Franchising outperforming says latest industry report

According to the first PricewaterhouseCoopers Franchise Sector Indicator, the Australian franchise sector has outperformed the economy and continues to be optimistic about the short and medium term outlooks despite funding concerns.

The Franchise Sector Indicator is based on research of franchising systems with 20 units or more, conducted by independent researchers and analysts, ACA Research. The sample includes 67 franchising networks, almost one quarter of all such franchising systems in Australia.

Greg Hodson, Partner at franchise advisory organisation PricewaterhouseCoopers said “While the franchising industry has been impacted by the global financial crisis, the established franchise networks have outperformed the economy and franchisors are feeling very confident that their businesses and franchisees will experience strong growth over the next one to three years.

“Instead of slashing marketing budgets, cutting staff numbers or delaying capital investment, franchisors have been in the trenches with franchisees to combat the downturn. They have focused on supporting their franchisees, putting particular effort into collaboration and relationship management and closely monitoring any financial distress.

“These initiatives have been instrumental in combating the challenges of the economic downturn and as a result the franchising sector has out performed the wider economy,” said Hodson.

Steve Wright, Executive Director with The Franchise Council of Australia, has focused on the positives of collaboration between franchisee and franchisor in the report.

Wright said “We would expect franchising to turbo-charge growth as we come out of this downturn. The PricewaterhouseCoopers Franchise Sector Indicator confirms that franchisors are focused on supporting their franchisees, paying close attention to any potential distress among their franchisees and a large proportion are actively working with franchisees to reduce any strain.”

There are concerns though about achieving growth without sufficient franchisees and funding.

“Funding has been a major impediment to franchise network growth, with many incoming franchisees struggling to secure much needed establishment funds,” Hodson added.

46 percent of the surveyed franchisors reported that access to capital and bank lending policies has been a major challenge to reaching short term growth targets and this has hindered franchisee recruitment on which organic growth is dependent.

Three quarters of franchisors are focused on organic growth, 66 per cent are targeting domestic market expansion and nearly 60 per cent are building strategies to diversify into new product or service markets.

“Despite many reports to the contrary, over 90 per cent of franchisors questioned had no intention to exit their business in the next two years,” revealed Hodson. “A preference to ride out the current economic crisis prevails and franchisors are instead focusing on capitalising on their projected economic growth in the medium term.”

This article appears courtesy of 5 Minute Franchising Newsletter