Franchisor optimism hits 85 per cent but fear of lockdowns a dampener: latest survey

By Sarah Stowe | 04 May 2021 View comments

Overall optimism in the franchise sector has jumped to 85 per cent, a rise of 10 per cent from the December quarter, according to the March 2021 Australian Franchise Sector Pulse Check survey.

For the next June quarter, franchisors were keen to adopt a positive sentiment about trading with 65 per cent (up from 51 per cent) of respondents expecting to see revenue increase moderately (59 per cent) or significantly (6 per cent) over this period.

However franchisors are fearful about possible future government lockdowns.

The survey, conducted by FRANdata on behalf of the Franchise Council of Australia, received responses from 113 Australian franchise brands employing 105,671 people, and covering 19,360 franchised units and 2,008 company operated units.

Franchise Council of Australia CEO Mary Aldred said “Business recovery is steadily improving and the Australian economy is in a strong position which is critical boost for small business right now.

“As our results show, the risk of snap state government lockdowns is the number one cause for concern across the majority of businesses surveyed.

“The FCA is recommending a consistent national approach on agreed thresholds for snap lockdowns, to improve business and community confidence,” said Aldred.

The survey asked franchisors to indicate their greatest concerns or challenges in the March quarter, and lockdowns headed the list:

  • Risk of further lockdowns (51 per cent)
  • Franchisee recruitment (53 per cent)
  • Compliance (32 per cent)
  • Franchisee health and wellbeing (32 per cent)
  • Workplace relations (30 per cent)

Tenancy and landlord issues also continue to be obstacles for franchisors.

Financial performance

When it came to financial concerns there’s been a welcome drop in the number of franchise networks reporting revenue reductions with just 9 per cent of respondents suffering a decline of more than 10 per cent to average franchisee revenues. In the December quarter the figure was 34 per cent of respondents.

And supporting signs that financials are increasingly positive, the survey revealed a significant rise in the number of franchise systems showing quarterly revenue increases of more than 10 per cent – 45 per cent up from 33 per cent in the corresponding 2020 quarter.

March 2021 Australian Franchise Sector Pulse Check  unit revenue | Inside Franchise Business Executive

March 2021 Australian Franchise Sector Pulse Check unit revenue | Inside Franchise Business Executive 

 

Health, building and construction, and courier and freight related industries continue to perform well while cafe, restaurants (sit-down) and travel industries remain the poorer performers as lockdowns and border closures contribute to their trading challenges.

According to the March Pulse Check Survey 53 per cent of respondents reported zero losses across their networks and 80 per cent of respondents indicated fewer than 5 per cent of their units would have experienced a trading loss in the quarter.

The provision of financial support to more than 50 per cent of franchisee units fell to 7 per cent from 9 per cent of respondents in the December quarter.

Units opening and closing

The survey recorded a boost to franchising’s national footprint with the 520 new units opened across 85 brands (mostly in retail and home maintenance services) far outweighing the 109 franchised units (mostly food retail) that were permanently closed across 28 of the networks. 

Even more encouraging is the expected growth across franchising, with 786 new franchised units predicted to open this year.

However, more than half (59.5 per cent) would require access to finance, which will provide its own constraints for growth. 

FRANdata Australia CEO, Darryn McAuliffe, told Inside Franchise Business Executive, “The challenge of accessing finance continues to be a recurring theme for Australian franchise systems. Whilst it is encouraging to see the additional resources now being invested by several banks this is likely to only benefit those franchise systems that are ‘finance ready’ and fit the profile of their target market.

“Franchise brands with lower initial capital entry costs, who also report the highest level of planned openings, appear to be the most affected by the finance access challenge.”

While access to finance is not in the top five high risk concerns for franchisors, it does remain a major issue.

Which states are performing well?

The top state was Queensland, highlighted by 41 per cent of respondents as their strongest performing state or territory over the past 12 months.

For 23 per cent of franchisors New South Wales was the top performer, with just 16 per cent citing Western Australia, and predictably only 11 per cent naming Victoria as the number one state.

New South Wales is likely to see the most expansion in the next 12 months, with almost half (49 per cent) expecting to grow business there, followed by just 18 per cent of franchisors seeing business expansion in Queensland and Victoria, and only 10 per cent citing Western Australia.

The support office

In looking at support office trends, most franchisors (59 per cent) were actively encouraging staff to reduce their days of remote working and spend more time in the support office. And while 70 per cent didn’t expect to increase the floor space in the support office, 55 per cent plan to permanently increase support staff numbers.