Franchise sector challenged but amping up support, latest survey reveals

A national survey of franchise businesses has shown the depth of impact of Covid-19 on business revenue during the June quarter. 

Almost half of survey respondents (46%) reported revenue was less than 50 per cent compared to the June 2019 quarter, with the hardest hit businesses including cafes, restaurants, fitness clubs, accommodation and child-related services.

FCA CEO Mary Aldred said the results show Covid-19 has hit hard across the board for small business.

“This study provides a deep dive into each industry sector and the issues they are grappling with the most. Unfair and inflexible commercial leasing issues is a theme that consistently gets raised by small businesses and franchisees as a key concern,” she said.

However there is good news for the sector.

For 35 per cent of respondents, June revenues were up, a lift on the figures for March. Those sectors recording increased income included takeaway food, maintenance, health, freight and baked goods.

Representatives of 70 Australian franchise systems covering 12,373 franchised units and 1,514 company operated units contributed to the Pulse Check survey, undertaken by FRANdata for the Franchise Council of Australia.

Overall the number of franchised units operating rose. Despite 58 units  (in 21 brands) permanently shuttering their businesses across 32 brands a total of 86 units opened in the June 2020 quarter. These were predominantly in the retail food, baked goods and home services sectors. The reported closures were mostly cafes.

Franchisors’ challenges

Franchisor challenges courtesy of FRANdata’s Australian Franchise Sector Pulse Check June 2020 | Inside Franchise Business Executive

Franchisor challenges courtesy of FRANdata’s Australian Franchise Sector Pulse Check June 2020 | Inside Franchise Business Executive

The survey revealed the three biggest challenges for franchisors in the June 2020 quarter:

  • landlord issues (54%)
  • franchisee and support staff wellness (54%)
  • franchisee financial performance (52%)

Franchisors indicated a high-level of support for franchisees, with 69 per cent of respondents indicating they were providing direct or indirect financial support to all of their franchisees.

Only 24 per cent of respondents indicated they were providing direct or indirect financial support to fewer than 25 per cent of their units.

At the start of the pandemic, just 8 per cent of franchisors indicated they were taking specific actions to monitor and support the well-being of franchisees. Today that figure is up to a much more acceptable 68 per cent of franchisors.

Levels of franchisor support increase

Darryn McAuliffe, CEO of FRANdata Australia, told Inside Franchise Business Executive “Many franchisors took their support to another level in the June 2020 quarter and that will have undoubtedly helped many small businesses in their network survive.”

However, he pointed out, “With revenues having been decimated across so many industries and consumer sentiment so weak, franchisors it seems these support levels will need to be sustained for many months yet.”

The report shows how franchisors have sharpened their operations.

McAuliffe said “One silver lining of the Covid-19 Pandemic has been the creation of proof points across many business dealings.  Those organisations providing support, assistance and commercial flexibility in their dealings will have laid foundations for excellent long term business relationships.

“Franchise sector brands can demonstrate they can be resilient through this and this gives a point of difference. Good brands will actually have things to highlight.

“A lot of good brands have been able to demonstrate how genuine they are in supporting the success of their franchisees.

“In a sector that contributes as much as franchising does, these are proof points for who will honour commitments and who has a relationship approach rather than a contract approach.”

The increased number of respondents, up from 55 to 70 since the last survey, reveals a greater willingness across the sector for transparency and to share insights.

Nearly every franchisor (97%) participating in the survey reported providing assistance and advice to franchisees navigating new regulations and restrictions or accessing government support programs.

Government support vital

Franchisors were also particularly active supporting franchisees with landlord negotiations and providing royalty reduction and deferral programs.

News that the government intends to extend JobKeeper in some form until the end of the year will be welcome to the majority of respondents who found it “extremely helpful” (54%) or ”very helpful” (18%) and believe it helps to protect employment.

Mary Aldred said “Given the long-term impact of Covid-19, the FCA is calling for the Federal Government to extend out the National Commercial Leasing Code of Conduct, which is due to finish in September when JobKeeper concludes. The FCA has also pushed for an extension to Jobkeeper for the hardest hit industry sectors.”

The Franchise Council of Australia was assessed as the most helpful stakeholder during the June 2022 quarter, closely followed closely by external accountants and the broader franchise lending community for franchisors.

The FCA will use the information gathered to support ongoing submissions and representation to government for Australian franchising.

For more information or to request a copy of the report please email info@frandata.com.au

  • FRANdata provides brand ratings, finance access reports and benchmarking services on participating Australian franchise systems. It also operates The Australian Franchise Registry which holds information on more than 200 brands or 30 per cent of the Australian franchise sector.