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Franchising Outlook Positive, But Reduced

Franchising Outlook Positive, But Reduced. Funding Still Available for Solid Franchisee Propositions

Franchize Consultants (NZ) Ltd
Media Release


• Franchisor sentiment mixed, with reductions noted from the record measures reported in April 2012

• Sentiment reductions reported on outlook for general business conditions, access to both financing and suitable franchisees, and franchisee sales and profitability levels

• The majority (66%) of franchisor respondents indicate a solid franchisee proposition is just as likely to be funded by one of the main banks as it once was

• Sixty one percent of franchisor respondents agree that their growth is not being constrained by access to bank funding for new franchisees

The Franchize Consultants’ July 2012 Franchising Confidence Index demonstrates a positive, but decreasing level of business confidence across a number of measures crucial to franchisor and franchisee success.

• Both franchisor (net 22%) and service provider (net 34%) outlook for general business conditions remain positive, but have dropped after last survey’s record increase.

• Franchisor outlook for franchisor growth prospects improved slightly from the previous quarter at net 54%, however service providers’ outlook for franchisor growth generally showed a marked drop to 18% from 65% in April).

• Confidence levels regarding access to finance remained relatively stable for franchisors at 15%; however service providers showed, again, a marked decrease at a low net 7% (a decrease of 32% from last quarter).

• Franchisors and service providers remain only slightly positive in their outlook toward ease of access to suitable franchisees, reporting a net 7% and 4%, respectively.

• Franchisor confidence in access to suitable staff demonstrates a slight increase from the bottom level results last quarter, increasing to net 12% from 0% in April. Service provider sentiment for access to suitable staff for franchisors generally deteriorated slightly to a net 1% from 4% (in April).

• Franchisor and service provider outlook for franchisor access to suitable locations were at directional odds (i.e. one grew, one decreased), settling at a net 21% and 6% respectively.

• Franchisor and service provider expectations for franchisee sales levels both decreased this quarter, showing the only measure in which opinions were reasonably aligned. Franchisors dropped to 34% and service providers to 39%, respectively.

• Franchisor and service provider outlook for franchisee operating costs remained negative at a net -12% and -17%, respectively

• Franchisor and service providers report a positive net outlook for franchisee profitability at a net 5% and 20%, respectively Comparisons to the previous period indicate contrasting views. Franchisors are less positive. Service providers are more positive.

Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’

Views were varied and contrasting throughout the responses. Most contained an element of positivity, but generally expressed a high level of challenge overall. The main themes related to high levels of competitive intensity, customer focus on price, and the importance of good franchisee business model execution.

Following from the April quarter, those identified as involved in retail in particular are still challenged somewhat with subdued sales and strong competition.

Service provider responses were also mixed, from those expecting improvement to those foreseeing more of the same. Improvements were noted for growth prospects generally, as an outcome of low interest rates and inflation. However, times are still seen as uncertain with no clear passage out of the recession.

This issue contained a specific focus on bank funding for franchisees. Key highlights included:

• The majority (66%) of franchisor respondents indicate a solid franchisee proposition is just as likely to be funded by one of the main banks as it once was

• Sixty one percent of franchisor respondents agree that their growth is not being constrained by access to bank funding for new franchisees

Franchising Confidence Index Background

Franchize Consultants’ Franchising Confidence Index is a quarterly survey of more than 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 41 franchisors and 19 service providers collected between Monday 23 and Friday 27 July 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.’

Full Report (pdf)

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