NEW ZEALAND FRANCHISING CONFIDENCE GROWS TO NEW HEIGHTS. LIMITED BOOST EXPECTED FROM RUGBY WORLD CUP 2011.

Franchize Consultants’ July 2011 Franchising Confidence Index finds considerable improvements to most key franchising confidence indicators.
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• For franchisors, increased optimism sent confidence up to a net 41% from the record -3% low in April.
   
• A majority (63.4%) of franchisors indicated that the Rugby World Cup would not have a positive impact on their franchise system. However, 24.4% responded maybe, and 12.2% responded yes.
   
• Franchisors consolidate optimism in their own growth prospects (net 39%). Meanwhile service providers, on balance, are more confident in their growth outlook for franchisors (net 55%).
   
• For the first time, franchisors’ expectations for access to financing rose to a positive net 24%, breaking out of the negative trend that lasted more than one year.
   
• Franchisors register marginal improvement and remain subdued in their sentiment for finding suitable franchisees (net 8%). Franchisee recruitment is still a challenge for franchisors. Service providers remain considerably more optimistic (net 41%).
   
• Franchisor and service providers’ outlook for finding suitable staff both declined. Franchisor fell from a net 36% (April) to a net 0%. Meanwhile, service providers remain positive on balance (net 27%), albeit decreasingly so.
   
• Expectations for franchisees showed some positive movement. Franchisee sales and profitability level indicators improved more than expectations for franchisee operating costs – which remain negative overall. Both franchisors (44%) and service providers (50%) are positive in their outlook for franchisee sales. Meanwhile, both (franchisors -32%, service providers -27%) remain concerned about the outlook for franchisee operating costs. Notwithstanding, both (franchisors 22%, service providers 14%) report improved sentiment for overall franchisee profitability levels..

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.

Franchising Confidence Index Background

The Franchising Confidence Index represents the views and expectations of franchising, an important domain of business within the New Zealand economy.

Franchising commands its own confidence index for at least two reasons. First, franchising is a substantial and growing domain of business making up an important part of the New Zealand economy. The latest Franchising New Zealand 2010 survey, conducted by Massey University in collaboration with Griffith Business School, indicates New Zealand has 423 individual franchise systems comprising some 23,600 units (owned mostly by franchisees). The survey also suggests local franchise systems employ some 80,400 people, including 57,700 permanent full-time employees. Finally, local expert estimates of total franchise system turnover range from $15 to $25 billion – suggesting franchising is a strong contributor to New Zealand GDP – as it is around the world.

Second, franchising is a distinct form of organisation with unique characteristics and associated challenges. Given this, and the importance of the sector overall, it is clear the Franchising Confidence Index provides information of value to all key franchising community stakeholders - which includes franchisors, franchisees, suppliers, customers, service providers, and government.

Companies involved in franchising are as diverse as Foodstuffs (New World, PAK'nSAVE, Four Square), NZ Post, Fisher & Paykel, Contact Energy, McDo , Fastway Couriers, Harcourts and Fletcher Building.

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 41 franchisors and 23 service providers collected between Monday 4 and Friday 8 July 2011. Findings from both groups are reported separately.

Results and analysis were completed by Vivian Ng and Callum Floyd.

Note, respondents are asked whether they expect conditions to be 'better,' 'same' or 'worse.' is the difference between those reporting 'better' and 'worse.'