Click here for a full copy of the April 2012 Franchising Confidence Index report
Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’
Most indicated current and steady growth. Strong positive responses came from the pet industry, courier services, financial sector and construction. Following from the January quarter, those identified as involved in retail are still challenged somewhat with subdued sales and strong competition; however, the general sentiment was more positive.
Service providers were generally more positive in their outlook for franchisors, reflecting the statistics identified earlier. Improvements were noted for economic stability, access to finance and franchisees, growth prospects generally, and improved consumer confidence.
Franchisors and service providers alike were asked what they perceived to be the greatest challenge to franchising development in the year ahead.
The responses indicate real concern for franchise network growth, particularly relating to unit growth from finding franchisees. Aligned concerns emanate from the economy. Both factors received considerable attention from franchisors and service providers alike.
Technology features as a real focus of challenge and from multiple quarters, including the impact of Internet sales, social media and keeping up with technology generally.
Service providers were also concerned with franchisee confidence and satisfaction, and access to finance. Interestingly, only one franchisor highlighted access to finance as a challenge this quarter. In the previous quarter, it was the second highest theme recorded and featured 10 times by franchisors. Other notable themes with at least two responses included finding suitable locations, legislation/ compliance complicating growth, and competitive forces.
]]>Click here for a full copy of the January 2012 Franchising Confidence Index report
The outlook for 2012 has improved, but sentiment remainsrelativelyvariedand negative in certain sectors.
Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’
Positively, of the 33 franchisors, almost half (16) reported current and/or expected sales growth. Of these, a number indicated strong levels of sales growth – particularly those involved with pet care, but also selected domestic and/or commercial service companies.
Only two franchisors stated good franchise recruitment sales and one noted specific mentioned improved margins.
For those more challenged seven reported flat, patchy, plain difficult or just uncertain trading conditions. Notably, five of the seven identified themselves as retail and three complained of margin, profit, cost containment and/or landlord issues.
Views from those involved in construction remain challenged, but the outlook is improving slightly.
Other responses variously referred to the negative impact of external factors, such as the World Cup (diverting spending), cheap imports (as substitutes) and rub off in consumer confidence and spending from international economic concerns.
Service providers were similarly contrasting in their perception of how things looked for franchisors and franchisees generally.Specific challenges outside the general economic malaise included employees wanting more (after a period of low wage inflation), changing consumer behaviour reducing discretionary spending, increased competition, continued franchisee margin and profitability pressure, slow franchisee recruitment, and failures of poorly prepared franchise systems. By contrast, positive mentions included new outlet and system concept growth, perceptions of stabilising input costs with low inflation, improved access to quality sites, franchisees and access to finance.
Greatest Challenge to Franchising Development in 2012
Franchisors and service providers alike were asked what they perceived to be the greatest challenge to franchising development in the year ahead (see full report for illustration).
The responses indicate real concern for franchise network growth, with both franchisors and service providers indicating challenges associated with finding suitable franchisees and aligned prospective franchisee confidence to invest.
Access to finance for franchisees rated next for franchisors, followed by challenge, fear and uncertainty relating to the general economic outlook. The latter concern (economic factors) rated most highly for service providers. Other notable concerns (with at least two responses from franchisors and service providers combined) included finding suitable locations, franchisee profitability and return on investment, consumer sentiment, relationship pressures, franchisee complacency or business execution and franchisor resources.
]]>Click here for a copy of the full October 2011 report
(Previous reports: April 2010 , July 2010 , October 2010, January 2011, April 2011, July 2011 )
Franchisors (22%) and service providers (14%) are less positive in their outlook for sales levels per franchisee. Sentiment toward franchisee operating costs remained firmly in negative territory with franchisors and service providers reporting a net -31% and -27%, respectively. Sentiment for franchisee profitability levels also fell. Franchisors’ outlook for franchisees bottom line fell to 3%. Comparatively, service providers combined for a net -23%, after a year of limited optimism in their outlook for franchisee profitability levels.
In summary, both groups share the view of an imminent slow year and inevitable tough business conditions with various external factors influencing the economy.
Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’
Most franchisors were finding trading challenging, although sentiment did vary markedly by sector.
Although there have been more enquiries, franchise recruitment remains a challenge. As one franchisor noted “attitude to risk is still very conservative...finding the right people with sales ability is as difficult as ever”. This is reflected in the striking results for access to suitable franchisees.
Franchisors across a number of sectors have also noticed customers being more prudent with their spending. Customers tend to be only spending to meet immediate essential requirements making selling extra services a harder task. This is echoed by the view of a service provider who responded “[t]he global economic issues are still impacting on business confidence and consumer spending.”
The entrance of international brands can bring an upswing for the market as pointed out by a service provider. However, some franchisors have also felt more pressure from increased competition within their sector. The availability of cheaper and more convenient alternatives for accessing goods (including the internet) are shifting consumers away from the conventional retail store experience. This coupled with high rent greatly concerns some.
A few franchisors reported enjoying growth, particularly one in B2B that has experienced 22 consecutive months of same store sales growth. However, the majority indicated sales and margins pressures due to a reduction in spending, increased operating costs, and tighter financing conditions. Franchisors in the automobile and building and construction sectors are still finding it difficult to lift sales levels, and some sectors continue to feel repercussions from the Christchurch earthquakes.
]]>Click here for a copy of the full July 2011 report
(Previous reports: April 2010 , July 2010 , October 2010, January 2011, April 2011)
In summary, both groups continue to acknowledge that times remain tough. However, many felt steady improvements were being made and the outlook appears more positive.
Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’ In addition, both groups were asked about how they think the upcoming Rugby World Cup will impact upon franchising operations.
Franchisors indicated a mix of experiences. Most notably, the building and construction sector remains particularly challenged. One franchisor noted: “The worst I have seen it in 49 years of building.” Another stated: “Heading for record low residential consent numbers in 2011.” They were not alone.
Others joined with challenges, including those involved in automobile related businesses – where challenges were variously related to the Japan earthquake and tsunami, volatile petrol prices, and increased competition.
Some sectors feel that the pressure on discretionary income is not helping their business get out of the flat trend. Maintaining the status quo is their immediate goal.
At the other end of the spectrum, some franchisors and sector groups report a general stabilisation and/or increased demand. Interestingly, only a small number of franchisors indicated that they were enjoying good sales. Discouragingly, none reported fast growth.
Overall, the views of service providers mirror the thoughts of franchisors with both groups agreeing the impact of the Rugby World Cup on franchise operations will be negligible.
A “short burst of joy” may drive some positive sales and regain confidence but benefits in the long-run are not foreseeable in the future. To some respondents, the Rugby World Cup poses a distraction that will draw focus away from franchise owners.
]]>Click here for a copy of the full April 2011 report
(Previous reports: April 2010 , July 2010 , October 2010, January 2011)
In summary, as per the last survey, both groups continue to see challenging times ahead for franchised businesses in 2011 and early 2012.
Franchisors were asked how things are looking in their sector and how the Christchurch earthquakes had impacted franchising operations and their outlook.
Accordingly, it is clear the February 22 quake and subsequent aftershocks have proved particularly damaging and have affected franchising and business confidence. There have been many franchisee store or unit closures (whether temporary or permanent) and there is an over-riding feeling of uncertainty.
Both franchisees and franchisors have been impacted. Many franchisees face various issues right across their business, such as problems relating to income, essential services, insurance, work-in-progress, suppliers, locations and finance.
For franchisors, there are issues with royalty payments, increased support costs, advanced supplies, growth plans and finance. For some franchise systems, the Christchurch earthquakes have heightened viability concerns for both franchisees and their franchisor.
Some franchisors and franchisees have been severely affected:
“Very hard impact. We have a number of retail outlets seriously affected and not operating. The outlook for any growth in this area is very unlikely over the next two years.”
“We lost 1 franchise store and could not replace at the same occupancy costs. Rentals have been artificially inflated. We are closing a second store which is near a suburb badly affected and which has been depopulated. We do not anticipate business getting back to normal in the following 2 years at least. This is our second biggest city and will therefore have a significant impact on the overall business.”
Most franchisors report a direct impact on business whether through permanent or temporary store/unit closures and subsequent reductions in demand and sales.
Many franchisees have dealt with temporary store closures and have now commenced trading.
Meanwhile, the outlook for some is more uncertain.
“The earthquakes have impacted us with closed stores and unknown dates for access to some of those stores affected.”
“Currently our Christchurch store is sitting in a 40ft container. We don't expect to be trading in Christchurch for at least 6-9 months. We also would not want to re-open until the city location is ready and in a position to trade at a profitable level.”
In contrast, some affected franchisors (though few in numbers) have noted increased demand following the earthquakes, often due to competitive closures (whether permanent or temporary) or changes to purchasing patterns and/or business strategy (e.g. increased demand for virtual office services).
“We have six stores in the Christchurch area and have been very fortunate to have none greatly affected by the earthquake. Revenues in those six stores are actually higher than expected due to high demand for products/services when the city was shut down.”
However, more than 25% of respondents reported store closures within their comments, including a number of permanent closures.
More broadly, franchisors report a mixed outlook for the next twelve months with the majority noting either negative or middling demand growth. Some however, do note growth and in some instances strong growth. But overall there is a cautionary outlook and it is not expected the Rugby World Cup will provide more than a short-term injection.
Franchisors variously note differences by region and the impact of the Christchurch earthquake, either through local operations or the flow on effects. Franchisors also touch on consumer discretionary spending pressures, such as increased food and fuel costs, and note consumers taking more care and being more risk averse.
Pricing pressures are also evident due to competition and/or customers expecting more from their money. Finally, financing continues to remain a stated growth challenge for some.
]]>Click here for a copy of the full January 2011 report
(Previous reports: April 2010 , July 2010 , October 2010)
In summary, as per the last survey, both groups continue to see challenging times ahead for franchised businesses in 2011.
Franchisors were asked ‘how things are looking in their sector,’ and service providers ‘how things are looking for franchisors and franchisees (generally).’
Responses were mixed with more franchisors expecting economic deterioration than improvement. Many challenges were noted (across sectors) including the Christchurch earthquake, few forward sales, demand for low-cost (versus premium) products, depressed demand from consumers not spending, increased competition, lower supplier loyalty, margin pressure, lease problems and issues with access to capital.
Conversely some franchisors were more optimistic (again, across sectors), noting increased interest from prospective franchisees, returning consumer confidence, increased sales, average spend and conversion rates.
Clearly, as noted by franchise service providers, there are substantial challenges ahead for businesses – franchised or otherwise. The business environment is expected to remain uncertain at best. Meanwhile, eroding franchisee sales and profitability pressure the franchise relationship.
]]>Click here for a copy of the full October 2010 report
(Previous reports: April 2010 & July 2010)
Franchisors were asked ‘how things are looking in their sector,’ and service providers ‘how things are looking for franchisors and franchisees (generally).’ Franchisor comments indicate huge variations in current and expected sales activity. Indeed comments range from “still very grim” to “solid and looking promising.” On balance sales were challenging, but expected to improve – with some franchise systems more positive than others.
Clearly challenges exist within many sectors with competition driving margin erosion and some customers internalising tasks previously outsourced to franchise companies. A number of franchisors also note profit pressure due to rising inputs costs, rents and inflexible landlords.
Access to financing is also raised. Bank lending criteria has changed and one franchisor notes the development of alternative funding sources. Aligned levels of franchisee enquiries are slow, with few qualified enquiries cited, generally – however, two franchisors cited good, strong potential growth prospects.
Franchise service provider comments reflect the uncertain environment. Most note “uncertainty” and expect a slow recovery at best. Comments such as “tougher work to make the same dollar” and “it will be a tough year ahead” show service providers expect challenging times for many franchisors and franchisees to continue.
Franchise challenges cited included tougher bank lending criteria, GST impact short-term (affecting required working capital), increasing struggling franchisees and royalty delinquency rates (i.e. franchisees not paying franchisor royalty income), difficulties maintaining confidence in the franchise system, and workplace competition for prospective franchisees.
On a more positive note, service providers note the potential for further interest in franchising from increased redundancy levels, examples of franchisees de-leveraging and favourable leases renegotiations.
Moving forward there is a recognised need for franchisors to review, streamline and improve their networks, and increase focus on franchisee profitability levels. Externally, it suggested the government provide more focused interest and SME support as per the USA and UK.
Dr Callum Floyd, Director of Franchize Consultants, who undertakes the survey, notes:
“The continued downward trend in sentiment and low levels of expectations for many key franchising variables is of considerable concern to franchisors and franchisees, and should concern the wider economy and government.”
“Franchising is pervasive covering many important sectors of business from grocery to home services, and is a great contributor to job growth, business training, SME compliance (due to good business systems) and GDP. But it requires the right environment including, crucially, access to capital for expansion and confidence.”
“Many well-known (and lesser-known) franchisors and franchisees have been hammered by the economy and continue to trade and battle despite considerable adversity. They do not crave handouts but they are desperate for an environment that fosters positive business growth and development.”
“It’s time government recognised franchising properly for its contribution, and needs.”
]]>Click here for a copy of the full report
Franchisors and service providers, alike, are less confident about the year ahead for franchisors and franchisees than they were in April. Moreover, both groups reveal falling (and worrying) sentiment across a number of key franchising performance indicators.
Franchisors and associated franchisees are finding trading difficult – exacerbated by increasing competition, falling business and consumer confidence and spending, cheaper imports, rising costs and falling margins.
As the comments indicate sales levels are challenging for many systems across retail and service sectors. However there are exceptions, including retail grocery, freight, travel and computer repair examples.
Comments are typified by one service provider who notes “[c]onditions should get no better but also no worse. It's a matter of continuing to ‘hang on’...”
Overall, conditions again remain tough for franchisors and franchisees alike.
]]>As demonstrated by the following, the economic backdrop is currently mixed to fair:
We look forward to results from the July Franchising Confidence Index survey. Franchisors and service providers will be surveyed between Monday 28 June and Friday 2 July (5 days). Results can be expected by Wednesday 7 July.
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