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RECORD CONFIDENCE SUGGESTS STRONG YEAR AHEAD FOR FRANCHISING IN NEW ZEALAND

by Simon Lord,
last updated 10/02/2014

February 2014 – The first Franchising Confidence Index survey for the year shows high hopes for franchisors and franchisees in New Zealand

The quarterly Franchising Confidence Index surveys conducted by Franchize Consultants have been running long enough now to provide a valuable record of expectations and trends in the sector in New Zealand. The latest survey, carried out in January 2014, shows that franchisors and service providers have high hopes for the year ahead – provided suitable franchisees come forward to take up the many opportunities now available. 

The survey measures ‘Net’ confidence – the difference between those reporting ‘better’ and ‘worse’. Franchisors were very positive in their outlook for general business conditions (net 79 percent), sales levels per franchisee (net 65 percent) and franchisor growth (net 62 percent) – a marked increase from the previous quarter.  By contrast, Franchisors on balance held a neutral to negative view on the availability of suitable franchisees and locations (both net 0 percent), availability of suitable staff (net 3 percent), and operating costs per franchisee (negative 18 percent), although there is a solid outlook for franchisee profitability (net 38 percent).

The outlook for general business conditions saw Franchisors’ responses jump to record levels (net 79 percent). Correspondingly, the majority of responding Service Providers also indicated substantial positivity for general business conditions (net 87 percent).

This positivity is shared by other research involving general business, including the BNZ (net 68 percent in January), ANZ Business Outlook (64 percent in December) and NZIER (52 percent in December) business confidence surveys.

Franchising Confidence Index February 2014 - Results Summary Table

Key findings

Franchisor sentiment for franchisor growth remained very high at a net 62 percent - up from the previous quarter (net 50 percent). Service Providers (net 93 percent) again provided significantly positive results, up from a net 79 percent in October.

Franchisor sentiment toward access to suitable franchisees increased (from negative net 13 percent) to 0 percent.  Franchisor sentiment toward access to financing also increased from 0 percent to a positive 9 percent.  Interestingly, franchisor sentiment decreased for both access to suitable staff (from net 9 percent to 3 percent) and locations (from net 19 percent to 0 percent).

Franchising Confidence Index February 2013 - Franchisee Profitability LevelsService Providers were more optimistic in their outlook in two of these dimensions. A notable gap in sentiment was recorded in access to suitable franchisees (ie. 0 percent vs 47 percent), with a drop in confidence also in the outlook for accessing suitable staff.  However, both Franchisors and Service Providers reported improved sentiment in their outlook for access to financing, with Franchisors rising from 0 percent to net 9 percent and Service Providers increased to net 33 percent from net 18 percent in the last quarter.

Sentiment toward future franchisee sales levels also rose from the last quarter, although the outlook on franchisee operating costs remained negative. On balance, however, both Franchisors and Service Providers demonstrated solid, positive sentiment toward franchisee profitability levels, reporting a net 38 percent and 60 percent, respectively.

Greatest challenges to franchising development in 2014

For the third year running, Franchisors were asked what they perceived to be the greatest challenge to franchising development in the year ahead. The following chart illustrates January 2012, 2013 and 2014 results.

Finding franchisees or [more specifically] ‘suitable’ franchisees continues as Franchisors’ top challenge to franchising development, being mentioned eight times in this survey, although it is expected to be less of a challenge than in the past two years.

The second most identified challenge (five mentions) pertained to economic concerns. Examples here included industry outlook, the strength of the New Zealand dollar, interest rates, and potential wage and other input cost rises.

Three areas of challenge received five mentions apiece: the capacity for organic franchisee growth (in particular, the challenge of getting existing franchisees to grow their territories); the ability to attract good staff for franchisee operations; and finding suitable locations.

Notable differences between the current year and 2012/2013 include a considerable reduction in responses relating to:

  • Access to finance
  • Franchisee business model related challenges
  • Prospective franchisee confidence and willingness to invest
  • Finding franchisees, and
  • Economic-related concerns

Conclusion - a strong year ahead

Dr Callum Floyd of Franchize Consultants concludes, ‘Clearly, the current outlook is very positive compared to previous years. The sentiment contained within the results indicate 2014 could be a very strong year for franchising in New Zealand.’

The data and analysis presented represents the views of 35 franchisors and 15 Service Providers collected between Monday 27 and Friday 31 January 2014. Read the full report here.

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