Outlook improves for NZ franchisors, franchisees

For the 13th year running, Franchize Consultants’ annual Franchising Confidence Index has measured the mood of the sector, revealing predictions and insight from franchisors and specialist service providers.

After the turbulent times of recent years, responding franchisors were much more positive about general business conditions, access to financing, franchisees, and suitable staff. They were also generally more positive about franchisee topline sales levels, although there were concerns for franchisee operating costs and the resultant impact on franchisee profitability levels.

Franchisors were also more positive about their own growth prospects, seeing opportunities for improvement with technology, increased benefits associated with franchising (from a franchisee vs independent business perspective), growth and marketing. Key challenges included access to finance, franchisees and staff. 

They identified the top trends impacting franchising in New Zealand as the future regulatory environment and changing customer expectations. Other notable trends included Artificial Intelligence, changing demographics and diversity, changing community expectations, supply chain transparency, trends related to climate change, water and other resource management issues.

General Business Conditions

Franchisor outlook for general business conditions showed good improvement from a net negative 38% in January 2023 to a net positive 26%. Service Provider sentiment reflected franchisor sentiment, but grew to a far more positive 63%.

This improvement in confidence from franchisors mirrored other research with general businesses. The latest ANZ New Zealand Business Outlook showed business confidence at positive net 37% in January 2024 – up from a negative 52% in 2023.

Similarly, the NZIER Quarterly Survey of Business Opinion showed much improved business confidence, albeit negative, rising from -73% (January 2023) to -10% (January 2024).

Highlights

• Vast improvements were recorded for franchisor growth sentiment. Franchisor outlook improved from 0% to 31%. Service Provider sentiment toward the same improved markedly from -33% (2023) to a very high positive 70% (2024).
• Franchisor outlook for access to suitable franchisees showed good improvement from a net negative 23% in January 2023 to a net positive 26% (2024). Service Provider sentiment grew from a positive 26% (2023) to 40% (2024).
• Franchisor outlook for access to financing showed great improvement from a very low and net negative 70% in January 2023 (lowest recording) to a net 0%. This still suggests challenges for 2024. Service Provider sentiment grew from a negative -31% (2023) to a positive 47% (2024).
• Franchisor outlook for access to suitable locations tempered from a net 13% to 9%. Service Providers reflected this drop in sentiment - moving from 46% (2023) to 33% (2024).
• Franchisor outlook for access to suitable staff improved from a net negative 14% to a more positive 21%. Service Provider sentiment also grew from 23% (2023) to 47% (2024).
• Franchisor outlook for franchisee sales levels improved from a net negative 13% to a more positive 20%. Service Provider sentiment grew strongly from a more negative -46% (2023) to a net positive 27% (2024).
• Franchisor outlook for franchisee operating costs continues to present a huge area of concern, albeit the outlook is better than 2023. Franchisor sentiment moved from a net -73% (2023) to -46% (2024), while Service Provider sentiment similarly improved from -69% (2023) to -33% (2024).

With regard to access to suitable franchisees, Sally Knight of Franchise New Zealand reported to a webinar about the FCI results that, after a quiet start due to good weather, 2024 had seen much higher levels of enquiries via the franchise.co.nz website for more information from advertisers, with more repeat visitors spending a longer average time on the site. She noted, 'These figures are the highest we've seen since pre-Covid years.'

Franchising Outlook

Franchisors were asked for qualitative responses on how things were looking in their sector. 34 franchisors responded from a variety of self-reported industries such as commercial and home services, construction, trade, retail, hospitality, automotive, and health & wellness.

Most franchisors noted headwinds. Almost 30% referred to customer cost of living concerns leading to reduced demand, sales and/or margin. Other headwinds included finding franchisees, the slowdown in new home construction, the housing market generally, interest rates, inflationary cost pressures (eg. material & labour costs), competition, finding staff and compliance costs.

A notable bright spot appeared to be travel, with the following noted: ‘Travel is booming.’ Other positive comments related to changes from new government policy, increased migration and access to staff, and demand improvements (albeit limited to a few respondents).

About the Survey

The Franchising Confidence Index is carried out annually by Franchize Consultants (NZ) Ltd and represents the views and expectations of the franchise sector. The data and analysis presented represents the views of 34 franchisors and 16 service providers collected between 14th and 31st January 2024.

See the full report at https://www.franchize.co.nz/wp-content/uploads/2024/02/franchisingconfidence44.pdf

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