Solid growth tipped for franchise sector

Double digit revenue and profit growth is predicted for the local franchise sector in the 2011 financial year, though poor consumer confidence and unstable global financial markets are leading franchisors to be more conservative in their outlook.

According to a new PricewaterhouseCoopers (PwC) report, ‘Franchise Sector Indicator’, franchisor revenue has grown by an average of 17 percent over the year to July, whilst profit grew by 22 percent. These figures are higher than the targets set last year of 13 and 18 percent respectively.

The report added that franchisors’ “profits are also being tipped to rise to 17 percent in the next 12 months ahead and 46 percent in three years.”

The good news extends to franchisees too, with revenue up an average 12 percent and profit up 13 percent in the 12 months to July. Their profits are tipped to rise 11 percent in the next year and 34 percent over the next three years.

According to PwC Private Clients Partner Greg Hodson, four factors have contributed to the sector’s success, including a proven and replicable business model, franchisees with “skin in the game”, significant operational and marketing support, as well as branding, marketing and buying power as a result of strength in numbers.

“Franchising has proven it is a robust business model and over the past 12 months it has also shown a capacity for change and innovation that has also contributed to the sector’s success.”

Despite this strength, Hodson said franchisors remain cautious as a result of poor consumer confidence, a slower than expected post-GFC recovery and unstable global financial markets.

The report found the appetite for acquisitions, especially in the short-term has reduced and organic growth remains the primary strategy for growth. Just a third of respondents said they’re looking to grow offshore in the next three years, compared with nearly half over the past two years.

“However, forecasts of double digit growth are still a clear signal of a healthy, confident sector,” Hodson said.

Franchises are also taking notice of online retail, with a third claiming to now have an online store. The report found this number is expected to grow by 57 percent over the next two years.

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