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FRANCHISORS FORECAST IMPROVED TOP LINE
DESPITE CONTINUING PRESSURE ON MARGINS

by Simon Lord,
last updated 17/10/2012

October 2012 – Latest survey of franchise confidence finds good news, bad news and some cautious optimism.

The October 2012 Franchising Confidence Index demonstrates a continuation of mixed forecasts overall sector growth drivers. Franchisors were most positive in their outlook for general business conditions, franchisor growth prospects and sales levels per franchisee. However, they indicated continuing concern over franchisee operating costs and profitability levels.  Two comments from service providers, who often have a broader view of the sector than individual franchisors, sum this up:

  • ‘Increased activity for some but with pressure on margins across the board’
  • ‘Costs will continue to rise so tight management of expense lines and prudent pricing should keep businesses on an even keel’

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%.

Interestingly, franchisor sentiment for general business conditions (at net 28%) again topped general business forecasts, as reported in the September NZIER (-5%), National Bank (17%) and October BNZ (20%) business confidence surveys.

Franchising Confidence Index October 2012

Service providers more positive about growth

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 franchisors and service providers were surprisingly aligned in their forecasts for franchisee sales levels, operating costs and profitability levels,’ commented Dr Callum Floyd of Franchize Consultants, which runs the quarterly survey. ‘And with low and/or negative forecasts for unit-level operating costs and profitability, the challenge for franchisors and franchisees alike will be to maximise opportunities within a continuing tough environment.’

The data and analysis presented represents the views of 37 franchisors and 26 service providers collected between Monday 8 and Friday 12 October 2012. Findings from both groups are reported separately. Read the full report.

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