OUTLOOK POSITIVE BUT RECRUITMENT STILL TOUGH
6 November 2014 - The latest Franchising Confidence Index shows the franchise sector is still positive about the future but recruitment and unfair competition are generating concern.
Franchize Consultants’ October 2014 Franchising Confidence Index continued an optimistic, though slightly moderated, outlook across many key growth drivers. However, concern is rising about the availability of suitable franchisees, and about finding suitable staff, given the latest employment figures from Statistics NZ showing that unemployment has fallen to 5.4 percent despite the largest annual rise in the population for 10 years. As one respondent summed it up, the outlook is ‘Positive but recruitment still tough.’ Although the election outcome was not felt to be significant overall, Auckland property valuations and dubious employment practices were both raised as issues (see below).
The latest Index shows franchisors still reporting positivity in their outlook for general business conditions (net 50 percent), and sales levels per franchisee (net 63 percent). The 50 percent figure is higher than other research involving general business, including ANZ Business Outlook (27 percent in October) and NZIER (20 percent in September) business confidence surveys. Interestingly, responding Service Providers reported an increase in sentiment from 27 percent in July to 42 percent this quarter.
Overall, franchisor growth prospects (net 38 percent) decreased from the previous quarter’s results of net 63 percent. Franchisor sentiment toward access to suitable franchisees decreased significantly from net 17 percent to a negative net 17 percent, and access to suitable staff dropped from negative net 7 percent to negative net 17 percent. Service Providers were more positive.
Franchisor sentiment toward franchisee profitability has decreased from net 53 percent to net 17 percent, but remains positive. Service Providers matched this sentiment, reporting a net 18 percent.
Net Franchisor sentiment toward future franchisee sales levels remained positive (63 percent) though slightly down from the last quarter. Service Providers reported a net 50 percent, an increase from 40 percent in the previous quarter. Sentiment for franchisee operating costs were very similar, with Franchisors at a negative net 38 percent, and Service Providers at negative net 25 percent.
Comments from Service Providers suggest that the recently announced increase in property evaluations in Auckland will help boost the franchise recruitment market. However, as this commenter noted, franchisors will need to exercise caution:
‘Auckland property re-valuations will drive a new stream of people looking to purchase business off new found “wealth” which exists on paper only. This will lead to increased sales for a period and mean that franchisors will need to have robust systems for supporting people who may not have core business ownership skills.’
One franchisor also took the opportunity to raise often unvoiced concerns about an increasing ‘black market’ in some sectors: ‘Still very quiet - not helped by the influx into hospitality and retail of people who do not pay taxes GST or observe employment rules or public holidays.’ The Labour Inspectorate manager has also said recently that Ministry staff are dealing with a growing number of cases of workplace exploitation.
‘Overall, Franchize Consultants’ Franchising Confidence Index in October 2014 demonstrated more moderated confidence from reporting Franchisors and Service Providers than the previous quarter,’ comments Dr Callum Floyd of Franchize Consultants. ‘Though confidence is down from the extreme levels of optimism reported earlier this year, the results are still high on average when compared to the results from the last couple of years.’
The data and analysis presented represents the views of 24 franchisors and 12 Service Providers collected between Wednesday 22nd October and Friday 31st October 2014. Read the full report here.
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