Greener pastures
NZ is franchise central. Susan Edmunds looks at how to make a go of this blend of independence and teamwork.
Electrician Glenn Fulton had wanted to go into business on his own for years. But his wife, Helen, resisted. ‘‘I kept saying no, as I like the safety of having a wage each week,’’ she said.
But then they found an advertisement on Trade Me, selling GoFox Electrical franchises.
‘‘He met up with the franchisor and it sounded really good. A bit safer and more support than doing it ourselves. He had to go through some pretty thorough checks, psychometric testing, checked all our references.’’
That was nine months ago. Now, the couple meet the rest of the franchisees three times a year for training, and aside from a few rules such as which supplier to use, the business is theirs to run.
‘‘But we do have the support there should we need it ... I think now that we are almost a year into it, we feel it was definitely the right decision.’’
They pay a royalty each month which covers marketing.
A new survey from Massey University Business School and Australia’s Griffith University has found that, per capita, New Zealand is the most franchised country in the world.
The survey identified 631 franchised brands operating in New Zealand and 37,000 franchise units – or one for every 124 Kiwis. That is more than double Australia’s one per 310 people.
Almost threequarters of the franchises are local brands.
The survey found the combined turnover of franchises in New Zealand (excluding motor vehicle sales and fuel retail) was $27.6 billion – roughly equivalent to 11 per cent of New Zealand’s GDP.
That is up from 2012, when it was estimated the size of the franchise market was $15b.
New Zealand’s franchises also employ more than 124,000 people, including 74,300 fulltime and 42,500 part-time staff. The proportion of fulltime staff members has increased since 2012.
‘‘As well as providing revenue and jobs, franchises enable smallbusinesspeople to own their own business while being part of a bigger group,’’ said Brad Jacobs, chairman of the Franchise Association of New Zealand.
‘‘That enables them to compete successfully with the corporates and multinationals while remaining true to their own area, keeping ownership, profits and employment local.’’
Susan Flint-Hartle, a senior lecturer in Massey University’s school of economics and finance and the report’s author, said businesses operating within a franchise model seemed to have a better chance of success. ‘‘It’s a big risk going into business but there are all the systems and processes in place.’’
In most cases, franchisees pay for the initial franchise, and then have ongoing fees to cover the likes of branding, training, marketing and supplies. There are often rules about how the business should run, look and behave.
Sometimes these rules cause problems. Chicken chain Nando’s has been involved in a fight with its Australian franchisees over expensive restaurant upgrades.
The Massey report showed about 22 per cent of brands had been involved in disputes with franchises. Only 1.9 per cent of franchisees had needed outside intervention.
Lack of compliance with the franchise system is the main cause of disputes. Flint-Hartle said most disputes were settled through mediation.
‘‘Although disputes within popular big-brand franchises tend to hit the headlines, they are actually quite rare,’’ Jacobs said.
Flint-Hartle said some people seemed to jump into franchise agreements without sufficient understanding of what they were signing.
Lawyer Thomas Biss said would-be franchisees needed to be sure they were not paying for something that had yet to be created.
‘‘They pay for a business and for the goodwill that doesn’t yet exist. Lots of times if you buy a franchise in an area, you pay $100,000 or something like that ... if you then, in two or three years’ time, have established the business and want to sell, you can only sell for that same amount. But you’ve done the hard work to grow the business.
‘‘Sometimes the franchise is of huge value, such as McDonald’s, but some of them I really do question what the franchise offers. People think of it as buying this thing and it’s just going to work but there’s still a whole lot of hard work to be done.’’
Biss urged clients to consider how much it would cost them to set up the business from scratch on their own.
He had encountered problems when franchisees tried to sell, too. The franchisor often has the final say in who can buy the franchise, and takes a fee out of the sale. ‘‘There’s no real basis for that, they’re just clipping the ticket.’’
One client had found 10 potential purchasers, all of whom were rejected by the franchisor.
Franchise Association chief executive Robyn Pickerill said the sector was performing strongly, largely due to New Zealand’s political stability and strong economic performance.
‘‘It is encouraging to see such large growth in franchising with an increase of around 185 new brands entering the market since the last report in 2012,’’ she said
‘‘Many existing brands have also experienced considerable internal expansion.’’
Flint-Hartle said the sector’s most significant growth had been in retail and accommodation services. Franchising has also grown in the construction industry.
‘‘Growth in the construction sector isn’t surprising given the high demand in the property market nationwide, but particularly in Canterbury, Central Otago and Auckland over the past five years.
‘‘And a strong tourism industry may underpin the growth in accommodation and food services.’’
Record immigration inflows have also boosted growth. Over half the survey respondents reported significant migrant franchisee ownership, with the most common countries of origin being China, India, South Africa and the United Kingdom.
Flint-Hartle said many migrants were arriving into New Zealand with a lot of equity. ‘‘It’s not that easy to slot into employment if you’re worried your English is not that good. Franchising is an option for immigrants,’’ she said.
Franchisors said 26.7 per cent of their franchisees stayed in business for up to five years, 55 per cent six to 10 years and 18.3 per cent more than 10 years.
Flint-Hartle recommended people considering buying a franchise take the online pre-entry course run by the Franchise Association.
Fulton said she had some advice for people considering following her example.
‘‘Do your homework on the franchisor, research them, talk to other franchisees, he had nothing to hide.
‘‘He was very happy for us to call any existing franchisees and we had several phone conversations with them. He let us see the turnover from the other businesses, which was a big thing for us. We also had conversations with our accountant about it so we felt that we had done our homework before we signed up.’’