Franchisors Enter 2013 Cautiously Optimistic

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KEY HIGHLIGHTS

• Franchisor sentiment most positive for prospects for growth, general business conditions, and franchisee sales levels.

• Meanwhile, franchisors forecast a negative/poor outlook for franchisee operating costs, availability of staff and franchisees.

• Franchisor sentiment for general business conditions equalled or topped other recent business confidence survey levels.

The Franchize Consultants’ January 2013 Franchising Confidence Index demonstrates a continuation of mixed results across overall sector growth drivers.

• 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 37%, compared to 28% in October. Service Provider sentiment showed a more marked improvement from net 42% to net 66%. 

• Both franchisor and Service Provider forecasts for growth improved, with franchisors increasing from 28% to 41%, and Service Providers from 38% to 61%.

• Franchisor sentiment for access to suitable franchisees dropped from net 14% to 5%. Service Providers showed an even larger decrease of net 28%, from 35% to 9%. 

• This reduction in confidence was also reflected in the outlook for accessing suitable staff, with franchisors dropping negative net 5%. Service Provider confidence also dropped in this area. 

• Franchisor outlook for access to suitable locations took a substantial tumble from a net 23% to negative 5%. Service Providers were more positive (net 31%). 

• Both franchisors and Service Providers remain positive in their outlook for access to financing, albeit Service Providers (net 26%) are more positive than franchisors (net 13%).

• Franchisor expectations for franchisee sales levels (net 32%) and operating costs (negative net 11%) demonstrated positive improvements compared to the previous quarter. 

• Franchisor outlook for franchisee profitability levels also improved from a net negative 3%, to a positive 13%. Service Providers were also more optimistic in their forecasts for franchisee profit generally, increasing from a net 0% (October 2012) to 30%.

Greatest Challenge to Franchising Development in 2013

Franchisors were asked what they perceived to be the greatest challenge to franchising development in the year ahead.

Finding franchisees or [more specifically] ‘suitable’ franchisees continued as franchisors’ top challenge to franchising development, mentioned 13 times this survey. 

The second most identified and telling challenge identified by franchisors’ in 2013 related to their respective franchisees or unit-level business model.

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.

Franchising Outlook Positive, but Reduced. Funding Still Available for Solid Franchisee Propositions

The Franchize Consultants’ July 2012 Franchising Confidence Index demonstrates mixed but still mostly positive results across a number of measures crucial to franchisor and franchisee success.

Click here for a full copy of the July 2012 Franchising Confidence Index report

• Both franchisor (net 22%) and service provider (net 34%) outlook for general business conditions remain positive, but have dropped after last survey’s record increase.
• Franchisor outlook for franchisor growth prospects improved slightly from the previous quarter at net 54%, however service providers’ outlook for franchisor growth generally showed a marked drop to 18% from 65% in April).
• Confidence levels regarding access to finance remained relatively stable for franchisors at 15%; however service providers showed, again, a marked decrease at a low net 7% (a decrease of 32% from last quarter).
• Franchisors and service providers remain only slightly positive in their outlook toward ease of access to suitable franchisees, reporting a net 7% and 4%, respectively.
• Franchisor confidence in access to suitable staff demonstrates a slight increase from the bottom level results last quarter, increasing to net 12% from 0% in April. Service provider sentiment for access to suitable staff for franchisors generally deteriorated slightly to a net 1% from 4% (in April).
• Franchisor and service provider outlook for franchisor access to suitable locations were at directional odds (i.e. one grew, one decreased), settling at a net 21% and 6% respectively.
• Franchisor and service provider expectations for franchisee sales levels both decreased this quarter, showing the only measure in which opinions were reasonably aligned. Franchisors dropped to 34% and service providers to 39%, respectively.
• Franchisor and service provider outlook for franchisee operating costs remained negative at a net -12% and -17%, respectively.
• Franchisor and service providers report a positive net outlook for franchisee profitability at a net 5% and 20%, respectively. Comparisons to the previous period indicate contrasting views.  Franchisors are less positive. Service providers are more positive.

Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’

Views were varied and contrasting throughout the responses. Most contained an element of positivity, but generally expressed a high level of challenge overall. The main themes related to high levels of competitive intensity, customer focus on price, and the importance of good franchisee business model execution.

Following from the April quarter, those identified as involved in retail in particular are still challenged somewhat with subdued sales and strong competition.

Service provider responses were also mixed, from those expecting improvement to those foreseeing more of the same.  Improvements were noted for growth prospects generally, as an outcome of low interest rates and inflation. However, times are still seen as uncertain with no clear passage out of the recession.

This issue contained a specific focus on bank funding for franchisees. Key highlights included:

• The majority (66%) of franchisor respondents indicate a solid franchisee proposition is just as likely to be funded by one of the main banks as it once was.
• Sixty one percent of franchisor respondents agree that their growth is not being constrained by access to bank funding for new franchisees

Franchising Confidence Builds Into 2012

The Franchize Consultants’ April 2012 Franchising Confidence Index demonstrates growing business confidence across a number of measures crucial to franchisor and franchisee success. The quarterly April results consolidate upon the rebound in confidence captured in January 2012.

Click here for a full copy of the April 2012 Franchising Confidence Index report

• Both franchisor (net 46%) and service provider (net 65%) outlook for general business conditions were strong, hitting the highest levels recorded since the Franchising Confidence Index was established. Both results also consolidated previous gains in January, following the substantial deterioration in October 2011.
•  Franchisor and service provider outlook for franchisor growth prospects also improved markedly from the previous quarter –net 46% and net 65% respectively.
• The aforementioned confidence improvements did not extend to perceptions regarding access to finance. Both franchisors (net 16%) and service providers (net 39%) recorded small changes from the previous quarter.
• In regards to the ease of access to suitable franchisees, a significant uptrend was noted in franchisor sentiment (net 14%). Meanwhile, service provider sentiment decreased to a net 26%.
• Franchisor confidence in access to suitable staff demonstrates a considerable overall downtrend since the Franchising Confidence Index was first established. Sentiment regarding access to suitable staff for both franchisors (0%) and Service providers (net 4%) decreased considerably.
• The franchisor outlook for access to suitable locations decreased considerably as well. The decrease in franchisor confidence regarding access to locations (net 14%) is balanced out by an increase in service provider sentiment (30%).
• Franchisor and service provider expectations for franchisee sales levels grew from a net 29% and 11% to 51% and 52%, respectively.
• Franchisor outlook for franchisee operating costs improved slightly (from -26% to -24%), whilst remaining negative overall. Service providers were similarly negative, but more negative than the previous data point (dropping from -11% in April to -43%).
• Both franchisor and service provider sentiment toward franchisee profitability has grown substantially, from a net -8% and -5% to a more positive 30% and 14%, respectively.

Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’

Most indicated current and steady growth. Strong positive responses came from the pet industry, courier services, financial sector and construction. Following from the January quarter, those identified as involved in retail are still challenged somewhat with subdued sales and strong competition; however, the general sentiment was more positive.

Service providers were generally more positive in their outlook for franchisors, reflecting the statistics identified earlier. Improvements were noted for economic stability, access to finance and franchisees, growth prospects generally, and improved consumer confidence.

Franchisors and service providers alike were asked what they perceived to be the greatest challenge to franchising development in the year ahead.

The responses indicate real concern for franchise network growth, particularly relating to unit growth from finding franchisees. Aligned concerns emanate from the economy. Both factors received considerable attention from franchisors and service providers alike.

Technology features as a real focus of challenge and from multiple quarters, including the impact of Internet sales, social media and keeping up with technology generally.

Service providers were also concerned with franchisee confidence and satisfaction, and access to finance. Interestingly, only one franchisor highlighted access to finance as a challenge this quarter. In the previous quarter, it was the second highest theme recorded and featured 10 times by franchisors. Other notable themes with at least two responses included finding suitable locations, legislation/ compliance complicating growth, and competitive forces.

Franchising Starts 2012 With Improved Confidence, But Uncertainty Remains

The Franchize Consultants’ January 2012 Franchising Confidence Index finds a rebound in franchisor confidence, following the substantial deterioration in October 2011. However, considerable uncertainty remains.

Click here for a full copy of the January 2012 Franchising Confidence Index report

• Both franchisor and service providers’ outlook for general business conditions have rebounded to a net 32%, following the substantial deteriorations recorded in the October 2011 survey.Note, responding franchisor sentiment in late January appears more positive than that reported by general business in the December reports of the NZIER (-3%), BNZ (3.20%) and National Bank business confidence surveys.

• Both franchisors and service providers registered increases in sentiment for franchisor growth prospects. Franchisors net sentiment improved from net 17 % in October to net 34% in January. Meanwhile, service providers’ confidence (net 37%) improved from a net 14% in the previous quarter.However, franchisors have become notably less confident in their growth prospects over time.

• Encouragingly, the outlook for financing has improved. Both franchisors (net 18%) and service providers (net 37%) recorded substantial improvements in sentiment for access to financing.

• In regards to the ease of access to suitable franchisees, small uptrends are noted with franchisors (net 3%) and Service Providers (net 37%).

• Sentiment regarding access to suitable staff for both franchisors (net 21%) and Service providers (net 26%) improve.

• The franchisor outlook for access to suitable locations remains reasonable(net 26%), while this percentage lowers slightly from net 32% (Oct 2011) to 26% for Service providers.

• On balance, recruitment is expected to remain challenged overall.

• Franchisor expectations for franchisee sales levels (net 29%) and operating costs (negative net 26%) showed slight improvements, while their outlook for franchisee profitability levels declined (negative net 8%). Service provider sentiment for franchisee sales levels decreased slightly (net 11%), but increased for franchisee operating costs (negative net 11%) and profitability levels (negative net 5%).
  
  

The outlook for 2012 has improved, but sentiment remainsrelativelyvariedand negative in certain sectors.

Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’

Positively, of the 33 franchisors, almost half (16) reported current and/or expected sales growth. Of these, a number indicated strong levels of sales growth – particularly those involved with pet care, but also selected domestic and/or commercial service companies.

Only two franchisors stated good franchise recruitment sales and one noted specific mentioned improved margins.

For those more challenged seven reported flat, patchy, plain difficult or just uncertain trading conditions. Notably, five of the seven identified themselves as retail and three complained of margin, profit, cost containment and/or landlord issues.

Views from those involved in construction remain challenged, but the outlook is improving slightly.

Other responses variously referred to the negative impact of external factors, such as the World Cup (diverting spending), cheap imports (as substitutes) and rub off in consumer confidence and spending from international economic concerns.

Service providers were similarly contrasting in their perception of how things looked for franchisors and franchisees generally.Specific challenges outside the general economic malaise included employees wanting more (after a period of low wage inflation), changing consumer behaviour reducing discretionary spending, increased competition, continued franchisee margin and profitability pressure, slow franchisee recruitment, and failures of poorly prepared franchise systems.  By contrast, positive mentions included new outlet and system concept growth, perceptions of stabilising input costs with low inflation, improved access to quality sites, franchisees and access to finance.

Greatest Challenge to Franchising Development in 2012

Franchisors and service providers alike were asked what they perceived to be the greatest challenge to franchising development in the year ahead (see full report for illustration).

The responses indicate real concern for franchise network growth, with both franchisors and service providers indicating challenges associated with finding suitable franchisees and aligned prospective franchisee confidence to invest.

Access to finance for franchisees rated next for franchisors, followed by challenge, fear and uncertainty relating to the general economic outlook. The latter concern (economic factors) rated most highly for service providers. Other notable concerns (with at least two responses from franchisors and service providers combined) included finding suitable locations, franchisee profitability and return on investment, consumer sentiment, relationship pressures, franchisee complacency or business execution and franchisor resources.