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GOOD TIMES AHEAD FOR FRANCHISEES

by Simon Lord,
last updated 11/02/2016

10 February 2016 – The latest Franchising Confidence Index suggests that almost half of all franchises expect increased profitability for franchisees this year, with only 4 percent expecting conditions to worsen.

The quarterly Franchising Confidence Index survey by Franchize Consultants found that franchisors were positive in their outlook for general business conditions (net 33 percent), sales levels per franchisee (net 52 percent) and franchisor growth (net 56 percent). Their outlook for franchisee profitability increased from 26 percent to 44 percent, and this was reflected in responses from Service Providers such as bankers and accountants, who have experience of a broad range of franchises. 33 percent of Service Providers expected franchisee profitability to improve, with none at all expecting a decline. On sales, many franchisors noted that they were experiencing improvements in demand, with positive expectations for the next 12 months.

Franchisor sentiment toward access to financing increased from 21 percent to 30 percent and Service Providers were also very positive in this area, reporting 53 percent – an increase from 27 percent in the last quarter. Franchisors were asked for qualitative responses on how things were looking in their sector, and many noted that they were experiencing improvements in demand, with positive expectations for the next 12 months. 

However, both Franchisors and Service Providers were less optimistic this quarter in their outlook for access to suitable locations, and in the light of the latest employment figuresFranchisors were still subdued in their outlook for access to suitable staff (negative net 7 percent).

Greatest challenges

For the fifth year running Franchisors were asked what they perceived to be the greatest challenge to franchising development in the year ahead. 50 percent of responding franchisors identified finding franchisees as the top challenge to their development. Finding franchisees was followed by finding suitable locations (3 mentions), concerns for franchisee investment/cost containment (2 mentions) and access to money/finance (2 mentions).

Other challenges mentioned included concerns around wider economic performance, the implementation of new IT systems, increasing legislative requirements (in particular, relating to OSH and Cartels), regional growth and managing franchisee compliance. 

Good news for business buyers

Finding franchisees has been the major cTop individual challenges for franchisors in New Zealand - 2012-2016hallenge to franchising development in each of the last five years, and the only individual challenge to make the top five list of challenges every year. Finding suitable locations, also featuring highly this year, is the second most consistently identified challenge. 

This is good news for business buyers, who can expect to find franchisors keen to engage with and assist potential new franchisees. They can also expect to find a wider range of opportunities in areas of high potential. However, it does mean franchisors need to work harder on promoting their opportunities and attracting the right buyers.

Greatest opportunities

Franchisors and Service Providers were asked what they perceived to be the greatest opportunity related to franchising development in the year ahead.  A wide variety of internal and external factors were cited, but key themes identified included market growth, low cost of financing, immigration, and economic conditions.  Comments included:

  • “Growth in the market.”
  • ”Economic conditions and people’s willingness to spend.”
  •  “Christchurch continues to grow and offers great opportunity in our sector for the next 12 to 18 months I believe.”
  • “NZ is a multi-cultural country so open to new franchises in all areas.” 
  •  “Low cost of finance.”
  •  “Migrants looking for franchise opportunities.”
  • “More commercial optimism.”
  • “Developed concepts to be created into franchise systems now funding appears more readily available.”
  • “Business confidence and low interest rates.”

Summary

‘Overall, the Franchising Confidence Index demonstrated continued levels of optimism in January 2016,’ says Dr Callum Floyd, managing director of Franchize Consultants. ‘Franchisors continue to maintain a positive outlook for general business conditions, sales levels per franchisee and franchisor growth prospects.  We were also encouraged to record a continued positive outlook for franchisee profitability, arguably a franchise system’s most important key performance indicator.   

‘Key franchisor-identified challenges for growth in 2016 include finding franchisees, finding suitable locations, increasing investment or operating costs, and access to finance.  

‘The sentiment contained within the results indicate that in 2016 both Franchisors and Service Providers expect a positive year for franchising in New Zealand.’

The data and analysis presented represents the views of 27 franchisors and 15 Service Providers collected between Monday 25th January and Wednesday 3rd February 2016.

Read the full report.

Franchising Confidence Index summary - January 2016

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