Global crunch starts to bite franchise industry

 

Franchise consultancy Francorp Malaysia sees the industry experiencing a fall in the number of establishments, jobs and economic output this year

MALAYSIA'S franchise industry is beginning to feel the impact of the global economic downturn as consumer spending falls and the growth of other sectors, including retail, decelerates.

Franchise consultancy Francorp Malaysia Sdn Bhd expects the industry to experience a decline in the number of establishments, jobs and economic output in 2009.

The quick-service and full-service restaurants are expected to see a small increase in the number of new outlets, while a large drop in output is anticipated in lodging, business services and real estate.

The largest fall in employment is expected in the automotive, retail food and products, and services sectors.

Despite that, many franchise players surveyed by Francorp Malaysia remain cautiously optimistic about the prospects of their business.

Francorp Malaysia president and chief executive officer Affandy Faiz said franchise entrepreneurs are optimistic that the local franchise industry remains stable as they have emerged from the previous economic downturn stronger.

"As credit markets stabilise, they see many opportunities for growth and consider the current conditions, although extremely challenging, as temporary.

"Our survey shows that franchise business leaders have confidence in the entrepreneurial spirit of their franchisees and see the fundamentals of the franchise business model as factors that will help them weather the economic storm," he told Business Times.

Affandy said the adverse impact of the recession will have different effects on establishments, employment and economic output growth within each franchise business sector.

While most of the business lines are estimated to experience a decline in the number of establishments, the quick-service restaurant and full-service restaurant sector is expected to see a small net increase in the number of outlets, of between 1 per cent and 2 per cent across the board.

"The sectors that are expected to experience the largest percentage reductions in employment are automotive, retail food and retail products and services, each contracting employment maybe by more than 5 per cent.

"The sectors that are projected to see the largest percentage reduction in economic output are lodging (3-4 per cent), business services (2-3 per cent), and real estate (2-3 per cent)," he said.

Based on a Francorp Malaysia survey, the top three industry concerns for this year are business climate, financial crisis/credit crunch and franchise sales and development.

Affandy believes that the government should implement an economic recovery plan that aims to leverage the strength of franchising to stimulate economic growth.

He said many, if not most franchised businesses, which are usually small and medium enterprises, play an important role in the country's economic health.

Perbadanan Nasional Bhd managing director Syed Kamarulzaman Shahabudin said the current crisis is expected to impact franchise sales in the country.

However, the impact will not be major, he said, adding that the franchise business system is strong enough to see the crisis through.

Syed Kamarulzaman is confident that the industry can achieve growth.

"Franchise creates opportunities for people to participate in business that they are comfortable with and has a proven track record during rough times. The development will be positive because if industry players are doing well others would jump onto the bandwagon to create a niche industry," he said.

Malaysian Franchise Association (MFA) chairman Datuk Mukhriz Mahathir said MFA members have experienced a small decline in sales but so far he has yet to hear of any franchisors or franchisees that have to close down due to the economic crisis.

He said franchise players are aware of the difficult time to come and MFA has been reminding them to be ready and put in place measures to soften the blow from the slowdown.

Meanwhile, Ansa-House Sdn Bhd senior executive director Lene Rudbaek said consumers are still spending but they are more critical on how they spend.

"Franchisors have to make sure that they offer consumers great value for their money and focus on customer's satisfaction," she said.

She said franchisors have to continuously improve and change their business concepts to avoid bankruptcy due to the global financial crisis.

It is also important for franchisors and franchisees to have access to funding and get professional consultancy to help them optimise their profit.

"I believe Malaysia has a chance to achieve the targeted growth for the local franchise industry in terms of revenue and profit for 2009 but not in terms of the number of new franchise outlets," she said.