Key findings for franchising
Optimism about growth
The good news for prospective franchisees is that franchisors remain optimistic about growth, with seven in 10 franchisors expecting to recruit more in the coming year according to research house 10 Thousand Feet.
Now into its third edition, the 2010 release of 10 Thousand Feet‘s Franchisor Expansion Study tracking report shows that franchisorsÕ optimism is getting close to 2007 levels prior to the GFC.
And 68 percent of franchisors believe they will recruit more new Greenfield franchisees in the next 12 months in comparison to the last 12 months. This fares better than 65 percent in 2009 and is edging back to the 69 percent recorded in 2007.
Most franchisors’ income is gained from taking a percentage royalty fee of each franchisee’s revenue. With an increase in total royalty fees flowing from higher revenues (up 15 percent in the last year) franchisors have been investing in recruiting new franchisees.
Now into its third edition, the 10 Thousand Feet, 2010 Franchisor Expansion Study was conducted via surveying 81 franchisors. Go to http://www.10thousandfeet.com/reports_expansionedition3.html for more information.
The Franchisor CEO Survey
Nearly half of AustraliaÕs leading franchise businesses have outperformed the economy over the last 12 months, this survey by consulting firm DC Strategy reveals. The franchisors, 150 top retail, food and service franchise groups, based on number of stores and total profit, shared their views about network growth and performance, international opportunities and key challenges.
Sixty percent of the CEOs pinpointed multi-unit franchising as the key growth strategy, and 35 percent indicated they would be exploring markets overseas with 22 percent planning international expansion within three years.
More than 70 percent also listed organic growth strategies such as brand and product development as an immediate high priority.
Rod Young, executive director at DC Strategy, says “Australian businesses face some of the most difficult operating conditions in the world — high rents and ever increasing labour costs which place a great deal of pressure on business models and management expertise.
“Foreign markets don’t generally present such difficult operating conditions and it’s little wonder a significant proportion of leading franchisors are intending to expand their operations internationally.”
Young also noted the improved level of franchisees entering the arena. “The business experience and quality of candidates is actually improving with many aiming to own two or more franchises. Candidates are generally better capitalised which is a positive for the sector, particularly when combined with an increased willingness to invest in the $50,000 to $250,000 range,” he says.
The PwC Franchise Sector Indicator
This report indicated good growth in franchisor revenue, and even better results for franchisor profits. These figures however were not reflected in the lower levels of profit and revenue growth achieved by franchisees. And while franchisor revenue grew by 10 percent in retail and 13 percent in non-retail systems, the retail sector saw a better profit: 23 percent in comparison to 15 percent for non-retail franchise groups.
But the survey predicts good news for franchisees, reporting franchisor conviction that substantial growth is just around the corner.
“Franchising is an exciting business model which has proven successful and resilient in turbulent times,” says Greg Hodson, national lead partner, franchising, PwC.
The Indicator revealed funding to be a significant challenge to the franchising sector but believes the growth it has reported on can be just the foundation for further development.
And for just over half the surveyed franchisors, an international presence is on the horizon in the next three years.
Mergers and acquisitions will be part of the franchising landscape too, the report predicts, with many entrepreneurial franchisors of medium-sized systems looking to exit their businesses.
The survey was conducted by ACA Research, and involved 106 respondents running franchise networks of more than 20 units. Find out more at www.pwc.com.au.
Franchising Australia 2010
This survey by the Asia Pacific Centre for Franchising Excellence shows a balance of new systems, emerging franchises and established franchisors in the franchise arena.
Individual systems are growing, and this indicates a confidence in the existing franchise models. And good news for franchisees — more than 80 percent of franchisors are running a Code of Conduct compliance program.
The survey results were drawn from 187 franchisor respondents representing a cross section of the sector.
The statistics quoted are not the average of all responses for a particular questions but the median figure, the middle number in a graded list of responses.
The survey was conducted online. Visit www.franchise.edu.au for more information.