NEW ZEALAND FRANCHISING SENTIMENT SHOWS CONTINUED OPTIMISM

KEY HIGHLIGHTS

• Responding Franchisors and Service Providers report continued optimism across many key growth drivers, albeit slightly reduced from last quarter.
   
• Franchisors sentiment toward general business conditions is very high and comparable to other general business confidence surveys (i.e. ANZ, BNZ and NZIER).
   
• Franchisors remain positive about franchisee profitability prospects – arguably franchising’s most important key performance indicator.
   
• Franchisors forecasts continue to indicate a negative outlook for operating costs.

The Franchize Consultants’ April 2014 Franchising Confidence Index demonstrates a further increase in a general trend towards improved confidence across overall sector growth drivers.
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• The latest results indicated positive franchisor (net 63%) and Service Provider (net 92%) sentiment toward general business conditions. These results were shared by the latest results of other more general business surveys including the BNZ (net 64% in April), ANZ Business Outlook (67% in March) and NZIER (52% in December) business confidence surveys.
   
• Both franchisors (net 41%) and Service Providers (net 69%) remain positive about prospects for franchisor growth. However, this is a decrease from the results in the previous quarter of net 62% and net 93%, respectively.
   
• Franchisors sentiment toward access to financing dropped from a positive 9% to 3%, Service Providers are more positive than franchisors at a net 38%.
   
• Franchisor sentiment toward access to suitable franchisees decreased slightly this quarter, from a neutral 0% to negative net 3%. Service Providers also showed less optimism than previously at a net 8%.
   
• Confidence in access to suitable staff decreased. Franchisor sentiment dropped from net 3% to negative net 19%. Service Providers also decreased to negative net 15%.
   
• Franchisor sentiment towards access to suitable locations increased from 0% to 7%. Service Providers reported a net 8%.
   
• Franchisor and Service Provider sentiment towards future franchisee sales levels remained at a high level. Franchisors’ at a net 65%. Service Providers up to a net 85%.
   
• Franchisor confidence in franchisee operating costs remained negative during this quarter at a net negative 6%. Service Provider sentiment was a net negative 46%, decreasing from negative net 40% from the last quarter.
   
• Franchisor sentiment toward future franchisee profitability remained positive, with Franchisors reporting a net 50%.

Overall, Franchize Consultants’ Franchising Confidence Index in April 2014 demonstrates continued positivity, though not quite as high as the record levels recorded in the previous quarter. This positive sentiment was shared by other recent general business confidence surveys.

Franchisors continue to maintain an optimistic outlook for general business conditions, sales levels per franchisee and franchisor growth prospects. We also recorded an increase in positivity for franchisee profitability, arguably a franchise system’s most important key performance indicator. However there was a general decline in the perceived availability of suitable locations and staff, and concern regarding rising operating costs.

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 2012 survey, conducted by Massey University in collaboration with Griffith Business School, indicates New Zealand has 446 individual franchise systems comprising some 22,400 units (owned mostly by franchisees). The survey also suggests local franchise systems employ some 100,000 people. 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 32 franchisors and 13 Service Providers collected between Monday 7 th and Friday 11th of April 2014. 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.’

The data and analyses were compiled by Shelley Cross.