REDUCED EXPECTATIONS TILL AFTER ELECTION
The latest Franchising Confidence Index survey shows that after a positive upswing in July, franchisors and service providers are now expecting more of the same.
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Expectations in the franchise sector are mirroring business surveys generally, with the latest Franchising Confidence Index showing reduced expectations once more for general business conditions, access to financing, access to suitable franchisees, franchisee sales levels, franchisee profitability levels and franchisor growth prospects.
It should be noted that this follows a very positive response to the July survey and may reflect a number of factors including the uncertainty over fall-out from the continuing European debt crisis, the downgrading of New Zealand’s credit rating, the apparent lack of the expected benefits for many traders from the Rugby World Cup and even concern over Dan Carter’s groin and its impact on our RWC hopes. In addition, this is an election year which always seems to slow down activity (particularly in franchisee recruitment). The next survey, after the election, may provide a clearer picture of the medium-term prospects for the franchise sector.
The quarterly survey, conducted by Franchize Consultants (NZ) Ltd, was shorter than usual and this may have had some impact on the results in that respondents did not qualify their overall feedback as much. The data and analysis presented represents the views of 36 franchisors and 22 service providers collected between Monday 3rd and Friday 7th October 2011. Findings from both groups are reported separately. In summary, both groups share the view of an imminent slow year and inevitable tough business conditions with various external factors influencing the economy.
Franchisors were asked ‘how things are looking in their sector’, and service providers ‘how things are looking for franchisors and franchisees (generally).’ Most franchisors were finding trading challenging, although sentiment did vary markedly by sector.
Although there have been more enquiries, franchise recruitment remains a challenge. As one franchisor noted, 'Attitude to risk is still very conservative...finding the right people with sales ability is as difficult as ever.' This is good news for business buyers, as it means that they may have their pick of opportunities and locations.
Franchisors across a number of sectors have also noticed customers being more prudent with their spending. Customers tend to be only spending to meet immediate essential requirements making selling extra services a harder task.
The entrance of international brands can bring an upswing for the market. as pointed out by a service provider. However, some franchisors have also felt more pressure from increased competition within their sector. The availability of cheaper and more convenient alternatives for accessing goods (including the internet) are shifting consumers away from the conventional retail store experience. This, coupled with high rent, greatly concerns some. (see The Right Place at the Right Time in the latest issue of Franchise New Zealand magazine, page 37).
A few franchisors reported enjoying growth, particularly one in B2B that has experienced 22 consecutive months of same-store sales growth. However, the majority indicated sales and margins pressures due to a reduction in spending, increased operating costs, and tighter financing conditions. Franchisors in the automobile and building and construction sectors are still finding it difficult to lift sales levels, and some sectors continue to feel repercussions from the Christchurch earthquakes.
Read the full survey results here.
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