KEY HIGHLIGHTS

Franchize Consultants’ January 2023 Franchising Confidence Index sets the stage for the year, with 30 franchisors providing a window into current and more long-term opportunities and challenges.

• Franchisor outlook for general business conditions showed further deterioration to net negative 38% in January 2023 from net negative 27% in January 2022.

• Franchisor sentiment for their growth prospects softened to net 0%, from net 14% in 2022.

• Franchisor sentiment towards access to suitable franchisees remains at a similar level from 12 months ago at net negative 23% from net negative 27% in 2022. 

• Franchisor sentiment towards access to financing remains at an all-time low at net negative 70%, the lowest net confidence recorded since the Franchising Confidence Index was established in 2010. 

• Franchisor outlook on suitable locations remains largely unchanged at net 13% from net 9% in 2022. 

• Franchisor outlook towards access to suitable staff improves (whilst still remaining negative) to net negative 14% following a strong decline to net negative 78% in 2022. 

• Franchisors sentiment towards future sales levels per franchisee shows a hint of positivity at net 13% from net 0% in 2022.

• Franchisee operating costs remain a concerning area – with franchisors sentiment at net negative 73%, no change from last year.

• Franchisor outlook on franchisee profitability levels improves from net negative 43% in 2022 to net negative 13% in 2023.

Greatest Challenge to Franchising Development in 2023

Franchisors were asked for qualitative responses on how things were looking in their sector. 30 franchisors responded from a variety of self-reported industries such as construction, retail, hospitality, home services, education, and health and fitness. 

Some franchisors, depending on the sector they operate in, are positive and upbeat with strong demand for their products and services. On the other hand, some franchisors are expecting a challenging year ahead with major issues with finding staff, inflationary pressure on operating costs and squeezed margins.

Greatest Opportunity for Franchising Development in 2023

This year we once again asked franchisors what they perceived to be the greatest opportunity related to franchising development in the year ahead. Key themes identified include better availability of premises/sites (potentially with better terms), a focus on reducing costs and improving labour efficiency, launching new products, developing existing franchisees into multi-site owners, and securing work for franchisees with national coverage. Some franchisors feel the slowdown in the economy may lead to instability in jobs and redundancies generating more enquiries for franchising.  

Concluding Comments

The current operating environment and associated outlook is clearly tough for many businesses and franchise systems with high inflation and climbing interest rates over the last 12 months, and the prediction of a recession in 2023.

It is therefore not surprising Franchize Consultants’ Franchising Confidence Index in 2023 indicates growing challenges for franchisors and franchisees alike with franchisor outlook on general business conditions falling to net negative 38%. Franchisors were particularly pessimistic on access to financing and franchisee operating cost levels while finding franchisees and suitable staff remain a challenge.

While franchisor sentiment on general business conditions may be in line with other New Zealand business surveys, we suggest franchisors should, if not already, be considering taking any opportunity to review and improve their franchise business model, associated franchise structure and management. Changes that can improve the outlook for franchisee and franchisor value creation are encouraged to strengthen the long-term sustainability of the system.

Franchising Confidence Index Background

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 30 franchisors collected between 13th and 31st January 2023. Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

Franchize Consultants’ January 2022 Franchising Confidence Index sets the stage for the year, with 37 franchisors providing a window into current and more long-term opportunities and challenges. 

• Franchisor outlook for general business conditions shows deterioration to net negative 27% in January 2022 from net 20% in January 2021.

• Franchisor sentiment for their growth prospects softens to net 14%, down from net 31% in 2021.

• Franchisor sentiment towards access to suitable franchisees returns to net negative 27% in 2022 following improvement to net 23% in 2021.

• Franchisor sentiment towards access to financing deteriorates further to an all-time low at net negative 70%, the lowest net confidence recorded since the Franchising Confidence Index was established in 2010.  

• Franchisor outlook on suitable locations remains largely unchanged at net 9% from net 14% in 2021. 

• Franchisor outlook towards access to suitable staff shows a strong decline to net negative 78% following from an improvement in 2021. The net negative 78% is the lowest net confidence recorded for this measure since the Franchising Confidence Index was established.  

• Franchisors sentiment toward future sales levels per franchisee declines to net 0% from net 13% in 2021.

• Franchisee operating costs remain a concerning area – with franchisors sentiment worsening to net negative 73% in 2022 from net negative 40% in 2021. 

• Following a similar trend to franchisee sales and operating costs, franchisor outlook on franchisee profitability levels decline to net negative 43% in 2022 from net negative 7% in 2021.

Greatest Challenge to Franchising Development in 2022

We asked franchisors what they perceived to be the greatest challenge to franchising development in the year ahead. 13 of the 35 responding franchisors identified finding suitable staff as the top challenge to their development. This is followed by COVID-19 and the uncertainty it brings with 11 franchisors identifying it as a challenge. 

Other challenges highlighted by franchisors include finding suitable franchisees, access to funding (or funding with reasonable interest rates), government regulations, rising inflation and supply issues.

This year we once again asked franchisors what they perceived to be the greatest opportunity related to franchising development in the year ahead. 29 of the 37 franchisors were able to provide a response. Key themes identified by franchisors include better availability of premises/sites, increased number of potential franchisees (from people returning to New Zealand and people looking for self-employed opportunities), market share gains from failing competitors, diversification into other new products and services and new channels (e.g. e-commerce).

Concluding Comments

The first case of COVID-19 in New Zealand was reported on 28 February 2020. Now almost two years later, we await the peak of another variant and its damaging effects to the country and businesses. 

It is therefore not surprising Franchize Consultants’ Franchising Confidence Index in 2022 indicated declining sentiment among franchisors with outlook for general business conditions falling to net negative 27%. 

Franchisors were particularly pessimistic on availability of staff, access to financing, and franchisee operating costs and profitability levels. Other challenges identified for the year ahead included rising costs, issues with supply, the impact of COVID-19 and the uncertainty associated with Omicron, and, government regulations. 

Better availability of premises/sites, a potential larger pool of prospective franchisees, market share gains from failing competitors, new product/service offerings and new channels are expected to provide the greatest opportunity related to franchising development for 2022.

Franchize Consultants observe the ongoing and incredible resilience of many franchise systems, including both franchisors and franchisees, that continue to weather the COVID-19 storm. Furthermore, many franchise systems continue to adapt their offerings and operations, and provide considerable new support (in various forms) to franchisees.  

Looking ahead the immediate issue is dealing with Omicron and its effects. From there, franchisors and franchisees will hopefully [be able to] move towards more strategic planning and operating certainty.   

Examples of key management issues for the year ahead will include:

1. Continued close monitoring of franchisor and franchisee performance from both a profitability and sustainability perspective, then identifying, prioritising and actioning key performance or situational improvement opportunities and needs. This will include cost containment measures in view of price and labour cost increases. 
2. A focus on factors relating to team (franchisor and franchisee staff) wellbeing and retention, given the previous years, ongoing uncertainty and tight labour market.   We’d also note the importance of focusing on individual team learning and development, an area that has been difficult to plan during COVID-19 times. Franchise companies really need to be positioning themselves as an employer of choice. 
3. Strategic and contingency planning, planning for possible ongoing COVID-19 effects – along with changes/innovations required from other moving factors, like customer needs and behaviour, key economic variables (e.g., interest rates, inflation, economic growth, labour supply, property values, legislative changes, etc), technology, workforce trends, climate issues, etc.      
4. Franchise structure and management adaptation to a changing environment, including potential changes to franchisee and franchisor roles, resource requirements and processes, communication structures, manuals and training systems, franchise agreements, information structures, and so on. The last two years have seen a reduction in this work. Future changes will be needed. 
5. Continued high levels of franchisee engagement, including a focus on supporting group and individualised franchisee circumstances, needs, franchisee plans and objectives. Engagement will also be important for future franchisee adaptions from needed innovation and franchise structure changes.

Franchize Consultants further comments that many New Zealand franchisors continue to be incredible in their response to COVID-19, including their outstanding support to franchisees, and significant adaptive undertakings at both a franchisor and franchisee level.  

Franchising Confidence Index Background

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 37 franchisors collected between 18th January and 1st February 2022. Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

Franchize Consultants’ January 2021 Franchising Confidence Index sets the stage for the 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. Whist still positive at a net position, the outlook for franchisee sales has declined compared to 2020 and franchisees’ operating costs and access to finance remained concerning for franchisors.

2021 clearly brings the additional challenge of COVID-19, with the fear of another outbreak or lockdown, closed borders, and uncertainty as to the full extent of COVID-19 impact.

When asked on how things were looking among franchisors, comments were mixed depending on the sector of the business. Unsurprisingly, positive sectors included building and construction, home improvements and logistics. Meanwhile, less positive sectors included, for example, tourism, retail and hospitality.

• Franchisor outlook for general business conditions (net 20%) shows strong improvement from 2020’s net negative 30%. Service Providers sentiment is also positive increasing from net 21% to net 62%.

• 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%.

• Franchisor sentiment towards access to suitable franchisees has seen the greatest improvement reaching net 23%, and is back in positive territory for the first time since 2017. Service Providers were also very positive at net 75%, the highest level in history of the Franchising Confidence Index.

• Franchisor sentiment towards access to financing remained unchanged from 2020 at net negative 30%. Service Providers’ confidence was more positive improving from net negative 7% to net positive 33%.

• Franchisors, at net 14%, up from net 9% in 2020, were slightly more positive this year in their outlook for access to suitable locations. Service Providers were much more positive at net 69% up from net 29%.

• Similar to access to franchisees, franchisor outlook towards access to suitable staff has seen strong improvement reaching net 7% from net negative 36%, bouncing back to positive territory since 2014. Service Providers were also positive at net 17%, from net negative 36% in 2020.

• Franchisors sentiment toward future sales levels per franchisee has taken a hit, declining to net 13% (from net 39%). Meanwhile, Service Providers sentiment toward the same improved slightly from net 29% in 2020 to net 33%. 

• Franchisee operating costs continue to be a concerning area – with franchisors recording a net negative 40%. Service providers were similarly dismal, recording a net negative 58%.

• Franchisor outlook toward franchisee profitability levels remained largely stable at net negative 7%, compared to net 0% in 2020. Service Providers changed from net negative 21% in 2020 to net negative 17%. 

Greatest Challenge to Franchising Development in 2021

We asked franchisors what they perceived to be the greatest challenge to franchising development in the year ahead. 11 of the 27 responding franchisors identified COVID-19 and the uncertainty it brings as the top challenge to their development. The fear of another outbreak or possible lockdown, closed borders and unknown of the full extent of the impact of COVID-19 were included within the comments made.

The next greatest identified themes, each with six responses were finding suitable/good quality staff (for both franchisor and franchisees) and access to finance. A perception that banks have tightened up on lending was mentioned by some franchisors. 

High operating costs (associated with increasing wage cost and rent in mall locations), and access to good franchisees remained as challenges highlighted by three responses each.

Greatest Opportunity for Franchising Development in 2021

This year we once again asked Franchisors and Service Providers what they perceived to be the greatest opportunity related to franchising development in the year ahead.  A wide variety of internal and external factors were cited. 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 (e.g. profitability and costs) and franchisee benchmarking, site and asset availability from failing businesses, market share gains from shrinking competitors, leveraging value of being part of franchise system (e.g. strong systems and procedures, franchisor support), low interest rate, border opening, growth of the New Zealand brand and local tourism.

Concluding Comments

Franchize Consultants’ Franchising Confidence Index in 2021 indicated improvement in sentiment, particularly relating to general business condition, access to franchisees and access to suitable staff. There were, however, continued negative sentiment towards franchisees’ operating costs and access to finance. Increasing wages and rent appear to be most concerning regarding franchisee operating costs. 2021 has the added challenge of COVID-19 and the uncertainty it brings with mixed outlook among franchisors dependent on sector. A potential larger pool of prospective franchisees from returning Kiwis, corporate redundancies and former employees, a greater focus on franchisee benchmarking and financial metrics such as profitability and costs, and the availability of sites and assets from failing businesses, were expected to provide the greatest opportunity related to franchising development for 2021.

Franchising Confidence Index Background

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 30 Franchisors and 13 Service Providers collected between Wednesday 20th January and Tuesday 2nd February 2021.  Findings from both groups are reported separately.  

Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

Franchize Consultants’ January 2020 Franchising Confidence Index sets the stage for the next decade, with 24 franchisors providing a window into current and more long-term opportunities and challenges. Declines in positivity, apparent since 2015, continued to hold. Franchisors remained negative, on balance, in five out of nine measures. There were, however, important positives. In particular, franchisors had a strong positive outlook for sales levels per franchisee and, whilst to a lesser extent, their own growth prospects. Standout challenges this year relate to finding franchisees, and, increasing regulations and compliance. Both challenge areas also important for the next decade, along with adaptation to threats and opportunities provided by technology.

• Franchisor outlook for general business conditions (net negative 30%) showed slight improvement from the October 2019 of net negative 32%, whilst Service Providers sentiment stayed the same at net 21%. 

• Franchisor sentiment for franchisor growth prospects, showed improvement at a net 17% up from net 4% bringing it in line with January 2019 sentiment.  Service Providers' net 21% also improved from net 7% in October

• Franchisor sentiment toward access to financing worringly also remained negative, at a net negative 30%. Service Providers confidence was less positive dropping from 7% to a net negative 7%.

• Franchisors sentiment toward  access to suitable franchisees has been seen as the greatest challenge for some time. This remains at net negative 30% (previously net negative 60%). Service Providers at a net negative 7% ( down from net 7%) were more positive, on a relative basis.

• Franchisors continue to indicate their outlook for access to suitable staff remains a critical challenge at net negative 36%. Service Provider confidence met with that of franchisors at a net negative 36% (down from net negative 7%).

• Franchisors, at net 9%, up from net 4%, were slightly more positive this quarter in their outlook for access to suitable locations. Service Providers were more positive at net 29% up from a net 14% in October.

• Franchisors sentiment toward future sales levels per franchisee has been steadily increasing with current view at a positive net 39% (from net 24%). Service Providers sentiment also increased to net 29% up from 14%.

• Franchisee operating costs continue to be a concerning area – with franchisors recording a net negative 43%. Service providers were similarly dismal, recording a net negative 57%. 

• On a more positive note, Franchisor outlook toward franchisee profitability levels recorded a net 0%, up from net negative 12%. Service Providers were improved from a net negative 43% in October 2019 to a net negative 21%.  

• Franchisors identified top three challenges to franchise development in 2020 as 1) finding franchisees, 2) increasing regulation and compliance, and 3)access to finance

• Franchisors identified many improvement opportunities for the year ahead covering areas, low interest rates, site availability, technology, government policy changes and growth through new offerings. 

Greatest Challenge to Franchising Development in 2020 

For the ninth year running franchisors were asked what they perceived to be the greatest challenge to franchising development in the year ahead. The number one challenge continued to be finding suitable franchisees, followed by increasing regulation and compliance and access to finance. Other notable challenge themes included finding suitable locations and franchisee investment and costs. 

Greatest Opportunity for Franchising Development in 2020

This year we once again asked Franchisors and Service Providers what they perceived to be the greatest opportunity related to franchising development in the year ahead.  A wide variety of internal and external factors were cited. Key themes identified by Franchisors and Service Providers included low interest rates within a stable economy, site availability due to demise of smaller businesses, growth through new offerings, generational changes in franchisees, review of model to assess all areas of opportunity, investment in infrastructure, technology, and, government policy changes including potential election outcomes. 

What do you expect to be the greatest challenge/opportunity for franchising this decade? 

This year we also sought insights from Franchisors and Service Providers into what they regard as key challenges for the new decade, which were different from just the 2020 year. Challenges associated with finding suitable franchisees continued. In addition, other key challenges cited included changes to business and franchising legislation (including the impact from Australian franchising regulations), rising operating costs, innovation and adaptation relating to technology, and, changing population demographics.

Concluding Comments

Franchize Consultants’ January 2020 Franchising Confidence Index sets the stage for the next decade, with 24 franchisors providing a window into current and more long-term opportunities and challenges. In terms of sentiment for the year ahead, declines in positivity apparent since 2015 continued to hold. Franchisors remained negative, on balance, in five out of nine measures. There were, however, important positives. In particular, franchisors had a strong positive outlook for sales levels per franchisee and, whilst to a lesser extent, their own growth prospects. Standout challenges this year relate to finding franchisees, and, increasing regulations and compliance. Both challenge areas also important for the next decade, along with adaptation to threats and opportunities provided by technology. 

Franchising is not alone in lacking strong confidence toward future business conditions, as earlier comparisons to key New Zealand general business surveys have indicated. Key will be ensuring that this backdrop of general poor sentiment does not limit positive steps, innovation and investment directed toward continually improving franchise system performance and associated franchisor and franchisee returns.

We at Franchize Consultants note the general resilience of franchising systems; however, it remains our view that much can be done to better future-proof franchise networks and build more valuable and sustainable businesses for franchisors and franchisees alike. We maintain that vigilance in identifying and acting on making improvements and change, where required, is imperative to ensure long-term franchise system returns and sustainability. 

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 23 franchisors and 14 Service Providers collected between Monday 20th January and Monday 2 February 2020.  Findings from both groups are reported separately.  Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

The Franchize Consultants’ October 2019 Franchising Confidence Index indicates continued subdued sentiment.

• Franchisor outlook for general business conditions dropped after a brief rise in July (net 10%) to net negative 32%, the lowest seen in the history of the survey. Service Providers sentiment improved from net 0% to net 21%.

• Franchisor sentiment for franchisor growth prospects, was less positive from a franchisor viewpoint at net 4%, down from net 50%. Service Providers however remained stable at net 7% up from net 6%.

• Franchisor sentiment toward access to financing continues to be challenging with the sentiment oscillating quarter to quarter. After last quarter’s rise in sentiment to net negative 5% it has dipped to net negative 44% this quarter. Service Providers sentiment is less concerned recording net 7% up from net 6%. 

• Franchisor sentiment toward access to suitable franchisees, after a brief softening, has reverted to a key challenge once again at net negative 60%, down from net negative 10%. Service Providers again were stable in their sentiment at net 7%, up from net 0%.

• Franchisors sentiment towards suitable staff has remained stable in October at net negative 38% however still remains a key area of focus. Service Providers sentiment eased to net negative 7% up on the net negative 25% previously.

• Franchisors sentiment toward finding suitable locations at net 4% (previously net 11%), whilst still an area requiring focus, is staying stable.Service Providers continue to be more positive at net 14%, although down from a previous net 53%.

• Franchisors sentiment toward future sales levels per franchisee remains buoyant in comparison with other areas, at a net 24% (previously net 50%). Service Providers sentiment is similar at net 14%, down from net 25%.

• Franchisee operating costs has always been a very challenging area and remains so from both Franchisors and Service Provider viewpoints. Franchisors sentiment dipped slightly, from a net negative 30% to a net negative 36% for October. Service Providers sentiment eased slightly but remains at very low levels with net negative 57%.

• Franchisor sentiment regarding franchisee profitability levels, after showing a steep improvement for July at net 25%, has dipped back to net negative 12%. Meanwhile, Service Provider sentiment remained low at net negative 43% in comparison to net negative 50%. 

Concluding Comments 

Franchize Consultants’ Franchising Confidence Index in October 2019 indicates growing challenges for franchisors and franchisees alike. Key features were challenges with demand, new regulation and policy decisions, competition, rentals and finding both franchisees and staff. Some companies noted growth but were constrained by recruitment and concerned with margin compression.

The operating environment and associated outlook is clearly tough – and many businesses have been further impacted by e-commerce and changes with digital technology generally.

While the sentiment levels may be inline with other New Zealand business surveys, we suggest franchisors should, if not already, be seriously considering taking any opportunity to review and improve their franchise business model, associated franchise structure and management. Clearly, changes that can improve the outlook for franchisee and franchisor value creation and long-term sustainability are needed. 

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 25 franchisors and 14 Service Providers collected between Monday 14 October and Friday 18 October 2019.  Findings from both groups are reported separately.  Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

Franchize Consultants (NZ) Ltd
Media Release

KEY HIGHLIGHTS

The Franchize Consultants’ April 2019 Franchising Confidence Index indicates continued subdued sentiment.

• Franchisor outlook for general business conditions (net negative 15%) dipped after a small lift in January sentiment at net negative 3%, whilst Service Providers sentiment negated the positive gains seen in January of net 19%, to indicate sentiment of net 0%.

• Franchisor sentiment for franchisor growth prospects, is one of the few areas showing improved sentiment at net 35% up from net 23%.  Service Providers on the other hand dropped from net 31% to a net negative 11%.

• Franchisor sentiment toward access to financing hit a low at net negative 31% down from  net negative 18% in January.  Service Providers confidence also low dropping from net negative 6% to a net negative 22%.

• Franchisor and Service Provider sentiment toward access to suitable franchisees continues to fluctuate quarter to quarter. Both Franchisors at net negative 31% (previously net negative 24%) and Service Providers at net negative 11% (down from net 0%) sentiment dipped this quarter.

• Franchisors sentiment towards access to suitable staff has also hit an all-time low at net negative 48%; a sentiment trend which has been declining for a number of years. Service Providers were a little more buoyant at net negative 11%, up from net negative 38%.

• Franchisors, at net 13%, (previously net negative 3%) and Service Providers also at net 13% (from net 0%) showed improved sentiment towards access to suitable locations.

• Franchisors sentiment toward future sales levels per franchisee moved very slightly retaining a positive net 23% (from net 26%), with Service Providers sentiment showing slightly more easing at net 11% (down from net 44%). 

• Franchisee operating costs have been seen as the greatest challenge for some time and it remains the number one challenge based on Franchisor views at a net negative 58% and Service Providers indicate a net negative 78% sentiment.

• Franchisors sentiment regarding franchisee profitability level declined further to a net negative 23%, down from net negative 12% and the lowest point to date. Service Providers positive sentiment of net 19% in January was negated to a net negative 56%.

Concluding Comments

Franchize Consultants’ Franchising Confidence Index in April 2019 demonstrated continued subdued sentiment due to a variety of factors; not least, decreasing demand, increasing labour and other operating costs, and reduced labour supply.

Franchising, as demonstrated by other more general New Zealand business surveys, is not alone in lacking strong confidence toward future business conditions. As we have indicated previously, the key for franchisors will be to continue to take positive business and franchise system improvement steps. We advise continuous thought and initiatives to focus on ways to project momentum forward thus ensuring the continued improvement of both franchisee and franchisor businesses.

We at Franchize Consultants take the view that in difficult times it is vital to focus on the basics of operating your business – including improvements to the unit-level business model. Also important is a continued focus on strong franchise relationships through a strong communication plan and regular franchisee feedback and satisfaction surveys. Finally, a challenging environment is also often a time to consider a Franchise System Review, with the opportunity to optimise the franchise system via identified and prioritised improvements.

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 26 franchisors and 9 Service Providers collected between Monday 1 April and Friday 5 April 2019.  Findings from both groups are reported separately.  Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

The Franchize Consultants’ January 2019 Franchising Confidence Index demonstrates cautious sentiment in some areas whilst neutral in others.

• Franchisors sentiment toward general business conditions, whilst still negative, improved to be similar to January 2018 results with Franchisors at net negative 3% and Service Providers at net 19%

• Franchisors sentiment for franchisor growth prospects also saw improved sentiment after dropping each of the last four quarters at net 23%, up from the previous quarter’s net 7%.  Service Providers net 19% improved even more up from net negative 27% in October

• Responding Franchisors and Service Providers both report less negative sentiment towards operating costs per franchisee; Franchisors at net negative 56% up from net negative 70%, and Service Provider sentiment at net negative 25% up from net negative 56%

• Franchisors and Service Providers forecasts indicated access to suitable staff, (Franchisors at net negative 31% and Service Providers at net negative 38% and access to suitable locations (Franchisors net negative 3% an dService Providers net 0%) remain a key area of concern

• Franchisor outlook commentary was mixed, with positives for some regarding obvious strength in demand and sales.  Those more challenged sited issues, such as immigration, tightening demand, competition, marginal compression, uncertainty and challenges finding franchisees and staff.

• Franchisors identified top three challenges to franchise system development in 2019 ad 1)finding franchisees, 2) finding suitable staff and 3)access to finance.  

• Franchisors identified many improvement opportunities for the year ahead covering areas such as, technology, existing franchise growth, better selling and marketing and efficiency improvements.  

Greatest Challenge to Franchising Development in 2019

For the eighth year running franchisors were asked what they perceived to be the greatest challenge to franchising development in the year ahead. The number one challenge continued to be finding suitable franchisees, followed by finding suitable staff and access to finance. Other notable challenge themes included franchisee investment & cost containment, and economic concerns & uncertainty.

Greatest Opportunity for Franchising Development in 2019

Franchisors and Service Providers were asked what they perceived to be the greatest opportunity related to franchising development in the year ahead.  A wide variety of internal and external factors were cited. Key themes identified by Franchisors and Service Providers included use of technology, better selling to established customers, growth through existing franchisees, continued strong demand (in certain sectors), potential improvements to labour, franchisee and site availability, franchise business optimisation, commercial developments (e.g., Newmarket 277) with new locations, brand / marketing investment, focus on processes and systems, new products, and, potential recession (leading to improved franchisee recruitment and labour availability

Concluding Comments

Franchize Consultants’ Franchising Confidence Index in January 2019 demonstrated a hint of optimism – albeit many sentiment measures still remained net negative. General business conditions, access to suitable franchisees, operating costs per franchisee and franchisor growth prospects, whilst still showing negative sentiment, all indicated some improvement compared with the previous quarter. Meanwhile, declines were noted for access to suitable staff and availability of suitable locations.

Franchisor outlook commentary was mixed, with positives for some regarding obvious strength in demand, sales and sales growth. Those more challenged, however, referred to a number of issues such as immigration challenges, tightening demand, new competition, margin compression, legislative compliance, retail sentiment, projected house price declines, and, difficulties finding franchisees and staff.

Separately, and more specifically, franchisors identified their greatest challenge to franchising development (in the year ahead) as finding suitable franchisees, finding suitable staff, access to finance, franchisee cost containment, and uncertainty regarding the economy. Challenges finding suitable franchisees has been the top-rated challenge in each of the past seven surveys.

On the positive side, franchisors provided a rich set of opportunities relating to franchise development in the year ahead, with examples including technology, better selling and more marketing, growth through existing franchisees, potential improvements to labour, franchisee and site availability (largely driven by a potential slow down, a focus on efficiency improvements, and new products.

Franchising is not alone in lacking strong confidence toward future business conditions, as earlier comparisons to key New Zealand general business surveys have indicated. Key will be ensuring that this backdrop of somewhat dour sentiment does not dampen positive steps, innovation and investments directed toward continually improving franchise system performance and associated franchisor and franchisee returns.

We at Franchize Consultants note the general resilience of franchising systems; however, it remains our view that much can be done to better future-proof franchise networks and build more valuable and sustainable businesses for franchisors and franchisees alike. We maintain that vigilance in identifying and acting on making improvements and change, where required, is imperative to ensure the sustainability of your franchise system.

Franchize Consultants notes, within such steps, the criticality of understanding gaps and opportunities relating to franchise system structure and management – from a franchisor and franchisee perspective. Franchising companies established for more than five years should consider a comprehensive Franchise Review, as part of their overall planning and improvement initiatives.

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 34 franchisors and 16 Service Providers collected between Monday 14th January and Friday 25th January 2019.  Findings from both groups are reported separately.  Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

The Franchize Consultants’ October 2018 Franchising Confidence Index continues to suggest a challenging outlook, as perceived by responding franchisors. 

• Franchisors’ sentiment towards general business conditions dropped, after lifting very slightly last quarter, from net negative 9% to net negative 22%.  Service Providers sentiment showed a mirror effect dipping to net negative 23% from a net negative 7%

• Franchisor sentiment toward access to suitable franchisees remained challenging - at a net negative 48% down from net negative 36%. Service Providers sentiment indicated a softening in this area improving to a net negative 15% from net negative 21%.

• Franchisors and Service Provider sentiment toward the availability of suitable staff saw some buoyancy despite comments of continued concern. Franchisors improved from a net negative 34% to a net negative 31%, whilst Service Providers improved more positively from a net negative 43% to net negative 31% this quarter.

• This quarter’s Franchisors and Service Provider sentiment towards accessing suitable locations, saw a decided improvement at a net 13%, up from net 0% for Franchisors. Service Providers’ sentiment was similar at a net 8% up from net negative 7% 

• Franchisor and Service Provider sentiment towards franchisee sales levels, whilst fluctuating, has remained the most consistently positive area over the past 12 months. Overall sentiment remains positive, despite Franchisor expectations declining very slightly from net 33% to net 30%, and Services Providers improving from net 7% to net 15%.

• Whilst franchisee sales perceptions are stable that sentiment is not extended to Franchisee Operating Costs.  That area continues to create concern, currently at a net negative 70% down from net negative 42%.  Clearly there is huge concern. Service Providers show equal concern in sentiment at net negative 54% down slightly from July’s net negative 50%.

• Franchisors’ sentiment towards Franchisee profitability levels, which are a strong indicator of the economic climate, have remained relatively stable over the past five quarters, at a net negative 4% after a previous increase to net 3%. Service Providers sentiment remains stable although at a lower level of net negative 31%, down from net negative 29%.

• Franchisor sentiment toward access to financing is continuing to fluctuate quarter to quarter dipping to net negative 30% from a net 0% previously. Service Provider sentiment had previously remained in the positives but dipped to a net 0%.

Summary & Implications

Franchize Consultants’ October 2018 Franchising Confidence Index indicates growing future uncertainty and challenge.

Most notably responding franchisors indicated current and future challenges concerning finding and retaining quality staff, franchisees and accessing funding – all key growth constraints. Comments also included concerns around the impact legislative changes (although this included some positive sentiment), immigration changes and minimum wage changes on their businesses.  Comments also touched on the intensity of competition, tightening demand and tightening margins.

However, while sentiment towards general business conditions has taken a slightly larger hit this quarter, there are indications in comments that some industries are seeing growth. Finally, franchisor sentiment toward their own growth prospects, whilst lower, remained positive on balance.

Overall, we believe that whether the challenges are more perceived than real (or not), franchisor and franchisee businesses would be diligent to prepare for a tougher business environment. That means ensuring franchise system foundations, processes and management are sound – at a franchisor and franchisee level. Typically, we note both sides have a multitude of improvement opportunities. We caution that now is a time to understand both shortcomings and opportunities, and to prioritise those areas together that can enable growth and sustainability.

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 27 franchisors and 13 Service Providers collected between Monday 15 October and Friday 19 October.  Findings from both groups are reported separately.  Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

Franchisors sentiment towards general business conditions lifted slightly. In comparison other research sources showed considerable reductions.

Availability of suitable staff and availability of franchisees continue to be a key challenge.

Access to financing showed improved sentiment from a franchisor perspective whilst Service Providers were less confident.

Franchisor showed improved confidence in franchisee profitability levels with Service Providers more subdued.

Franchisor growth prospects sentiment showed a drop, back to post election levels for both Franchisors and Service Providers. 

The Franchize Consultants’ July 2018 Franchising Confidence Index demonstrates a fluctuating sentiment across a number of growth drivers

• Franchisors’ view on general business conditions was considerably better, as it often is, from that of other research involving general business confidence. The ANZ Business outlook dropped markedly to a net negative 39% in June, back to levels seen in January, after confidence had improved to net negative 20% in March. The NZIER business survey which was released on July 3 also saw a drop to net negative 19% from a net negative 10% in April.   

• Franchisor sentiment toward franchisor growth prospects has, after a strong improvement to net 39% in April, dropped back to net 18%, similar to the levels seen immediately after the election. Service Providers sentiment followed a similar trend, dropping from net 21% in April to net 7% this survey.

• Franchisor sentiment toward access to suitable franchisees has shown decreased sentiment this quarter to a new all-time low of net negative 36% down from net negative 14%. Service Providers sentiment also dropped to a net negative 21% from net 0%.

• Franchisors and Service Provider sentiment toward the availability of suitable staff remains low, in negative territory. Franchisors dipped from net negative 22% to net negative 34%, whilst Service Providers improved moderately from net negative 50% in April to a still very low net negative 43% this quarter.

• This quarter’s Franchisors and Service Provider sentiment towards accessing suitable locations, saw a small dip from franchisors down from net 4% to net 0%. Service Providers’ sentiment saw a severe drop, down from a high net 38% to a net negative 7%

• Sentiment towards expected franchisee sales levels fluctuates quarter to quarter with a reduction reflected this quarter. Overall sentiment remains positive, despite Franchisor expectations declining from net 50% to net 33%, and Services Providers declining from net 36% to net 7%.

• ·        Anticipated Franchisee operating costs remain challenging with

• ·        Franchisors’ sentiment towards Franchisee profitability levels, which are a strong indicator of the economic climate, lifted back into a positive net 3% after a previous dip to net negative 4%. Conversely, after a temporary lift in April, Service Providers' positive sentiment has dropped back to net negative 29%, putting it back again into levels not seen since 2011.

• Franchisor sentiment toward access to financing improved to net 0% from a net negative 21% previously. In contrast Service Provider sentiment reduced from net 14% to net 7%.

Summary & Implications

Franchize Consultants’ July 2018 Franchising Confidence Index continues to reflect the air of economic uncertainty commented on in the last few quarters.

As we referenced back in our October survey, records show this is common around election years, and more so when there has been a change in government.

Nine months on from the last election, there is still an air of uncertainty mainly driven by changes to government policy (minimum wages, immigration, fuel cost increases) and the speculative effects these will have on the economy.

With regulatory changes coming into effect early in July the cautionary sentiment towards general business conditions may have been influenced by the unknown outcomes of these changes, which could settle over the next few quarters – but more policy changes and policy amendments may yet be to come.

The franchising sector covers a diverse range of business enterprises, and as to be expected, policy changes can have both positive and negative impacts, depending on the individual business activity. The survey reflects some Franchisors are seeing or expecting a lot of growth, whilst others are experiencing a flat or slightly declining base and continuing or increasingly difficult trading conditions.

There are areas where sentiment is decreasing markedly one quarter, only to increase back in the next, such as access to finance and Franchisor growth prospects, reflecting the uncertainty. However, as mentioned previously, Franchisor sentiment towards general business conditions improved slightly this quarter, bucking the trend of other general business sentiment surveys.

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

The data and analysis presented represents the views of 33 franchisors and 14 Service Providers collected between Monday 25 June to Friday 29 June 2018. Findings from both groups are reported separately.  Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’

KEY HIGHLIGHTS

• Franchisors and Service Providers report a mixed sentiment with decreasing confidence in general business conditions.
• Availability of suitable staff remains a key challenge.
• Franchisor sentiment for access to suitable locations drifted slightly in April, whilst Service Providers confidence increased substantially.
• Franchisor and Service Provider sentiment towards franchisee sales levels lifted to remain an area of strength.
• Franchisor growth prospects sentiment also showed strong increases from both Franchisors and Service Providers.

The Franchize Consultants’ April 2018 Franchising Confidence Index demonstrates a mixed sentiment across several sector growth drivers.

• Franchisors view on general business conditions (net negative 11%) brought it more in line with that of other research involving general business. The ANZ Business outlook improved slightly to a net negative 20% in March, after having dipped significantly to a net negative 38% in January. The NZIER business survey also saw some improvement at net negative 9% in April up from a net negative 11% in January.
  
  
• Franchisor sentiment toward access to suitable franchisees has shown improved sentiment this quarter after hitting an all-time low in January. April sentiment at net negative 20%, improved from net negative 28%. Service Providers who had been more positive previously have dipped in sentiment dropping to a net 0% from net 7%.
  
  
• Franchisors and Service Provider sentiment toward the availability of suitable staff dipped further to a net negative 22% from net negative 16% and net negative 50% down from net 0%, respectively. Sentiment appears to be showing caution based on the perceived challenges with upcoming government changes to the immigration policy.
  
  
• Franchisors sentiment this quarter towards accessing suitable locations, which fluctuates regularly, slipped slightly to net 4%, down from a net 7%. Service Providers sentiment showed more confidence at a net 38%, up from net 14%.
  
  
• Franchisee operating costs, meanwhile, remained a challenge with Franchisor sentiment remaining stagnant at net negative 39%. Service Provider outlook dipped slightly further to a net negative 57% down from January’s net negative 50%.
  
  
• Whilst there are challenges in some areas, both Franchisor and Service Provider sentiment toward franchisee sales levels were very strong. Franchisors recorded a positive increase at a net 50%, up from 28%. Meanwhile, Services Providers improved from a net 7% to 36%.
  
  
• Franchisors sentiment towards franchisee profitability levels, which are a strong indicator of the economic climate, took a dip to net negative 4%, after lifting slightly in January to net 9%. A very negative decrease, net negative 36%, in January for Service Providers was reversed to a net negative 7%.
  
  
• Franchisor and Service Provider sentiment toward access to financing moved in opposite directions, with franchisors dipping further to a net negative 21%, down from 0%. Service provider sentiment continued to elevate from a net 7% to a net 14%.
  
  

Summary & Implications

Franchize Consultants’ Franchising Confidence Index in April 2018 shows there is still an air of caution in regard to the potential impact of local and worldwide uncertainties. There are areas where sentiment is decreasing substantially, such as access to finance and potential staff shortages. Conversely, we note some very positive sentiment toward franchisee sales levels.  There are still levels of concern regarding regulatory changes however growth prospects are still seen as being high from both Franchisor and Service Providers perspective.

As we referenced in our October survey, records show there is often uncertainty around election years, and more so when there has been a change in government. We also 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.

For a copy of the full report visit: www.franchisingconfidence.co.nz

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of circa 400 New Zealand franchisors and 100 specialist service providers (e.g., consultants, banks, accountants, lawyers and publishers) to the franchising community.

The Franchising Confidence Index represents confidence in key measures critical to the success of franchising in this country by reporting attitudes toward general business conditions, as well as key franchising growth determinants including access to capital, suitable potential franchisees, staff and locations. The Franchising Confidence Index also covers franchising health attributes and outcomes by exploring franchisee sales, operating costs and profitability, and franchise system growth prospects.

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. Findings from both groups are reported separately.  Respondents were asked whether they expected conditions to be ‘better,’ ‘same’ or ‘worse.’ ‘Net’ confidence is the difference between those reporting ‘better’ and ‘worse.’