Franchise survey: what a difference a year makes

Franchize Consultants’ January 2021 Franchising Confidence Index sets the stage for the new year, with 30 franchisors providing a window into current and more long-term opportunities and challenges.

In terms of sentiment, the franchising community is more positive on most indicators compared to 2020. Franchisors’ net sentiment is positive on six out of the nine measures - with significant improvement in results covering general business conditions, access to franchisees and access to suitable staff. The general business conditions outlook by franchisors of net 20% is stronger than other research involving general business.

Franchisor sentiment for franchisor growth prospects showed improvement at net 31%, up from net 17% in 2020. Service Providers’ net 55% improved even more from net 21%.

Access to suitable franchisees has been the biggest challenge facing franchisors every year since 2012. In 2021, that fell to fourth place behind Covid uncertainty, access to finance, finding suitable staff and franchisee investment/operating costs. However, access to finance need not be an issue for good business models, says Daniel Cloete of Westpac. 'The low interest rates are making it easier, and banks do have money to lend for funding and would be keen to do so for profitable businesses.'

Whilst still positive at a net position, the outlook for franchisee sales has unsurprisingly declined compared to January 2020 with the fear of another outbreak or lockdown, closed borders, and uncertainty as to the full extent of Covid-19 impact.  

It depends on which sector you’re in, though, though. Sectors such as building and construction, home improvements, logistics and businesses in essential services are reporting positive sentiment with strong growth in sales. On the challenging side, are businesses in tourism, retail, hospitality and childcare with references to downwards sales, difficulty in finding staff, freight issues, government regulations, increasing operating and wage costs, and general economic condition and uncertainty. 

Comments from service providers reflected a similar variety of opinions, although there was a general feeling that some franchise systems could do well as the situation improves. The survey was conducted before the lower-than-expected unemployment figures were announced.

The greatest opportunity

The survey also asked: What will provide the greatest opportunity related to franchising development in 2021? Key themes identified by franchisors and service providers included increased number of potential franchisees (from returning New Zealanders, corporate redundancies and former employees), focus on financial metrics (eg. profitability and costs) and franchisee benchmarking, site and asset availability from failing businesses. Also mentioned were market share gains from shrinking competitors, leveraging value of being part of franchise system (eg. strong systems and procedures, franchisor support), low interest rate, border opening, growth of the New Zealand brand and local tourism.

Dr Callum Floyd of Franchize Consultants observes that many franchise systems have weathered the Covid-19 storm (along with many other changing factors) extremely well over the last 12 months. ‘Thinking ahead, the responses highlight the importance of many important franchise system management practices over the year ahead. Some of these practices will be business as usual for many franchisors, however, some which are more strategic will need a much closer focus to ensure franchise networks continue to be positioned well for the long term.’ In the full report, Dr Floyd offers some examples of key management practices for the year ahead. 

Read the full survey report here.

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