Franchisees’ revenue has grown by six percent in the last 12 months, and will continue to grow into 2013. That’s according to PwC’s Franchise Sector Indicator.

Franchisors are forecasting franchisee growth of nine percent in the next 12 months and 28 percent in the next three years. Profits are expected to reach 10 percent in the next 12 months and 30 percent in the next three years

The study also reveals franchisors have continued to achieve double digit growth in the past 12 months.

The fourth annual survey of owners and key executives at 101 franchise systems with 20 or more individual units found once again that the franchise sector had outperformed the broader market, as a whole.

PwC partner Greg Hodson said “There may have been uncertainty in the market but not the results, franchisors achieved profit and revenue growth of 10 percent in the last year.”

For the first time non retail franchisors, including home and personal services, mortgage brokers and business to business franchises, out-performed the retail sector with a higher than average revenue growth rate of 14 percent.

Hodson said “There is nothing shabby about retail franchisors’ performance. Again it is proof that the fundamentals of franchising often produce better results than those of non-franchise models.”

Executive director of the Franchise Council of Australia, Steve Wright, welcomed the PcW Franchise Sector Indicator. He described the results as “reassuring”, and said that “Well-managed franchise companies are continuing to do well”.

The survey’s track record over the four years “fills me with a great deal of confidence and optimism about the future of the franchise sector in the medium term, not just the short term,” said Wright.

Franchisor growth

Franchisors predict the following growth:

• revenue growth: 11 percent in 12 months; 34 percent in 36 months
• profit increase: 15 percent over 12 months; 45 percent for the next three years
• network growth: 10 more units in 12 months; 31 more over three years

Franchisors surveyed credited their growth to improved franchisee performance and strategic direction.

Hodson said “Although it’s evident that success comes from having a clearly defined strategy and the willingness to continually review and refine that strategy, the most successful franchises also have the resources and commitment to implement the strategy too.”

One fifth of franchisors surveyed attributed their growth to new products and service, but only 14 percent said technology was a key driver.

Hodson said “This result is interesting. We see technology as an area of untapped potential for further franchisor growth and improvement of franchise network performance.”

As an example, he said, “A number of franchisors are showing an increased confidence in cloud based technology to lower costs for franchisees. However, the take up of this type of technology is still relatively low.”

Franchise challenges

Finding suitable franchisees remains the number one challenge for franchisors with just over two thirds (68 percent) saying it is their biggest short term hurdle.  Economic conditions were also cited as a challenge, along with funding.

Despite the challenges, franchisors are continuing to grow networks at a significant rate. Franchisors offering prospective franchisees an attractive package are having less trouble finding suitable franchisees.

Hodson said “Prospective franchisees want to see strong, successful, inspiring leadership, real support, a willingness to listen and a track record of franchisee success when they are looking to buy a franchise.”

Funding remains a significant challenge, though less so than in the previous three years, according to franchisors.

The Franchise Council of Australia is encouraging the Federal Government to implement a small business loan guarantee program to help funding. The proposal is similar to programs in the UK and US.

Customers

A surprising result in the survey was that two thirds of franchisors said customer levels had stayed the same or increased. Similarly, 75 percent said spend per customer had remained the same or increased.

“Franchisors have been ensuring that they know their end customer’s needs using improved data collection customer feedback and regular communication with franchisees to ensure that they provide franchisees with a product and service offering that the customer wants,” said Hodson.

About the research

• The PwC Franchise Sector Indicator is based on research undertaken in July 2012 by independent market researchers and analysts, ACA Research.
• Fifty-two percent of respondents were from non-retail franchise systems and 48 percent were retailers.
• Sixty-one percent of respondents had between 20 and 99 company owned units, with remaining 39 percent having 100 or more.

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