Franchisor’s business confidence dives as lockdowns deliver uncertainty

By Sarah Stowe | 09 Aug 2021 View comments

Franchisor confidence has taken a dive as ongoing lockdowns undermine business optimism.

That’s according to the latest Australian Franchise Business Pulse Check survey which reveals a sharp rise in pessimism about business conditions over the next six months.

The June Quarter 2021 survey included responses from 148 Australian franchise brands covering 23,177 business outlets employing 141,072 Australians. 

In the March survey just 6 per cent of respondents held a negative view of upcoming business conditions; the June survey showed this had risen by significantly to 22 per cent.

In contrast just 48 per cent of surveyed franchisors took an optimistic view (a big drop down from 85 per cent in the March quarter) and 30 per cent of respondents remained neutral about the outlook. 

The downward trend in confidence was echoed in revenue expectations with nearly half of the respondents (45 per cent) expecting a revenue drop. In the March quarter that figure had been just 13 per cent.  

Lockdowns are worrying franchisors

And it’s the impact of government lockdowns that is concerning franchisors most. The latest survey showed an overwhelming number, 84 per cent, were worried about future stay-home orders.

Other challenges making franchisors anxious included staff recruitment (55 per cent), the wellness of  franchisees and support staff (50 per cent) and supply chain issues due to border closures (44 per cent). 

There is good news for some though, with a little more than half of all networks (54 per cent) reporting revenue increases of more than 10 per cent up to June.

In particular, the health, sport, recreation, and fitness industries had performed well over the quarter. Retail food and printing had not traded as well, and cited lockdowns and border closures as major concerns. 

Franchise Council of Australia CEO Mary  Aldred said “After four successive quarters, the latest lockdowns and renewed uncertainty have shown  a strong negative shift in business sentiment.

“Businesses that are part of a franchise network appear to be outperforming many other parts of the small-medium business sector but they are still dealing with many challenges  and are nowhere near their level of revenue pre-Covid. 

“The survey shows that franchise businesses are clearly very concerned about not just  lockdowns but also the wellness of their support staff and the challenges facing their  franchisees,” said Aldred.  

The survey was the sixth such report conducted by FRANdata Australia for the FCA.

FRANdata CEO Darryn McAuliffe told Inside Franchise Business Executive, the six successive quarters of survey data is now forming the foundation for “some very insightful longitudinal analysis”.

“Weaker revenue for the next 90 days has jumped to 45 per cent of respondents, the highest level since the first of these surveys was taken in March 2020 and more than three times the 13.5 per cent average over the last four quarters.

“Whilst negative sentiment for general business conditions over the next six months has also deteriorated significantly to 22 per cent, there does appear to be some relative flattening in the longer term.

“This may be reflective of a reduced threat of business interruption as vaccination rates increase over coming months,” McAuliffe said.

The survey revealed 60 per cent of franchisors were planning to or were already actively encouraging staff to get vaccinated. 

Other key findings in the Pulse Check survey

  • 419 new units were opened across the brands of 64 respondents, mostly in the home maintenance, retail food and service industries
  • 187  franchised units were permanently closed by 27 franchisors, predominantly in the retail food, services, fitness and automotive categories
  • Queensland remained the strongest performing state for franchises over the past 12 months at 34 per cent of respondents (although lower than the previous quarter – 41 per cent).  This was followed by New South Wales (22 per cent), Western Australia (21 per cent) with Victoria’s performance the weakest  (10 per cent).
  • Respondents indicated that in the next 12 months they were most likely to expand business in New South Wales (42 per cent), Queensland  (23 per cent), Victoria (22 per cent) and Western Australia (10 per cent).