franchisee prospects good, but
WHERE ARE THE BUYERS?

Good news is matched with a certain level of frustration in the latest quarterly Franchising Confidence Index survey. New Zealand franchisors are positive in their outlook for sales levels per franchisee, franchisor growth and general business conditions, although staff and operating costs are still presenting challenges.

But there was a notable decline in franchisors’ expectations of finding suitable franchisees, from a net positive 9 percent to net negative 13 percent since the July survey. This is a surprise, given the general improvement in business confidence in recent months, and may reflect the fact that people’s willingness to start new businesses is lagging behind the confidence of people already in business. That was apparent at last weekend’s Business Opportunities & Franchise Expo in Auckland, where there were fewer stands and visitor numbers appeared down on previous years. The result could be something of a buyers' market for potential franchisees, and increased pressure for franchisors to look at awarding multiple units to existing franchisees..

Overall, franchisors remained solidly positive (net 41 percent) about general business conditions, reflecting other research involving general business, including the BNZ (net 59 percent in August), ANZ Business Outlook (54% in September) and NZIER (32% in October) business confidence surveys.

*The figures indicate ‘net’ confidence. 'Net’ confidence is the difference between those reporting ‘better’ and ‘worse’.

Franchising outlook

There were some interesting comments from franchisors asked how things were looking in their sector. While not all companies identified their sectors, positive franchisors included companies operating in construction (eg. home renovation) and related services (eg. landscape supplies), fast food retail and business services.  Notably the education sector responded that there was clear growth, and the pet industry advised they were buoyant with no shortage of customers. To a large extent, the findings reflect the sectors identified in our Next Big Thing article earlier this year.

The following examples are indicative of this positive sentiment:

• “We're in the business services/consultancy sector and 2013 has seen a dramatic increase in revenue/profitability over the last 2-3 years”
• “Struggling to keep up with demand. Have an order back log”
• “Construction activity is positive in Christchurch and Auckland and showing signs of life elsewhere but much slower than the two big markets”
• “Positive future - Business Sales”
• “All going according to plan with a lift in confidence but operating costs are higher"
•  “Per store sales have been increasing for the last 3 years - this year is the best yet”
•  “Stable and still experiencing growth, however this is at a much lower % than in previous years.”
• “We are by all accounts leading the growth stakes whilst minimal percentages but September was a dismal month for sales. Retail scene really patchy still”

Franchisors with a more downbeat view talked of a tough retail market, with the home services sector franchisors having difficulty finding suitable franchisees:

• “We are in home services. Still pretty steady. Work levels are good. Franchise sales still remain a challenge”
• “Home Services - certainly down real challenge getting suitable franchisees”
•  “Uncertain, lacking confidence. Small business services”

 Summary

According to Dr Callum Floyd of Franchize Consultants, which conducts the survey, the October 2013 Franchising Confidence Index demonstrates a continuation of the generally high levels of sentiment recorded in the previous quarter. ‘This elevated sentiment is shared by other recent general business confidence surveys, and is reflective of a generally improved outlook and forecast for the economy,’ he comments.

‘Franchisors continue to maintain a solid and positive outlook for general business conditions, sales levels per franchisee and franchisor growth. Whilst slightly reduced, we were encouraged to record a continued and positive outlook for franchisee profitability. By contrast, franchisors on balance held a negative view on the availability of suitable staff, and operating costs per franchisee. Franchisors were equivocal on access to financing.’

The data and analysis presented represents the views of 32 franchisors and 14 Service Providers collected between Monday 14 and Friday 18 October 2013.

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