INSIGHTS

POSITIVE VIBES

The franchise sector started 2021 encouraged about the immediate future.

According to a survey released in March this year, overall there’s a mood of optimism coursing through franchising.

The report, commissioned by the Franchise Council of Australia and conducted by FRANData, shows the December quarter was a better period for many franchise brands than previous periods in 2020.

The Pulse Check survey comprised responses from 68 Australian franchise systems covering 14,596 outlets. It revealed that one third of respondents (33 per cent) reported a December 2020 quarterly revenue rise of more than 10 per cent compared to the corresponding period in 2019.

So who have been the lucky industries to see business in a good light? Quick service restaurants, maintenance, health, courier and freight industries proved resilient and showed positive trading.

However sit-down restaurants and cafes, fitness clubs and accommodation businesses were harder hit.

Unfortunately a total of 62 franchised units were permanently closed across 18 systems, predominantly in the cafe sector.

While 53 per cent of respondents indicated some level of loss making within their franchise system, 47 per cent of respondents reported none of their franchisees would record a trading loss in the December quarter. That’s a lift from 24 per cent in the September quarter.

Thirty five brands reported the opening of a total of 157 new units, most of these retail, pet services and home maintenance services.

There was positive sentiment for the March 2021 quarter, with 51 per cent of respondents anticipating a moderate (37 per cent) or significant (14 per cent) increase in revenue.

OPTIMISM IS ON THE RISE

According to the December Pulse Check, 75 per cent (up from 64 per cent last quarter) of respondents felt more optimistic about business conditions in the next six months; of these, 22 per cent (up from 16 per cent last quarter) felt very optimistic.

BUSINESS CONDITIONS

53% optimistic 22% very optimistic 15% indifferent 10% pessimistic

There was also a lift in those who felt indifference about the upcoming half year – 15 per cent (up from 12 per cent last quarter).

The rise in optimism wasn’t the only good news: a negative view of the business landscape in the first six months of 2021 dropped by half, to just 10 per cent of respondents.

Last September 30 per cent were providing some form of financial support (direct or indirect) to at least 50 per cent of their network. The March Pulse Check showed this has dropped significantly, and only 9 per cent of franchisors in the last quarter were providing financial support to more than half of their franchisees.

FRANData Australia CEO Darryn McAuliffe says “On the back of a much stronger December quarter, many franchisors (61 per cent) are feeling optimistic about March revenues. For most franchise systems, this positive sentiment will have been based on their real time data on revenue collection and trends during the post-holiday data collection period.”

FRANCHISE PROFITABILITY

Darryn says the optimistic outlook is good news for franchisees and the broader small business community.

Which is not to suggest there are not challenges remaining, and these do centre on franchise profitability, rental issues, and being able to recruit franchisees.

Darryn says the most significant issue recognised by most franchise systems is the financial performance of their franchisees.

“On a positive note for franchisees this was of far greater importance to franchisors than their own financials,” he explains. “We expect an ongoing sharp focus by franchisors on collective bargaining, targeted support and other helpful measures for franchisees.” n

WHAT FRANCHISORS ARE CONCERNED ABOUT

Franchisors have placed their own financial performance way down on the list. The top five challenges remained the same as in other periods, but with a shift in importance. 1. Financial performance of franchisees 2. Landlord issues 3. Franchisee recruitment 4. Wellness of franchisees and support staff 5. Engagement and satisfaction of franchisees

In June 2020 landlord issues were the number one concern; in September it was wellness of franchisees and support staff.

MOST OPTIMISTIC SECTORS

Quick service restaurants Cafes and restaurants Fitness Health related Baked goods