FRANCHISORS MORE POSITIVE BUT CHALLENGES REMAIN – SURVEY
8 July 2019 – Dropping the CGT has helped franchise confidence increase, but worries remain about costs and staffing
The latest Franchising Confidence Index suggests franchisors are both more positive and less pessimistic about all but one area measured in the regular quarterly survey of the franchise sector, which has been conducted by Franchize Consultants for over nine years.
The July Index showed that sentiment improved over the majority of the areas surveyed, particularly general business conditions, franchisee sales levels, franchisee profit and franchisor growth prospects. However, sentiment still remained challenging (albeit less negative in outlook) across a number of other areas, including access to financing, the availability of suitable locations and franchisee operating costs. After hitting an all-time low in April, franchisor sentiment towards access to suitable staff has eased slightly to net negative 37%. However, this still remains a key area of concern.
Franchisor outlook for general business conditions (net 10%) saw a lift from net negative 15% in April to be in positive for the first time since January 2018. This was not unexpected given the general relief in the sector over the cancellation of proposals to introduce a Capital Gains Tax, which could have had significant impacts upon the franchise model of many businesses (see Franchise Prospects Looking Up As CGT Canned).
The franchisors’ response is more positive than that indicated by other general business surveys – as has been the case for all 38 consecutive quarters researched. The ANZ Business Outlook, which showed a net negative 38% in March remained the same for the June survey. NZIER recorded sentiment of net negative 27% in April with a further dip of 6% to net negative 31% in July.
‘Increasing wages and rents appear to be most concerning regarding franchisee operating costs – potentially pressuring both franchisee and franchisor models,’ notes Dr Callum Floyd of Franchize Consultants. ‘The current environment is particularly dynamic and likely only to become more challenging.
‘At this time some progressive franchisors are taking active steps to future proof their franchisor and franchisee unit-level business models. Meanwhile, there remains an opportunity for many to consider a formal review of their franchise system and embrace many important best practices. Franchisors’ comments show they are drawing on their resilience in finding ways to manage the changing requirements.’
- Better systems helping franchisors. Franchisees grappling with slower growth and cost escalation (wages and availability of staff)
- Franchisees are really being put under pressure from all sides - increased labour costs, increased compliance costs, increased rents, etc. It's a tough environment for them and we are working hard to offset these costs with increased margin and finding savings in other operating costs, but it's not easy!
- Retail. We are being seriously affected by wage growth which is difficult to counter by staff reduction. Rent increases are also out of kilter with the market.
- The availability of suitable staff is also a challenge for many franchises, with the current immigration situation causing issues. As one franchisor put it, Availability of work is never in question. Labour to get it done is always a problem but with the advent of overseas Filipinos we are looking to dramatically increase output.
Franchize Consultants’ Franchising Confidence Index has been conducted regularly since 2009 to measure areas critical to the success of franchising in this country. The full report can be read here.
The data and analysis presented represents the views of 20 franchisors and 15 Service Providers collected between Monday 24 June and Monday 1 July 2019. This is a smaller than usual number of franchisor responses.
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