What's ahead? Good, bad and goodness knows

Franchize Consultants’ latest quarterly Franchising Confidence Index reflects general caution about the potential impact of local and worldwide uncertainties, with particular concern about access to finance and potential staff shortages. Conversely, there’s very positive sentiment toward franchisee sales levels and both franchisors and franchise service providers still see strong growth prospects ahead.

Franchisor sentiment toward access to financing dipped to a net negative 21 percent but service providers didn’t agree, with sentiment increasing from a net 7 percent to a net 14 percent

Daniel Cloete of Westpac says that the concern about access to finance is surprising, given the large number of franchise finance deals that the bank is currently approving. ‘I suspect the reason for the discrepancy is that many of the franchisors responding to the survey were from the lower investment service sector. With house prices and personal debt at very high levels, their prospective franchisees may find it difficult to find finance because of debt servicing issues – ie, their personal debt could be too high to service from the projected business income. In general, as long as the numbers work, though, franchise finance is readily available.’

Both franchisors and service providers are concerned about the availability of suitable staff, though, with franchisors going from a net negative 16 percent last quarter to negative 22 percent, and service providers from 0 percent to net negative 50 percent. Both groups appear to be showing caution based on perceived challenges with upcoming government changes to the immigration policy.

Although franchisors in industries such as hospitality and retail have previously expressed concerns about the additional cost implications of the higher minimum wage, some franchisors have told Franchise New Zealand that they are already paying above minimum wage in order to attract and retain suitable staff and see the increases as less of an issue than immigration. This may be reflected in ongoing concerns about franchisee operating costs and franchisee profitability levels. Refinements of some franchises’ business models may be required if staffing costs continue to rise, with more reliance upon technology as is already evident in the supermarket space.

On the positive side, franchisor sentiment toward access to suitable franchisees has shown improved sentiment this quarter after hitting an all-time low in January, although still at a net negative 20 percent. Service providers who had been more positive previously have dipped to a neutral 0 percent from net 7 percent, reinforcing the point that good franchise buyers in a high demand – great news if you’re looking for a business. It’s also worth noting that both franchisor and service provider sentiment toward franchisee sales levels were very strong. Franchisors recorded a positive increase at a net 50 percent, up from 28 percent. Meanwhile, service providers registered an improvement from net 7 percent to net 36 percent.

Implications

The data and analysis presented represents the views of 26 franchisors and 14 service providers collected between Tuesday 3 April and Friday 13 April 2018. Read the full report here.

Dr Callum Floyd of Franchize Consultants comments, ‘As we referenced in our October survey, records show there is often uncertainty around election years – more so when there has been a change in government. We note that these dips in general business confidence do tend to rally again once changes settle. It will be particularly interesting to see if the next few quarters reflect what has occurred previously.

‘There are still levels of concern regarding regulatory changes; however, growth prospects are still seen as being high from the perspective of both franchisors and service providers.’

click the chart to view full size

We welcome links from other websites to this article. Please note that this article is copyright © Eden Exchange NZ Holdings Limited, Franchise New Zealand magazine and Franchise New Zealand On Line. While it may be downloaded for personal use, no part may be reproduced on any other website, in electronic or printed form or in any other form whatsoever.