HITS RECORD HIGH
April 2012 - Franchisors and service providers are feeling very positive about the future, according to FCI survey
There’s growing business confidence in the franchise sector, according to the latest Franchising Confidence Index survey. Both franchisor and service provider outlook for general business conditions (for franchisors) grew to a record net 46% and 65% respectively, the highest levels recorded since the index was launched in April 2010.
Notable improvements in franchisor sentiment are also recorded for:
- franchisor growth prospects;
- access to suitable franchisees;
- sales levels per franchisee; and, crucially,
- franchisee profitability.
It’s not all good news, though: access to financing and operating costs per franchisee remained at similar levels, while telling deteriorations in confidence were recorded for access to suitable staff (dropping from net 21% to 0%) and the availability of suitable locations. ‘Presumably, increased confidence in the outlook for franchising is linked to a perceived increase in competition for locations and people,’ suggests Dr Callum Floyd of Franchize Consultants (NZ) Ltd, which carries out the quarterly surveys.
‘Importantly, the outlook for general business conditions has hit new heights; franchisor growth prospects have solidified and crucially, the outlook franchisee profitability has improved,’ he continues. ‘For the first time, franchisor sentiment appears considerably more positive than that indicated by general business in the April NZIER (24%), April BNZ (34%) and March National Bank (34%) business confidence surveys.’
Franchisor (net 46%) and service provider (net 65%) outlook for franchisor growth prospects also improved markedly from the previous quarter – helping to arrest a striking downward trend that had become more apparent over time.
Franchisors and service providers shared a more optimistic view towards franchisee sales levels and profitability, despite continuing concerns for franchisee operating costs.
Franchisor and service provider expectations for franchisee sales levels grew from a net 29% and 11% to 51% and 52%, respectively. Meanwhile the franchisor outlook for franchisee operating costs improved slightly (from -26% to -24%) whilst remaining negative overall. Service providers were similarly negative, but more negative than the previous data point (dropping from -11% in April to -43%).
But, as indicated, both franchisor and service provider sentiment toward franchisee profitability has grown substantially from a net -8% and -5% to a more positive 30% and 14%, respectively. Presumably franchisors and service providers expected increased sales to more than offset any concerns for franchisee operating costs. The increased profitability, if experienced, will be welcome news for franchisees and may herald a welcome growth in new franchise sales over the coming months.
The data and analysis presented represents the views of 37 franchisors and 19 service providers collected between Monday 23 and Friday 27April 2012. Read the full report here.
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