Franchises Firm in Turbulent Times
Franchises have been flexing their muscles amid tough times for business owners, and a new report says their outlook for the next few years is bright despite the uncertain economy.
PwC’s Franchise Sector Indicator, released today [September 9, 2012], says revenue and profits for franchisors grew 10 per cent last financial year, while franchisee revenue rose 6 per cent.
Its survey of owners and executives at 101 franchise systems found non-retail groups -such as home and personal services, mortgage brokers and business-to-business franchises – performed better than retail groups for the first time in research’s four-year history.
Revenue growth for franchisees is forecast at 9 per cent for the next 12 months and 29 per cent in the next three years, while profits are expected to grow 10 per cent and 30 per cent respectively.
PwC partner Greg Hodson says the performance has been stronger than the overall business sector, and it is well above the official inflation rate of 1.2 per cent, because of four key factors.
“One, it’s a proven system that’s been given to franchisees, and has been rolled out a number of times and has worked well,” he says.
“Two, they get a lot of support from the head office.”
“Three, by being part of a bigger system there’s more marketing dollars to be spent on brand awareness.”
“And four, strength in numbers. The franchisor can normally negotiate better prices.”
The PwC research found the biggest challenges facing franchise groups this year are finding suitable franchisees and the economic conditions.
It is also found that despite the sluggish economy and consumers cutting their purchases, spending per customer has remained the same or increased for three-quarters of franchise business groups.
Hodson says it typically costs $350,000-$450,000 to buy a retail franchise, while for service-based franchises it’s closer to $50,000-$100,000.
Anyone thinking about buying a franchise needs to find a franchisor they believe provides strong leadership, a definite strategy and adequate support, he says.
“All say they will support the franchisee, but is it real support?” Hodson adds.
“Look at the track record of franchise success. A franchisor will provide this or has to, by legislation, provide a list of franchisees you can ring to speak to and find out how successful and happy they are.”
Franchise Council of Australia executive director Steve Wright says before buying a franchise, people should think carefully about what will work best for them.
“Once you have decided the type of franchise you would like to be part of, compare what is on offer in that industry or market segment,” he says.
“Make sure you are joining a franchise that is a member [of franchise associations] that way you know that business is willing to abide by the member standards for fair and ethical business conduct.”
Franchisees also work best with support from their family, Wright says.
“Small businesses are hard going, so you want to be sure you have a supportive team around you. Hopefully they will be the ones who support you through the tough bits and join with you to celebrate success.”
Bec Arriola and husband Tim have just opened their fourth Hairhouse Warehouse store, and their businesses have experienced revenue growth of 15-20 per cent in recent years.
“Marketing is one of the biggest benefits, and so are the tools they give you.” Bec Arriola says.
“Buying margins are also a lot better. I pay a lot less for some brands than when I was just a small salon.”