Franchisors step up as pandemic hits hard: survey

By Sarah Stowe | 04 May 2020 View comments

Franchises are being hit hard by the coronavirus crisis with more than half wearing revenue falls in March. The good news is that franchisors are stepping up to the task of supporting franchisees through this pandemic.

That’s according to FRANdata’s Pulse Check survey completed for the Franchise Council of Australia (FCA).

The survey of 55 franchise systems covering 11,037 franchised business units was undertaken to gain insights on the initial impacts and experiences of the Australian franchising sector during the COVID-19 pandemic.

More than half of the franchise systems surveyed showed a significant drop in unit revenues for March 2020. Thirty per cent indicated a slump of between 25-50 per cent on the previous month and a further 28 per cent revealed a 50-100 per cent fall in monthly revenue.

However 20 per cent of franchise systems did report an increased income for the month.

Figures for the June quarter were similar, with 58 per cent of respondents projecting a substantial revenue loss and just 11.8 per cent expecting a rise.

Franchisor support

The good news is that franchisors have been swift to act to support their franchisees.

An impressive 94 per cent of respondents provided specific and often multiple examples of the actions they were taking to help their franchisees through this tough time:

  • 61 per cent of the franchisors are providing direct and indirect financial assistance.
  • 29 per cent are helping franchisees steer their way through changed business regulations and access available financial support packages.
  • 18 per cent are assisting with landlord issues.

Financial support

There’s been a significant change in the level of financial assistance franchisors are providing franchisees. In December 31 2019 less than 30 per cent (26.1%) of franchise systems were assisting more than five per cent of their network.

Just three months later and the figure on 31 March 2020 shows 44.7 per cent of respondents were providing financial assistance to more than 50 per cent of their network.

Hardest hit have been food retail and sit-down restaurant category while maintenance-type services categories have been buffetted from the full effects of the pandemic.

FRANdata Australia’s CEO Darry McAuliffe shines a positive light on the figures.

“In a time of great uncertainty and fear, it is apparent that many individual franchised businesses are receiving benefits from their franchisor over and above what they initially signed up for,” he told Inside Franchise Business Executive.

“We feel for independent businesses that are battling the current conditions without meaningful external support.

“With 44 per cent of the surveyed franchise systems providing financial assistance to more than 50 per cent of their franchisees, the survival prospects of those individual businesses must be significantly brighter”.

However McAuliffe added a note of caution.

“We are hopeful that the encouraging health results will allow an early return to more normal trading conditions as it is not yet known how long some Australian franchise systems can sustain the high level of financial support to franchisees they are currently providing.”

What the survey reveals

Industries faring well

Sectors showing the greatest resilience during the pandemic include pet related, maintenance and health services.

Less buoyant trading is inevitably seen in retail, restaurants (sit-down) and fitness clubs.

The survey reveals a high level of respondents (33%) indicated every one of their franchised units would record a loss in March 2020.

Unit openings and closures

One quarter of the surveyed respondents had opened the doors to new businesses, mostly in fitness, baked goods and home services. A total of 26 units were opened across 13 brands, while 11 brands fielded 23 unit closures.

The franchise units that shuttered their doors were predominantly across retail food, baked goods and education.

Landlord flexibility and support

How helpful have landlords been during the pandemic? Not very, it would seem, as 36 per cent of the relevant franchise system respondents noted landlord’s attitudes as “unhelpful” or “very unhelpful”.

Indifference was cited by 31.4 per cent of all respondents.

But not everyone was dissatisfied with their landlords: a lucky 17.6 per cent found their  landlords helpful.

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