Spring In The Economy

The shock Official Cash Rate interest rate drop announced in mid-August signaled a change of season for the economy. The Reserve Bank’s reduction of the OCR by 25 basis points to 5.25% blindsided most economists and banks, and was as welcomed as the early, fresh shoots of spring.

However, with the country awakening from winter hibernation, making a mindset shift from an attitude of ‘austerity’ may prove to be the most likely stumbling block to impact franchises as we make our way to brighter days – literally and metaphorically.  

“Consumer confidence is the main issue at play here,” says Philip Morrison of specialist accounting firm Franchise Accountants. With New Zealand currently in ‘austerity’ mode, there is pressure on household budgets and less money in the economy due to low consumer spend.”

Historically speaking

Franchising has traditionally performed reasonably well during recessions. Testing times for an economy can offer good franchisors a chance to expand; new locations can become available, old competitors can suffer, and there can be a larger market of potential franchisees and staff, as people are moved out of changing industries. The wholesale redundancies across the public sector and in the national media earlier this year are prime examples.

The cause of the so-called ‘cost of living crisis’ that has been affecting Kiwis, and many nations, has been driven by a combination of rising inflation, labour market pressures, and global supply chain disruptions. The cost of everyday essential goods and services has forced people to spend more to keep up their usual standard of living.

Impacts on business

“For SMEs, the cost of living crisis means tighter profit margins, increased operational costs, and a more challenging business environment. Consumers are more cautious with their spending, which can lead to reduced sales,” according to MYOB.

In its Navigating the cost of living crisis: A guide for SMEs published this winter, it reports, “There is increased competition for skilled labour, leading to higher wages and additional costs for businesses looking to attract and retain talent. Additionally, businesses face higher expenses for everything from raw materials to wages, making it crucial to find ways to operate more efficiently and maintain profitability.”

Moving beyond the cost of living mindset, how will a drop in OCR and momentum shift towards a greater spring in our economy affect Kiwi franchises? Philip Morrison says the benefits are four-fold: ...

This article is published in full on page 34 of our most recent issue of Franchise New Zealand magazine. Request a free print copy or access our free digital magazine to read the entire article.