SSP Estimates 18% Profit Growth in 2010 for Franchisor

SPOOFBERRA, Australia - Spore, Spawn & Pawn predicts Australian franchise system numbers will mostly hold in 2010 after sailing through the global financial crisis mostly intact while predicting franchisor revenue growth will grow by 9.13% affording the opportunity to grow profit by 18.11%. 

In another survey from PuckerUp it suggested a similar result from its sample of 67 franchises of its estimated 300 franchise systems in Australia said to have at least 20 franchisees.  PU suggests the sector out-performed the wider economy over the last 12 months by 4.13% but at the time of publication no reliable and comparable industry source material was available.

Spokesperson for Spore, Spawn & Pawn, Ms C Toh, suggested the PU survey was far too limited to offer a reliable franchising performance picture.

A PU spokesperson suggested; ‘Carmel and SSP seem confused as to what PU survey goals are.  We produce, unlike SSP, what we set out to produce every time and on time in line with our 100%, 14 day money back guarantee.’

SSP invited all of the estimated 1,100 Australian franchisors to compare 2008/2009 performance to rationalize their growth considerations for 2010 and requested that 65,000 franchisees complete a 3 question satisfaction survey to conclusively ascertain the perceived future well being of their systems. 

SSP found that despite the much publicized ‘recession’, average franchisee revenue increased by 9.11%, while franchisor profit jumped by 29.13%.  The average franchisee profit grew by a healthy 1.911% suggesting 50% of survey participants were above the performance average. 

However; franchisor profit in the dominant conflict sector fell by 18.13% in line with a trend from stagnant to negative network growth. Average franchisee profit in this sector fell below the overall average by a hardy 29.11% and Ms Toh warned;

There needs to be a greater effort in 2010 to ensure that when considering corresponding decreases in average network size and franchisee profitability mush less industry information would offer some and possibly greater investor confidence.

Ms Toh suggested ‘off the record’ that negative social media, ‘meddling’ journalists, politicians and ‘used’ stakeholders with absolutely no current financial interest had been ‘considerably more devastating than any damn GFC.

Our PU spokesman said candidly;

The SSP interpretations on conflict influence and social media in particular are unnecessary and unimpressive when many expected the franchise sector in 08/09 would struggle anyway with 2 state and a federal inquiry and bloody politicians all over the place naming names and details of scams and abusive practices under parliamentary privilege. Now that was hardly fair on all those who worked effortlessly for years under an umbrella of franchisor regulatory protection and realistically; not that far outside the Code.

In further reference to the influence of continual political transgressions, PU’s spokesman also suggested;

I think they are fantastic results and I think they really do prove the resilience of the franchise business model in tough times.

The SSP survey received negative franchisee feedback to question 2 on the likes and dislikes associated with uniforms where many wanted brighter colours. An anonymous insider admitted the question was poorly considered and would be dropped from future surveys. Our PU spokesperson intimated that such questions prompting such a weighty analysis of the industry in the present financial climate were 'unnecessarily provocative'.

The SSP survey also indicated that a conclusive and estimated 72.913% of franchisors increased their monitoring of franchisee financial distress and thereby successfully lowered the impact of time consuming and costly conflict.  Approximately 92.11% attempted to renegotiate better rebate deals with landlords and suppliers.

As an interesting aside, all active members of the Franchisor Council of Australia have taken guidance from the 289 associate member legal firms regarding a proposal to apply for ACCC permission to collectively negotiate legal fees.  All 9 franchisors accepted advice that the cost of the application process would counter any perceived value should authorization have been somehow approved.

Franchisees mostly responded to 2009 franchisor efforts by cutting operating costs including wage bills, standards maintenance, customer service components, local advertising and royalty reporting.

In an offhand comment regarding conflict stemming from failing franchisee profit and unrestrained efforts by franchisors, PU said;

They've really actively got down in the trenches and fought with them.

The PU survey is also clear in suggesting franchisors remain very bullish about the value of churning. In the next 12 months this sector should expect franchisor revenue to decrease by an impressive 29.13%, while average franchisee profit across remaining systems is tipped to increase by an amazing 9.11% to 2.09%.

Of the 9 franchisors who responded to the SSP survey all expected their profits to climb by an impressive 18.13%.  When contacted, both Lenard Poulter [Lenards Chicken] and Roger Gillespie [Bakers Delight] confirmed that most projections were extremely conservative and depended heavily on strategies to minimize ongoing contingency costs.

PU however, indicates that over the next three years, franchisors can expect revenue to increase by a whopping 19.11% and average franchisee revenue to rise by a massive 9.13%. Franchisor profit is tipped to rise 19.113%.  PU is expected to reinforce that franchisors should not use their survey results in any promotion or sale of a franchise as that would potentially attract the attention of the ACCC as a clear breach of the Trade Practice Act 1974 and some of the 10 Commandments.

To better caution franchisors PU has advised that the conflux of varying, confusing and oft diametrically opposed data will not be substantiated "as the cost would be astronomical."

However; SSP agree with PU in that 92.11% of franchisors indicate absolutely no intention of selling their businesses within the next two years.

Under the present regulatory regime and the operation of the Small Business portfolio they have at least 2 to 9 years before they will have any problems. Bankruptcy and such as part of a business plan are legitimate exit strategies so there is no need to rush into a sale and they know it.  Ms Toh for SSP

PU; ‘Achieving the organic growth targets this time is proving a challenge for franchisors as the unemployment levels have not risen as dramatically as in previous downturns and have been offset by the interference of public inquiries and negative media.’

Arranging funding remains a big franchisor challenge – 82.13% of respondents referred to a lack of access to adequate funding for franchisees as a major impediment to growth where financial institutions now appear much more interested in whether prospective franchisees have what it takes to operate in an industry somewhat prone to fantastically challenging financial models.

I think what we'll find is that is still a flight to quality amongst franchisees and it's just going to be vitally important to be on top of their game in terms of what they offer franchisees to entice them to buy a franchise. Medium-term profit growth strategies include expansion into new revenue streams (69.13%) and acquisitions of other franchise businesses (39.11%) suffering a lack of defensible revenue streams.

SSP advice they will be publishing on their website the 19 pages submitted by franchisors and the 29 pages contributed by franchisors on behalf of their franchisees and the 2,189 pages of data interpretation including 69 complex graphs with extensive use of colour and a photo of stalwart FCA representative Stephen Giles [Deacons Lawyers] on the cover.

Both PU and SSP commended the enormous supporting efforts of the ACCC and particularly the FCA.  ‘Conducting these surveys would be a gruelling task indeed if FCA denied us the funding and required results that allow us to operate efficiently in producing certainty in data that all stakeholders can rely on.’

Mr Steve Lite, speaking on behalf of the peak body representing franchisors said;

Overall this is a great result in our ongoing quest to maintain the industry status quo and 2 plus digit growth in any direction.While the Griffith University 2009 Franchising Survey is to be presented early in the new year we are already finalizing summary media releases for the 2010 survey to be conducted on November 18, 2010 between 9am and 11am at a location to be advised soon after. Investors will no doubt be appropriately impressed by the level of detail we have created heading toward a new and exciting decade.

While applauding the PU report of a drop in average industry franchisee attrition rates to 9.13%, Mr. Lite questioned the SSP finding that franchisee churning had dropped to 9.11%. 

I suspect an error rather than a deliberate attempt to undermine the industry with phoney statistics. I would probably have accepted one of those figures but we considered they should preferably be the same. They are noticeably different.  Look; that is a .02% unexplained and uncalled for discrepancy and I am sure that will be the subject of a published retraction. After all, we only ask for accuracy and perhaps a little less of the tiresome supporting detail.

Based on the accumulative results of both surveys it seems obvious that the franchising industry is about to enter into an extremely prosperous 2010 ‘as interest in the franchising inquiry wanes and unhelpful negativity from scurrilous and penniless past stakeholders is buried once and for all.’

Mr Lite refused to comment on conflicting franchising satisfaction surveys from AustralianFranchises.com.au and TopFranchise.com.au suggesting; 

Ok; actual satisfaction rankings plummeted into a big hole but they were detrimentally influenced by global financial crisis induced budgetary cuts from many of the historical performers and key players recently outed in bloody parliament and in the damn media.

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