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Franchise sector soars with double-digit growth, PwC report reveals

Smartcompany.com.au

Monday, 10 September 2012
Patrick Stafford

The franchising industry has broken out of the current downbeat economic climate, recording growth of 10% for both profits and revenue in the past year, according to a new PwC indicator.

The fourth annual survey into the franchising sector, which questioned 101 franchises with more than 20 locations, found the market remains particularly strong – non-retail franchisors recorded an average growth rate of 14%.

However, these figures still came in under expectations. Although revenue growth was just under the 10% forecast, the 10% profit growth was well under the 17% forecast.

The report also found franchisee growth reached 6% in the past 12 months, although recruiting is still the biggest challenge for many franchisors.

PwC partner Greg Hodson told SmartCompany that despite the franchising sector outpacing a large portion of the economy, the result really isn't all that surprising.

"What's even more interesting is that the services sector seems to have done really well in the past 12 months," he says.

"We probably would have thought that when times are tough the personal services go away, but they're certainly outperforming the retail side of things."

The services sector involves a range of different businesses, including mortgage brokers to home service providers like gardening.

Hodson says this strength may be due in part to an increased willingness among consumers to spend, but also due to the fundamental strength of the franchising model.

"There are a few things that underpin the model. The first is that it's proven, your chances of success with new locations are higher, and the support system that you have within the system itself for franchisees is a strength as well."

"Then there's also the point that a franchisee has his own investment in the business, so he or she is going to try a little harder to make a buck."

He also points out that the growth among non-retail franchisees indicates more entrepreneurs are using the model as an option.

Retail franchisors came in a little slower at just 9% growth over the past 12 years, although Hodson says this is still an impressive performance.

Most of the growth is attributed to strategy and improved franchisee performance, with Hodson saying franchisees with a clearly defined strategy are the most successful.

One-fifth of franchisors said they attributed growth to new products and services, although 14% said technology was a key factor.

Hodson says this particular point is interesting, and that "we see technology as an area of untapped potential for further franchisor growth". Some of that growth will come from new endeavours such as cloud technology.

Customer levels have stayed about the same in the past 12 months, although three quarters said spend per customer had either remained the same or increased – providing some hope for the retail market.

This success is also likely to continue.

Franchisors expect profits to increase 10% in the next 12 months, and 30% in the next three years.

"There's no reason they shouldn't be confident about that, given their performance," Hodson says.

However, there are still challenges. Two-thirds of franchisors say it's hard to find new franchisees, with economic concerns also a factor.

But Hodson says the success is likely to continue.

"It's a successful model...and with this performance, there's no reason it can't continue with double-digit growth for the next little while."

 

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