Good news for the franchise sector, which has seen better than expected growth, according to the latest report. PwCÕs Franchise Sector Indicator (FSI) released today reveals double digit revenue and profit growth in the franchise sector has met or exceeded strong targets.

Franchisee revenue is up, on average, to 12 per cent exceeding last yearÕs 10 per cent forecast while franchisor revenue has risen, on average, by 17 per cent and profit by 22 per cent.

PwC Private Clients partner Greg Hodson said “Good luck has nothing to do with the franchise sectorÕs strong year-on-year results. The sectorÕs recipe for success is in a mix of four key ingredients.”

Four factors for franchise success

• Proven and replicable business model

• Franchisees with Ôskin in the gameÕ

• Extensive operational and marketing support

• Branding, marketing and buying power that comes from strength in numbers.

Hodson said “Franchising has proven it is a robust business model and over the past 12 months it has also shown a capacity for change and innovation that has also contributed to the sectorÕs success.”

FRANCHISEE GROWTH

Franchisee revenue is expected to grow by nine per cent in the next year and 29 percent in the next three years. Profits too are on the rise and expected to grow in the next year by 11 percent and 34 percent in the next three years.

FRANCHISEE TRAINING

“Ongoing support and training is one of the keys to strengthening operations and adding to the bottom line,” said Hodson. Only a few franchisors provide franchisees with training in team building and leadership, and detailed financial management. “There is a big opportunity for franchisors to improve the overall business skills of many of their franchisees and provide them with additional tools that will not only improve the performance of their existing business but also enable them to take on additional franchises.”

FRANCHISEE FUNDING

However more than 56 percent of franchisees find it a struggle to access funds to purchase a franchise, the FSI reports. Although franchisors can improve franchisees prospects of financing through accreditation with one or more banks, fewer than one in four franchisors are actually accredited. And among smaller systems that figure is lower, with more than one in seven not accredited.

ONLINE

Over the next 24 months more than half (57 percent) of franchise systems expect to launch an online store; right now just one third of systems feature online retailing. Of the franchisors currently retailing online, nearly a quarter report that 20 percent of their revenue is generated from online sales.

FRANCHISE SECTOR

There is continued optimism about short and medium term growth. Franchisors predict revenue growth of 11 percent in the next year and a 37 percent increase over the next three years. There is expectation that profits will rise to 17 percent in the next 12 months and reach as much as 46 percent in three years. Organic growth is seen as the main method for business development with overseas expansion only a target for 35 percent of respondents.

Hodson said “Consumer confidence, a slower than expected post GFC recovery and unstable global financial markets have also contributed to franchisors being a bit more conservative. However, forecasts of double digit growth are still a clear signal of a healthy, confident sector.”

* The PricewaterhouseCoopers Franchise Sector Indicator is based on research undertaken in July 2011 by independent market researchers and analysts, ACA Research. ACA interviewed the owners and key executives from 92 franchise systems with 20 or more individual franchise units.