Retail food franchisors are best placed to win the perennial battle for top-class franchisees, with a new survey of prospective franchisees revealing a staggering 53% plan to go into food retailing franchises.
The annual survey, conducted by mortgage broking franchise Mortgage Choice, also highlights a renewed sense of confidence among franchisees, with franchisors sure to welcome an increase in the amount franchisees are willing to invest on buying and setting up a franchise.
While 41% of the survey’s 500 respondents said they would spend less than $100,000 when they started out, this was down on last year, when 48% said they would spend under six figures.
On the other hand, 14% said they would spend over $300,000 on start-up costs, compared with 10% last year.
Mortgage Choice’s Kristy Sheppard says the spending trends underline a general sense of optimism among potential franchisees.
“It definitely came across that potential franchisees were a lot more confident this year. They have come out of the GFC with a willingness to spend money and probably have a better attitude.”
The survey suggests the franchisors most likely to benefit from this increased spending are retail food franchisors, offering cafe, restaurant and take-away food franchises.
Sheppard says the fact that 53% of potential franchisees want to buy into this area highlights the strength of the brands, the ability of these brands to market their franchisee offerings and recent trends in consumer spending, which show that while spending on clothing and footwear has fallen off, spending on eating out has remained okay.
“A lot of the increase in retail spending has been at the cafe, food level,” Sheppard says. “I think that industry has done a terrific job in promoting itself to the wider public.”
The next most popular franchise types among prospective franchisees were the slightly vague “retail – other” category (20% of respondents); tourism, leisure and accommodation (19%); fashion and accessories retailing (19%); business and professional services (18%); health, beauty and personal services (18%); domestic/cleaning services (14%); Education and training services and information technology (both at 13%); and pet care (11%).
Of course, the willingness of potential franchisees to spend will not automatically translate into sales for franchisors. As a survey last week by PricewaterhouseCoopers showed, 73% of franchisors say their growth is being hampered by problems with potential franchisees getting credit.
Sheppard believes this problem will ease, but slowly.
“I think slowly but surely funding for business is opening up again – we’ve certainly seen that with our franchisees who have been able to get funding.”
Another positive for franchisors is the fact that prospective franchisees are quite realistic about how their business will perform in the first year, with 9% expecting a loss, 23% expecting to break even and 42% expecting to make between $20,000 and $100,000.
One interesting result from the survey for franchisors to note is that 51% of respondents favour buying an existing franchise rather than a new one (up from 48% last year).
This does suggest franchisees looking to exit their business could find it a much easier task than expected.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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