Franchisor business confidence lifts in latest survey but concerns remain

By Sarah Stowe | 10 Nov 2021 View comments

Franchisor business confidence has bounced back, according to the latest Australian Franchise Business Pulse Check survey commissioned by the Franchise Council of Australia.

The percentage of respondents feeling optimistic about business conditions into 2022 rebounded to a healthy 76 per cent from the low point of 22 per cent recorded in the June quarter.

Franchise Council of Australia CEO Mary Aldred said “It is terrific to see an improvement in business sentiment but there are obviously still deep concerns about the risk of further lockdowns and border closures.”

FRANdata conducted the survey on behalf of the Franchise Council of Australia. FRANdata Australia CEO Darryn McAuliffe said the positive sentiment is back to levels of six to 12 months ago.

“The translation of optimism to actual business performance will be an important contributor to meeting the challenges reported across franchise networks and the broader small business community,” he said.

Franchisors voiced their concerns in the survey which included responses from 105 Australian franchise brands covering 17,119 individual business outlets (15,671 franchised and 1,448 company operated) and employing 113,048 Australians.

The top issues cited were the risk of further government lockdowns (61 per cent), availability of suitable employees (55 per cent), wellness of franchisees and staff (49 per cent), supply chain issues due to border closures (47 per cent) and franchisee recruitment (40 per cent).

“It’s also disturbing that business owners and managers appear to have cause to be concerned about the safety of their staff enforcing health directives,” said Aldred. “Most customer facing staff are trained in sales and service, not face-to-face enforcement of restrictions and compliance.”

In the survey 58 per cent of respondents revealed their worries about staff facing negative or aggressive behaviour while monitoring compliance to Covid health directives.

More than one third (38 per cent) said this was an occasional occurrence but 20 per cent reported this behaviour as frequent.

Past performance

For nearly a quarter of respondents (24 per cent) average franchisee revenues for the quarter had dipped more than 10 per cent in comparison with the 2020 quarter, and only 31 per cent saw revenue increases in line with the corresponding 2020 period.

Once again retail, baked goods and retail food industries bore the brunt of a weakened trading environment while the health, maintenance, courier, freight and logistics industries proved themselves more resilient.

The September Pulse Check Survey revealed just over half (58 per cent) of respondents still expected less than 5 per cent of their franchisees to experience a loss in the September quarter. However 30 per cent of respondents – nearly double the 19 per cent shown in the June quarter – are predicting losses in more than a quarter of their units.

McAuliffe told Inside Franchise Business Executive “An increase in the number of loss making businesses is not surprising given the prevalence of extended lock down periods during the quarter. However, one cause for concern is the potential cumulative effect of previous losses over multiple quarters and the ongoing capacity of franchisors to provide financial assistance”.

In the September quarter franchisors supporting more than 50 per cent of their franchisees more than doubled from the June quarter and trebled from the March quarter.

“This will be taking its toll on the financial position of many franchisors,” McAuliffe said.

A total of 524 new business units were opened across the brands of 46 per cent of respondents. These were predominantly in the categories of home maintenance, retail food and general services.

In comparison 48 franchised units were permanently closed by 24 per cent of respondents, mostly in the building and construction and retail food industries.

Strong performers

For nearly half (43 per cent) of respondents Queensland remained the strongest performing state for franchises over the past 12 months, a rise from 34 per cent in the June quarter survey.

Western Australia was cited as a top performing state for 27 per cent of respondents.

Looking ahead, franchisors are most likely to expand business in New South Wales (41 per cent) followed by Queensland (27 per cent), Victoria (23 per cent) and Western Australia (8 per cent).

Revenue expectations rebounded significantly with stronger revenue up to Christmas expected by 84 per cent of respondents (up significantly from 32 per cent in the June quarter).

Franchisors in the retail, food retail and fitness sectors were particularly upbeat about upcoming trading conditions.

 

“Businesses which are part of a franchise network continue to outperform many other parts of the small-medium business sector and their optimism and resilience indicates they’re likely to be at the forefront of small business recovery in Australia in 2022,” said Aldred.