent in sentiment toward general business conditions and growth prospects

• Availability of suitable staff along with suitable locations showed increased sentiment. Previously these were viewed as key challenge areas.

• Franchisor sentiment towards franchisee sales levels dipped, although remains strong.

Click [here] for a copy of the full report 

The Franchize Consultants’ October 2017 Franchising Confidence Index demonstrates a challenged outlook across several sector growth drivers.

• ·       The Franchisor net 3% positivity in outlook for general business conditions was reduced but in line with that of other research involving general business. The ANZ Business Outlook decreased to a net 0% in September (down from 43% in June) and NZIER business survey also decreased significantly from 18% in July to a net 7% in October.
  
  
• ·       Franchisor sentiment toward access to suitable franchisees increased markedly in July, at net 13% and dipped back in October to a net negative 20%. Service Providers were of similar sentiment dropping from net 36% to net 7%. 

• ·       Franchisors sentiment toward the availability of suitable staff recovered from a record low at a net negative 32%, to bounce back to net negative 14%. Service Providers were equally positive at a net 7%, up from net negative 7% in July.
  
  
• ·       Franchisors sentiment this quarter with sourcing suitable locations, bounced back from a July dip of net negative 5% to net 11%. Service Providers outlook remained stable at net 20%.

• ·       Franchisor sentiment toward franchisee operating costs remains a challenge declining from a net negative 15% to a net negative 21%. Service Provider outlook remained more negative at a net 27%, down on July’s net negative 21%

• ·       Franchisor sentiment toward franchisee sales levels dipped slightly although remains strong at a net 43%. Service Providers were less optimistic, dropping to net 13% from net 43%.
  
   

• ·       Franchisors sentiment towards franchisee profitability which is a strong indicator of the economic climate dipped for the second quarter in a row from net 18%, to net 7%. Service Providers were strongly in agreeance at a net negative 7%; a drop of 36%

• ·       Franchisor sentiment toward access to financing remains a challenge, slightly less positive at net negative 13% down from negative 8%. Service providers sentiment on the other hand was slightly elevated to net negative 7%, up from negative 21%.

Summary & Implications

Franchize Consultants’ Franchising Confidence Index in October 2017 shows the impact of local and worldwide uncertainties, with caution being exercised. Additionally, both franchisors and service providers make note of declining demand, in some sectors. And franchisors, in particular, make many references to increased investment and operating costs, as well as competitive, compliance, franchisee recruitment and financing pressures.

Particular note is given to uncertainty associated with the domestic election. Accordingly, we reference indicators during previous election years (notable 2011, and to a lesser degree, 2014) that saw similar dips in general business confidence. These proved temporary, with rapid gains in following quarters.

Increasingly, as indicated in the wider business press for business generally, franchisors need to take an active role in adapting and future-proofing their franchise systems – in an environment with many forces of change, like employment, technology, competition, access to capital, legislation, and as is currently seen; the government.

For a copy of the full report visit: www.franchisingconfidence.co.nz

Strong Franchisee Sales Outlook Continues

KEY HIGHLIGHTS 

• Franchisors and Service Providers demonstrate a continued increase in confidence levels across many areas, particularly, general business conditions, franchisee sales levels, and franchisor growth prospects

• Both Franchisors and Service Providers were positive in their outlook for general business conditions.

• Availability of suitable staff were a standout challenge, and positivity toward franchisee profitability levels diminished.

• Franchisor sentiment for franchisor growth prospects continues to remain stable. Service Providers perceptions showed a slight increase.

• Franchisor and Service Provider sentiment toward access to suitable franchisees increased markedly

Click here for a full copy of the report

The Franchize Consultants’ July 2017 Franchising Confidence Index demonstrates a continued stable outlook across several sector growth drivers.

• The Franchisor net 26% positivity in outlook for general business conditions was still higher than that of other research involving general business. The ANZ Business Outlook increased to a net 24.8% in June (up from 14.8% in May) and NZIER business survey also increased slightly up from 16% in April to a net 18% in July.
  
  
• Franchisor sentiment toward access to suitable franchisees increased markedly from a net negative 10% to a positive net 13%. Service Providers were equally positive with an increase to net 36%, up from 24%.

• Franchisors sentiment toward the availability of suitable staff hit a record low at a net negative 32%, down from a net negative 26%. Service Providers were moderately more positive at a net negative 7%, down from a slightly more positive net 0% in April.
  
  
• Franchisors sentiment this quarter indicated there are further challenges with sourcing suitable locations, dipping from a positive net 17% to a net negative 5%. Service Providers outlook was quite the opposite increasing to a net 21% up from a net 6%
  
  
• Franchisor sentiment toward franchisee operating costs declined from a net 0% to a net negative 15%. Service Provider outlook remained more negative at a net negative 21% - albeit slightly improved from April (net negative 29%).
  
  
• Both Franchisor and Service Provider sentiment toward franchisee sales levels remained strong at a net 51% and 43%, respectively.
  
   
• Franchisors sentiment towards franchisee profitability levels took a dip to still positive net 18%, down from an April net 40%. Conversely, Service Providers were more positive at a positive net 29%, up from 0% in April.

• Franchisor and Service Provider sentiment toward access to financing differed, with franchisors more positive at a net negative 8%, improved from a negative 18%. Service providers sentiment deteriorated from a net 0% to a negative 21%.

Summary & Implications

Franchize Consultants’ Franchising Confidence Index in July 2017 continues to demonstrate a generally positive outlook overall.

The outlook for franchisee sales continues to remain strong, as do franchisor growth prospects and franchisor sentiment toward general business conditions. Meanwhile, however, the results and commentary continue to highlight an increasing constraint to growing businesses; namely, the ability to access suitable staff. We note this pattern in many industries, particularly hospitality. Access to suitable locations and financing are also areas of potential challenge.

Importantly, overall, franchisor remain positive about franchisee future sales levels. And whilst there are concerns around franchisee operating costs franchisors on balance are still net positive about future franchisee profitability levels.

Increasingly, as indicated in the wider business press for business generally, franchisors need to take an active role in adapting and future-proofing their franchise systems – in an environment with many forces of change, like employment, technology, competition, the economy and access to capital.

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 39 franchisors and 14 Service Providers collected between Monday 26 June and Friday 30 June 2017.  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.’

Franchising Sentiment Positive, But Growth Constraints Emerge

View a copy of the full April 2017 Franchize Consultants Franchising Confidence Report

KEY HIGHLIGHTS

• Responding Franchisors and Service Providers demonstrate a positive outlook overall in the areas of general business conditions, franchisor growth and franchisee profitability.

• Concerns emerge for key growth enablers, including access to finance, access to suitable franchisees and availability of suitable staff.

• Whilst the numbers show a decline, both franchisors and service provider comments remain quietly positive.

The Franchize Consultants’ April 2017 Franchising Confidence Index demonstrates a positive outlook overall on many key areas of sentiment.

• The latest results indicated a decline in outlook for general business conditions, at net 18%.  These results were in line with other research involving general business surveys including the ANZ Business Outlook (net 11% in March) and NZIER (net 13% in April).

• Franchisors (net 48%) sentiment for franchisor growth, remains strong, albeit dipping from net 59% in the previous quarter. Service Providers also remain strong at net 41%. Down slightly from net 47% last quarter.
  
  
• Franchisor and Service Provider sentiment toward access to financing appears to be tightening with franchisors dropping from net negative 8% to net negative 15%. Service Providers dropped in net sentiment from a positive net 18% to 0% this quarter.  
  
  
• Franchisor sentiment toward access to suitable franchisees saw a  drop from net 10% to net negative 10%. Service Providers, who last quarter were very positive at net 41% dropping to net 24% this quarter.  

• Franchisor sentiment towards access to suitable locations often provides quite a fluctuating picture however this quarter remained relatively stable with franchisors showing a net 17%, up from net 16%. Service Providers sentiment was slightly more sombre down from net 12% to net 6%.

• Franchisors sentiment toward the availability of suitable staff hit the lowest point seen during the time of this research at net negative 26%, down from net negative 3%. Service Providers were, in comparison, more positive than last quarter up 6% to a net 0%.

• Franchisor sentiment towards future franchisee sales levels decreased from a net 56% to net 49%.  Service Providers, were slightly less positive than Franchisors showing a decrease from a net 53% to a net 41%.

• Franchisor confidence in franchisee operating costs this quarter increased from net negative 13% to net 0%, whereas  Service Providers sentiment has taken a large dip decreasing from net 0% to a net negative 29%.

• Sentiment toward future franchisee profitability levels remained quite stable for Franchisors down from a net 44% in January to a net 40% in April.  Service Providers sentiment by contrast dipped substantially from a net 35% to a net 0%.

Summary & Implications

Franchize Consultants’ April 2017 Franchising Confidence Index demonstrates a positive outlook overall on many key areas of sentiment. Sentiment toward franchisor growth and franchisee remain very positive overall, albeit slightly reduced compared to the previous quarter. Sentiment toward general business conditions also remain in good positive territory, albeit also reduced.

Meanwhile, however, concerns emerge for key growth enablers, including access to finance, access to suitable franchisees and availability of suitable staff.

Sentiment toward access to finance has reduced and this is a concern for the franchise community. Some banks do appear to be reducing their marketing focus on franchising, and banks generally are becoming more selective (often for good reason) in their lending decisions.

Also noteworthy is the reduction and record low level of sentiment toward the availability of suitable staff. This again is of concern because it reduces the ability of both franchisees and franchisors to take advantage of demand potential. 

Overall, there is a positive based of sentiment toward the future. However, there are concerns in some areas and there is some concern the economic future is becoming less certain. Aligned, as is commonly our view, Franchize Consultants view is that now, particularly when there is some buoyancy, is a time to evaluate franchise system structure and performance for future improvement needs and opportunities. 

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 40 franchisors and 17 Service Providers collected between Monday 3 April and Friday 7 April 2017.  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 Start 2017 Optimistic

Franchize Consultants’ January 2017 Franchising Confidence Index demonstrates an increase in confidence across many sector growth drivers.

For a copy of the full report: January 2017 Franchising Confidence Index Survey

• The latest New Zealand franchising results indicated positive franchisor (net 31%) and Service Provider (net 41%) sentiment toward general business conditions. These results were shared by the latest results of other more general business surveys including the ANZ Business Outlook (22% in December) and NZIER (26% in January) business confidence surveys.

• Franchisors (net 59%) saw a continued steady increase for franchisor growth, whilst Service Providers (net 47%) maintained elevated levels.  Franchisor results show an increase from previous quarter, with Service Providers minimally lower.
• Franchisors sentiment toward access to financing decreased from a net 15% to net negative 8%, Service Providers however remained positive at a net 18% up from net 0%.
• Franchisor sentiment toward access to suitable franchisees remains consistent this quarter, from net 12%, to net 10%.  Service Providers, meanwhile, were more optimistic at a net 41%.
• Franchisor confidence in access to suitable staff increased slightly from negative net 13% to negative net 3%.  Service Providers were slightly less positive at a negative net 6%.
• Franchisor sentiment towards access to suitable locations was much more optimistic up from negative net 13% to net 16%.  Service Providers reported a slightly lowered net 12%.
• Franchisor and Service Provider sentiment towards future franchisee sales levels remained at an elevated level. Franchisors at a net 56%, with Service Providers nearly matching this sentiment at 53%.
• Franchisor confidence in franchisee operating costs remained negative during this quarter decreasing to net negative 13%.  Service Providers were up slightly at net 0%.
• Sentiment toward future franchisee profitability continues to be positive this quarter. Franchisors reported a net 44%, and Service Providers a net 35%.

Overall, Franchize Consultants’ Franchising Confidence Index in January 2017 demonstrates continued levels of optimism in New Zealand franchising in the previous quarter.

Franchisors continue to maintain a positive outlook for general business conditions, sales levels per franchisee, with franchisor growth prospects. We were also encouraged to record a continued positive outlook for franchisee profitability, arguably a franchise system’s most important key performance indicator. Key franchisor identified challenges for growth in 2017 included finding franchisees, franchisee investment and cost containment, along with finding suitable staff for both franchisors and franchisees.

The sentiment contained within the results indicate that in 2017 both Franchisors and Service Providers expect a positive year for franchising in New Zealand.

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 39 franchisors and 17 Service Providers collected between Monday 16th January and Friday 20th January 2017.  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.’

Established in 1989, Franchize Consultants’ key services include a) helping prospective franchising companies with how to franchise, b) undertaking a franchise system review for established franchisors, and c) helping existing franchisors improve franchise system management through franchise training.