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OPTIMISM GROWS FOR INCREASES IN FRANCHISEE PROFITABILITY – SURVEY

by Simon Lord,
last updated 18/04/2013

17 April 2013 - Good news for business buyers as franchisee sales levels and profitability are predicted to increase and obtaining finance becomes easier.

Franchize Consultants’ April 2013 Franchising Confidence Index survey of Franchisors and Service Providers shows improved optimism in many areas. Franchisors were most positive about improvements to:

  • Franchisor growth prospects
  • Sales levels per franchisee
  • General business conditions
  • Franchisee profitability levels, and
  • Access to financing.

Franchisor sentiment for general business conditions was a very positive net 53 percent, topping that indicated in recent general business forecasts such as the March NZIER (23 percent), ANZ Business Outlook (35 percent) and BNZ (25 percent) business confidence surveys.

Both Franchisor and Service Provider forecasts for franchisor growth improved, with Franchisors substantially increasing from net 41 percent to 58 percent, and Service Providers from 61 percent to 67 percent.

Franchisor sentiment toward franchisee sales levels (net 56 percent) demonstrated a substantial increase over the last quarter. Although the outlook for operating costs remained negative, Franchisor sentiment toward franchisee profit rose to a record net 44 percent.

Wanted – More Franchisees

After a period when many franchisors effectively stopped recruiting in order to focus on supporting existing franchisees and refining business models to increase profitability, franchisors are now starting to recruit again. It looks as though this will be a competitive market though, with Franchisors concerned about finding suitable franchisees  (dropping from net 5 percent  to 0 percent ) despite the fact that the outlook for accessing finance has improved. Service Providers were more positive about access to suitable franchisees with a very large increase of net 29 percent, from 9 percent to 38 percent.

This improvement in confidence was also reflected in the outlook for accessing suitable staff, with Franchisors rising to net 3 percent from January’s net negative 5 percent result. Service Provider confidence also increased by net 4 percent in this area.

Franchisor outlook for access to suitable locations also increased, up net 5 percent to 0 percent, while Service Providers were also slightly more positive this quarter (net 33 percent).

Both Franchisors and Service Providers reported improved sentiment in their outlook for access to financing. Franchisors reported a substantial net increase of 15 percent to net 28 percent. Service Providers echoed this trend, rising to net 46 percent.

Record figure suggests growing returns on the way

‘Overall, Franchize Consultants’ Franchising Confidence Index in April 2013 demonstrates much improved optimism across many key franchising growth drivers,’ reports survey author Dr Callum Floyd. ‘Most notable are high and positive levels of sentiment toward franchisor growth prospects, sales levels per franchisee, general business conditions, franchisee profitability levels, and access to financing.

‘I am most buoyed by Franchisors’ increase in sentiment for franchisee profitability – arguably a franchise system’s most important key performance indicator. The net positive 44 percent reported by franchisors is the series record, and one indicator that franchising could be set to deliver growing returns to franchisees, franchisors, suppliers and the wider economy.’ Sales through franchised units have traditionally represented around 10 percent of New Zealand’s GDP.

The data and analysis presented represents the views of 36 Franchisors and 24 Service Providers collected between Monday 8 and Friday 12 April 2013.

Read the full report here

Franchising Confidence Index April 3013.

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