NEW ZEALAND FRANCHISING CONFIDENCE BUILDS INTO 2012

The Franchize Consultants’ April 2012 Franchising Confidence Index demonstrates growing business confidence across a number of measures crucial to franchisor and franchisee success. The quarterly April results consolidate upon the rebound in confidence captured in January 2012.
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• Both franchisor (net 46%) and service provider (net 65%) outlook for general business conditions were strong, hitting the highest levels recorded since the Franchising Confidence Index was established. Both results also consolidated previous gains in January, following the substantial deterioration in October 2011.
   
• Franchisor and service provider outlook for franchisor growth prospects also improved markedly from the previous quarter –net 46% and net 65% respectively.
   
• The aforementioned confidence improvements did not extend to perceptions regarding access to finance. Both franchisors (net 16%) and service providers (net 39%) recorded small changes from the previous quarter.
   
• In regards to the ease of access to suitable franchisees, a significant uptrend was noted in franchisor sentiment (net 14%). Meanwhile, service provider sentiment decreased to a net 26%.
   
• Franchisor confidence in access to suitable staff demonstrates a considerable overall downtrend since the Franchising Confidence Index was first established. Sentiment regarding access to suitable staff for both franchisors (0%) and Service providers (net 4%) decreased considerably.
   
• The franchisor outlook for access to suitable locations decreased considerably as well. The decrease in franchisor confidence regarding access to locations (net 14%) is balanced out by an increase in service provider sentiment (30%).
   
• Franchisor and service provider expectations for franchisee sales levels grew from a net 29% and 11% to 51% and 52%, respectively.
   
• Franchisor outlook for franchisee operating costs improved slightly (from -26% to -24%), whilst remaining negative overall. Service providers were similarly negative, but more negative than the previous data point (dropping from -11% in April to -43%).
   
• Both franchisor and service provider sentiment toward franchisee profitability has grown substantially, from a net -8% and -5% to a more positive 30% and 14%, respectively.

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.

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 is a substantial and growing domain of business making up an important part of the New Zealand economy. The 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. Companies involved in franchising are as diverse as Foodstuffs (New World, PAK'nSAVE, Four Square), NZ Post, Fisher & Paykel, Contact Energy, McDonald’s, Columbus Coffee, 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 37 franchisors and 19 service providers collected between Monday 23 and Friday 27April 2012. Findings from both groups are reported separately.

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