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OPTIMISTIC START FOR FRANCHISING IN 2017

by Simon Lord,
last updated 31/01/2017

31 January 2017 ­– The latest Franchising Confidence Index survey suggests that franchises are expecting a good year ahead

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Top themed challenges for 2017

Top themed challenges for 2017

Franchising Confidence Index summary - January 2017

Franchising Confidence Index summary - January 2017

According to the survey released today, both Franchisors and Service Providers have strong expectations for continuing franchisee profitability and franchisor growth prospects. Sentiment towards the availability of suitable staff and locations improved, although they are still areas for concern.

However, there was disagreement over the ease of access to financing, with Franchisors seeing a drop in this area while Service Providers were more positive, rising from neutral to a positive 18 percent. Given that Service Providers include bankers and accountants, the difference in perception is interesting, and may indicate that finance is there for good candidates choosing good franchise systems.

Service providers were also more positive about the availability of suitable franchisees with a positive net score of 41 percent. Given that language skills are an important predictor for success, this may reflect reports of growing interest in immigration from the UK and US. Franchisors are less certain, with sentiment resting around a positive 10-12 percent where it has been since July last year.

Finding franchisees / suitable franchisees continues to be the dominant identified challenge to franchising development, as it has for the preceding five years (see chart right).

Comments

Franchisors were asked for qualitative responses on how things were looking in their sector, with most experiencing positive, albeit competitive environments. However, there was also uncertainty of how the economic environment may impact the future:

  • Things are looking soft as more traditional cafes and restaurants try to enter the fast-casual space
  • A competitive market with increasing price pressure due to discounting by new players.
  • Sector remains reasonably strong. Product differentiation from competitors remains important
  • Our business is experiencing solid work levels with nothing in the crystal ball looking at stopping it.
  • Positive year ahead, plenty of enquiry and sale opportunities, challenge will be finding the right amount of resources.
  • Positive, seeing same store sales growth and a positive attitude in the general economy feeding through to positive attitude.

Service Providers were similarly asked how they thought things were looking for franchisors and franchisees. Their responses mirrored those of franchisors.

  • Outlook for 2017 includes moderate growth @3%, gradual increase in inflation back over 1%, flat OCR outlook and slower house price growth. Restaurants, Cafes, Hardware and Liquor stores had an amazing couple of years of sales growth.
  • Much the same with general domestic economic conditions remaining stable.  Wild card will be any external influences such as the Don and Vlad show
  • Should be a stable/improving economy, boding well for well managed businesses. Uncertainty over housing value may cloud prospective franchisee decision making and investment.

Summary

‘Overall, the latest Index demonstrated continued levels of optimism whilst recognising some areas of challenge,’ says Dr Callum Floyd of Franchize Consultants.

‘Franchisors continue to maintain a positive outlook for growth prospects, availability of suitable locations, and availability of suitable staff.  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 2017 included access to financing, access to suitable franchisees, increasing investment or operating costs, and, impact of economic conditions.

The sentiment contained within the results indicates that in 2017 both Franchisors and Service Providers expect a challenging although positive year for franchising in New Zealand.’

The data and analysis presented represents the views of 39 franchisors and 17 Service Providers collected between Monday 16th January and Friday 20th January 2017.

Read the full report.

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