Franchisors expect challenging year ahead - Franchize ...
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Release Date: 09 February 2022
Franchisors expect challenging year ahead
Franchize Consultants’ January 2022 Franchising Confidence Index sets the stage for the
year, with 37 franchisors providing a window into current and more long-term
opportunities and challenges.
In terms of sentiment, franchisors are expecting a tough year ahead with net sentiment
being negative on six out of the nine measures collected in the survey. Franchisor
sentiment on availability of staff, access to financing, franchisee operating costs, and to a
lesser extent, franchisee profitability are at an all-time low with the lowest net
confidence recorded for these measures since the Franchising Confidence Index was
established in 2010. Compared to 2021, all nine indicators have declined.
When asked on how things are looking among franchisors, unsurprisingly, comments
remain positive from certain sectors of business (e.g. construction and trade-related
businesses, logistics and retailers). However most franchisors expect challenges in the
year ahead, citing rising costs, staff shortages, supply issues and the uncertainty
associated with Omicron as key examples.
General Business Conditions
Franchisor outlook for general business
conditions shows deterioration to net
negative 27% in January 2022 from net
20% in January 2021.
This weaker confidence from franchisors
mirrors other research with general
businesses. The latest ANZ New Zealand
Business Outlook shows business
confidence falling to net negative 23% in
December 2021 from net 9% in
December 2020. Similarly, the NZIER Quarterly Survey of Business Opinion shows
business confidence falling in the December 2021 quarter with a net 34% of firms
expecting a deterioration in general economic conditions over the coming months.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 1Release Date: 09 February 2022
RESULTS SUMMARY TABLE *
Franchisors
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
General business conditions 32% 37% 79% 69% 33% 31% 3% -3% -30% 20% -27%
Access to financing 18% 13% 9% 41% 30% -8% 0% -18% -30% -30% -70%
Access to suitable franchisees 3% 5% 0% 17% 0% 10% -28% -24% -30% 23% -27%
Availability of suitable staff 21% -5% 3% -18% -7% -3% -16% -31% -36% 7% -78%
Availability of suitable locations 37% -5% 0% 12% -16% 16% 7% -3% 9% 14% 9%
Sales levels per franchisee 29% 32% 65% 62% 52% 56% 28% 26% 39% 13% 0%
Operating costs per franchisee -26% -11% -18% -3% -19% -13% -39% -56% -43% -40% -73%
Franchisee profitability levels -8% 13% 38% 38% 44% 44% 9% -12% 0% -7% -43%
Franchisor growth prospects 34% 41% 62% 57% 56% 59% 23% 21% 17% 31% 14%
*The figures indicate ‘net’ confidence. Net confidence is the difference between those reporting ‘better’ and ‘worse’
Franchisor Growth Prospects
Franchisor sentiment for their growth
prospects softens to net 14%, down from
net 31% in 2021.
Access to Suitable Franchisees
Franchisor sentiment towards access to
suitable franchisees returns to net
negative 27% in 2022 following
improvement to net 23% in 2021.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 2Release Date: 09 February 2022
Access to Financing
Franchisor sentiment towards access to
financing deteriorates further to an all-
time low at net negative 70%, the lowest
net confidence recorded since the
Franchising Confidence Index was
established in 2010.
Access to Suitable Locations
Franchisor outlook on suitable locations
remains largely unchanged at net 9% from
net 14% in 2021.
Access to Suitable Staff
Franchisor outlook towards access to
suitable staff shows a strong decline to
net negative 78% following from an
improvement in 2021. The net negative
78% is the lowest net confidence
recorded for this measure since the
Franchising Confidence Index was
established.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 3Release Date: 09 February 2022
Sales Levels Per Franchisee
Franchisors sentiment toward future sales
levels per franchisee declines to net 0%
from net 13% in 2021.
Franchisee Operating Costs
Franchisee operating costs remain a
concerning area – with franchisors
sentiment worsening to net negative 73%
in 2022 from net negative 40% in 2021.
Franchisee Profitability Levels
Following a similar trend to franchisee
sales and operating costs, franchisor
outlook on franchisee profitability levels
decline to net negative 43% in 2022 from
net negative 7% in 2021.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 4Release Date: 09 February 2022
Franchising Outlook
Franchisors were asked for qualitative responses on how things were looking in their
sector. 35 franchisors responded from a variety of self-reported industries such as
hospitality, construction, retail, commercial and home services, tourism, and sports and
recreation.
Some franchisors, depending on the sector they operate in, are cautiously optimistic.
However most expect challenges in the year ahead, citing rising costs, staff shortages,
supply issues and the uncertainty associated with Omicron as key examples.
The following comments are indicative of this sentiment:
Hospitality
Trading lower than expected over Dec/Jan.
Acutely affected by covid, inflation, staff shortages and customer concerns of
contagion.
Costs are increasing in every direction (food supplies, rents, employment, etc). Things
have never been tougher.
Network is looking pretty bleak. Franchisee already looking at redundancy options for
staff expecting the worst. Minimum wage hike along with raw ingredient costs rises
will cripple some businesses. We expect to be offering more concession to keep
franchises afloat.
It is still very hard times, but this will also present some opportunities with it.
Construction
Currently extremely busy but expect a future downturn.
Looking to continue at pace. The major challenge is supply however we believe this
will improve over time.
Construction is busy but highly volatile.
Material supply issues due to covid impacting both manufacturing and distribution of
both local and imported products.
Cost of materials are escalating quickly as a result of government printing currency
and government restrictions/regulations.
Retail
Has been strong sale in between lockdown periods.
Have seen solid growth each month.
Border closures have shifted duty free sales to local New Zealand
We're busy but the conditions are very difficult for staff and customers. There is a
hesitance to 'get out and shop'.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 5Release Date: 09 February 2022
Others
Commercial cleaning. There is potential growth for the right operators.
Commercial services. The future is uncertain, no clear direction from the government.
Service sector. B2B client expectations are increasing while margins reduce, or at best
remain the same.
Landscape supplies. We expect to see continued strong demand both in trade and in
retail while the Covid situation limits travel and the existing building projects on the
books generate landscape opportunities.
Locksmith and security. Sourcing qualified and trained staff is the major issue
workload exceeds capability.
Home services. Residential cleaning very unknown and uncertain with Omicron.
Commercial and domestic services. Extremely challenging - lockdowns and alert
levels have pummelled current business and confidence of prospects to change
suppliers. Omicron will cause issues but probably no worse than we have faced.
Looking for stability in Q2 and Q3 onwards.
Pest control. Residential is growing as a result of more people working from home.
The ability for food-based businesses to continue to trade profitably may impact
commercial revenue.
Residential property management. With property sales market declining we are
positive it will result in more owners putting their property up for rent.
Driver training. Worrying.
Logistics continues to grow at an exponential rate at the moment
Financial services. Industry turbulence resulting from recent changes to the CCCFA is
presenting opportunities for well prepared and experienced credit providers.
Sports and recreation. We are ok, probably slightly worse than before covid as
parents are a bit hesitant to send their kids to group classes.
Tourism accommodation continues to struggle. Open borders will help but Omicron
won't.
Very turbulent for the first half of 2022, with some further optimism beyond that.
Not great currently. Supply issues.
Looking positive apart from finding franchisees and new team members.
Uncertain. Increased labour costs, stronger compliance framework with predicted fall
in revenue due to working from home model.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 6Release Date: 09 February 2022
Greatest Challenge to Franchising Development in 2022
We asked franchisors what they perceived to be the greatest challenge to franchising
development in the year ahead. The following chart plots the frequency of key themes
from the comments.
13 of the 35 responding franchisors identified finding suitable staff as the top challenge to
their development. This is followed by COVID-19 and the uncertainty it brings with 11
franchisors identifying it as a challenge.
Other challenges highlighted by franchisors include finding suitable franchisees, access to
funding (or funding with reasonable interest rates), government regulations, rising
inflation and supply issues.
Previous Year Comparisons
Finding suitable staff and the challenges associated with COVID-19 remain the top two
concerns identified by franchisors for 2022. Finding franchisees and access to finance
remain in the top five coming in at third and fourth place respectively. Government
regulations, which was identified as a key challenge in 2018 and 2020, is seen to be a
concern again in 2022. Some of these regulations are related to COVID-19.
TOP 5 CHALLENGE RANKINGS
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Finding Franchisees 1 1 1 1 1 1 1 1 1 4= 3
Access to Finance 2 5 4 3 3= 2= 4
Economic Concerns 3 3 2 5 4 4= 4=
Investor Confidence 4
Finding Suitable Locations 5 5 5 2 3=
Franchisee Business Model Challenges 2 5 4=
Online Retail Threat 4
Franchisee Business Execution 3
Finding Suitable Staff 4 2 3 2 2= 1
Franchisee Investment / Operating Costs 3 3 2 3 4= 3= 4=
Competition 4
Increasing regulations and compliance 2 2 5
Covid impact / Uncertainty 1 2
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 7Release Date: 09 February 2022
What Will Provide the Greatest Opportunity Related to Franchising Development in
2022?
This year we once again asked franchisors what they perceived to be the greatest
opportunity related to franchising development in the year ahead. 29 of the 37
franchisors were able to provide a response. Key themes identified by franchisors include
better availability of premises/sites, increased number of potential franchisees (from
people returning to New Zealand and people looking for self-employed opportunities),
market share gains from failing competitors, diversification into other new products and
services and new channels (e.g. e-commerce).
Concluding Comment
The first case of COVID-19 in New Zealand was reported on 28 February 2020. Now
almost two years later, we await the peak of another variant and its damaging effects to
the country and businesses.
It is therefore not surprising Franchize Consultants’ Franchising Confidence Index in 2022
indicated declining sentiment among franchisors with outlook for general business
conditions falling to net negative 27%.
Franchisors were particularly pessimistic on availability of staff, access to financing, and
franchisee operating costs and profitability levels. Other challenges identified for the year
ahead included rising costs, issues with supply, the impact of COVID-19 and the
uncertainty associated with Omicron, and, government regulations.
Better availability of premises/sites, a potential larger pool of prospective franchisees,
market share gains from failing competitors, new product/service offerings and new
channels are expected to provide the greatest opportunity related to franchising
development for 2022.
Franchize Consultants observe the ongoing and incredible resilience of many franchise
systems, including both franchisors and franchisees, that continue to weather the COVID-
19 storm. Furthermore, many franchise systems continue to adapt their offerings and
operations, and provide considerable new support (in various forms) to franchisees.
Looking ahead the immediate issue is dealing with Omicron and its effects. From there,
franchisors and franchisees will hopefully [be able to] move towards more strategic
planning and operating certainty.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 8Release Date: 09 February 2022
Examples of key management issues for the year ahead will include:
1. Continued close monitoring of franchisor and franchisee performance from both a
profitability and sustainability perspective, then identifying, prioritising and
actioning key performance or situational improvement opportunities and needs.
This will include cost containment measures in view of price and labour cost
increases.
2. A focus on factors relating to team (franchisor and franchisee staff) wellbeing and
retention, given the previous years, ongoing uncertainty and tight labour market.
We’d also note the importance of focusing on individual team learning and
development, an area that has been difficult to plan during COVID-19 times.
Franchise companies really need to be positioning themselves as an employer of
choice.
3. Strategic and contingency planning, planning for possible ongoing COVID-19 effects
– along with changes/innovations required from other moving factors, like
customer needs and behaviour, key economic variables (e.g., interest rates,
inflation, economic growth, labour supply, property values, legislative changes,
etc), technology, workforce trends, climate issues, etc.
4. Franchise structure and management adaptation to a changing environment,
including potential changes to franchisee and franchisor roles, resource
requirements and processes, communication structures, manuals and training
systems, franchise agreements, information structures, and so on. The last two
years have seen a reduction in this work. Future changes will be needed.
5. Continued high levels of franchisee engagement, including a focus on supporting
group and individualised franchisee circumstances, needs, franchisee plans and
objectives. Engagement will also be important for future franchisee adaptions
from needed innovation and franchise structure changes.
Franchize Consultants further comments that many New Zealand franchisors continue to
be incredible in their response to COVID-19, including their outstanding support to
franchisees, and significant adaptive undertakings at both a franchisor and franchisee
level.
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 9Release Date: 09 February 2022
FRANCHISING CONFIDENCE CHARTS
The following illustrations present individual and net franchisor expectations for the
following year across all questions, including general business conditions and franchisor
growth prospects (covered above).
© 2022 Franchize Consultants (NZ) Ltd |www.franchize.co.nz | www.franchisingconfidence.co.nz Page 10Release Date: 09 February 2022
Franchising Confidence Index
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 recent Franchising New Zealand 2021 survey,
conducted by Massey University, indicates New Zealand has 590 individual franchise
systems comprising some 32,300 units (owned mostly by franchisees). The survey also
suggests local franchise systems employ some 156,800 people and total franchise
system turnover estimated to be around $36.8 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,
MTF Finance, McDonald’s, Columbus Coffee, Aramex (formerly 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 collected
between 18th January and 1st February 2022.
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 views of specialist franchise service providers were also collected as part of the
survey but number of responses from this group was too low for it to be reported.
For more information contact:
Dr Callum Floyd
------------------------------------------------------------------------
Franchize Consultants (NZ) Ltd
Level 1, 27 Gillies Avenue
Newmarket, Auckland
Ph. 09 523 3858
Email. callum@franchize.co.nz
Web. www.franchize.co.nz, www.franchisingconfidence.co.nz
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