Franchise sector positive about early 2021

The franchise sector is positive about the next quarter, according to the latest survey, however franchisors are rating franchisee finances as a major challenge for the months ahead.

Franchisors have placed their own financial performance way down on the list. The top five concerns remained the same as in other periods, but the order has changed:

  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.

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 (including responses from 68 Australian franchise systems
covering 14,596 outlets) showed that a third of respondents (33 per cent) reported December 2020 quarterly revenue increases of more than 10 per cent compared to the corresponding period in 2019.

Quick service restaurants, maintenance, health, courier and freight industries proved resilient and showed positive trading.

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

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.

A total of 157 new units were opened across 35 brands, predominantly in the categories
of retail stores, pet services and home maintenance services. A total of 62 franchised
units were permanently closed across 18 systems, mostly cafés.

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.

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.

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) – while a negative attitude about business conditions in the next six months dropped by half, to just 10 per cent of respondents.

And in September nearly one third of respondents (30 per cent) were providing direct or indirect financial support to more than half of their network – the good news is that has decreased to just 9 per cent of franchisors in the last quarter.

FRANData Australia CEO Darryn McAuliffe told Inside Franchise Business Executive, “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.”

McAuliffe said “Looking further ahead, things become even brighter with 75 per cent being optimistic about business conditions over the next six months. This is good news for franchisees and the broader small business community.

“However challenges do remain with the most significant issue recognised by most franchise systems being the financial performance of their franchisees. On a positive note for franchisees this was of far greater importance to franchisors than their own financials and we expect an ongoing sharp focus by franchisors on collective bargaining, targeted support and other helpful measures for franchisees.”