Franchising in New Zealand: "It's a Real Option for Most People."
(Dr Callum Floyd, PhD)
Franchise. Though it's a word most of us are familiar with, it's a world many don't understand. And while this is entirely forgivable, it's also somewhat ironic - given we live in the most franchised country in the world. So, since Kiwis are eating, shopping, banking, and beautifying through franchised businesses, we thought it best to get the low down on franchising.
Per capita, New Zealand has more franchised businesses than any other country. In fact, in 2021, researchers from Massey University identified 590 separate franchisors operating across the country. That's an estimated 32,300 franchise businesses employing more than 156,820 New Zealanders. But franchising is more than just an industry; it's something of a Kiwi dream - with over 70 percent of New Zealand franchise businesses homegrown right here in Aotearoa. "I find myself really captured by the power and potential of franchising," says Dr Callum Floyd, Managing Director of Franchize Consultants and Vice Chair of the Franchise Association of New Zealand, “the concept of a brand that is already well established, that others can operate under to afford them an opportunity to earn an income and grow a business. I just think that's a really important part of our society and economy.”
Floyd is something of a franchising expert. He’s spent the last 28 years in franchising and licensing, holds a PhD researching franchising, and is a Certified Franchise Executive. Our first question for the good Doctor: what exactly is franchising? "Franchising is a long-established and proven type of business model," says Floyd, "it involves a franchisor, like McDonald's, for example, forming a relationship with franchisees, who then invest in establishing and running a franchise business in a particular location." It sounds simple enough, but according to Floyd, there's much more to it. "A good franchisor provides training, ongoing support, established systems, and validated processes to the franchisee. The franchisor is interested in the successful development of their company or operation and ensuring that each franchise is both successful and brand compliant."
Brand compliance means ensuring that franchisees operate their business in line with the franchisor's values, policies, and processes – recognising that the business and brand, as a whole, will only ever be as strong as its weakest link. "One franchisee doing a bad job can impact the whole brand and all its businesses," says Floyd, "so the franchisor is responsible for ensuring brand compliance. In return for all their efforts, the franchisor receives an initial fee and ongoing fees - which are like royalties based on sales. The concept is simple," says Floyd, "but in practice, it's a lot more complicated."
So, given the time, effort, and inevitable frustrations of creating a franchise business, why is franchising so popular here in New Zealand? "New Zealand seems to be a sweet spot when it comes to franchising," says Floyd, "and a couple of factors contribute to this. One factor is the dispersed nature of our population. Our cities and towns are quite geographically removed, which really lends itself to franchising." Another factor, according to Floyd, is the ease of doing business in New Zealand. "It's actually really easy to start up a business and operate here in New Zealand," says Floyd, "we've had some inflationary cost pressure recently, but even so, New Zealand is a pretty efficient place to run a business logistically, removing some of the risks that come with starting a brand-new life as a business owner."
If starting a business in New Zealand is relatively easy, keeping it running is not. Data from Statistics NZ shows that of all New Zealand businesses registered in 2015, only 67% made it to 2017. Looking forward to 2020, only 39% of businesses started in 2015 were still operating. These rather bleak statistics may explain why purchasing a franchised business is potentially less risky than starting an independent business. "Franchising invariably involves an established brand," says Floyd, "and that's a big deal. If you open a franchise in a new location, it's likely customers will already know something about the brand and will recognise it – which means a lot more than a business someone has never heard of. A good franchise business will also come with a proven business model. In other words, a comprehensive business model that includes processes and procedures that make the operation of the business more efficient."
Peace of mind is another positive for owning a franchise business. "You're going into business," says Floyd, "but you are not going it alone. You've got the training and support offered by the franchisor, and that's attractive – knowing that you're not out there on your own, that there is someone there to support you." And when it comes time to sell up and move on, a franchise business offers a potential edge. "A good franchise business is often easier to sell when compared to an independent business," says Floyd, "with a good franchise business, there is also a wider pool of people who may be interested in buying. This is because a franchised business is generally a recognisable name and easier to transition into new ownership."
So, given that Floyd has spent nearly three decades studying and consulting in the franchise industry, does anything about franchising surprise him anymore? "For me," says Floyd, "the thing I still find surprising is how pervasive franchising is in New Zealand - and how many New Zealanders don't realise. In everyday terms, people often don't realise they are buying from franchises. Whether it's your morning coffee, filling up your car with fuel, getting groceries, buying a house, carpeting, furniture, posting a parcel, or getting your hair cut, a lot of those services are offered by franchised companies. And because people often don't realise that local owners operate these franchised businesses, they don't see that they could actually own one of those businesses themselves. And it’s a real option for most people."