New Zealand can be a great market for international expansion, as proven by a number of well-known brands like McDonald’s, Anytime Fitness, The Coffee Club and Just Cuts.
Yet there are demographic factors, important trends and other useful information that international franchisors would do well to consider when contemplating New Zealand expansion.
Latest New Zealand franchising statistics and surveys
The Franchise Association of New Zealand, with support of key sponsors, commissioned Massey University to conduct the Survey of New Zealand Franchising in 2021.
Important to know insights include:
- With a population of five million, 590 franchising brands and an estimated 32,000 franchisees, New Zealand is perhaps the most franchised country on a per capita basis – proof a large number of New Zealanders understand franchising and its potential
- 71 per cent of franchise systems were founded locally meaning that while there is strong local entrepreneurship, there is also an affinity with, and opportunity for, strong overseas brands and business models
- Business format franchising turnover of $36.8bn, up 33 per cent from 2017, represents some 12 per cent (or 20 per cent including vehicle and fuel retail) of New Zealand’s gross domestic product (GDP) – meaning franchising is important to the economy, and growing
- There is a seeming maturing of the sector, with less than 50 per cent of responding brands franchising since 2000
- New Zealand franchises are increasingly (80 per cent versus 60 per cent in 2017) engaging in online sales
- In general, New Zealand franchisor-franchisee disputation levels remain very low, despite a challenging economic backdrop
- Almost two-thirds of franchisors identify environmental sustainability/ethical supply chain examples. While not previously reported, this is undoubtedly up from previous surveys and seen increasingly important.
While New Zealand franchising has demonstrated great resilience, COVID-19 has brought considerable disruptions to trading, greater stress and mental health considerations, adjusted hours of operation, supply chain interruptions, significant sales reductions and many other issues.
Franchise brands want clearer guidelines on when NZ will reopen, more access to government support, and access to highly trained international staff.
Labor shortages/lack of suitable/ skilled staff was the number one challenge identified for the next 12 months, alongside supply chain issues due to COVID-19 importation issues and periodic business disruptions.
Such challenges identified also align with Franchize Consultants’ New Zealand Franchising Confidence Index research, conducted annually each January since 2010. The key franchisor identified challenge identified for the 2022 year is finding suitable staff. This was followed by COVID-19 and the uncertainty it brings, finding suitable franchisees, access to funding (or funding with reasonable interest rates), government regulations, rising inflation and supply issues.
Positive opportunities were also researched, with franchisors identifying better availability of premises/sites, increased number of potential franchisees (from people returning to New Zealand and people looking for self-employed opportunities), market share gains from failing (primarily non-franchised) competitors, diversification into other new products and services and new channels (e.g. e-commerce).
New Zealand demographic profile and considerations
While small in population (five million), New Zealand is a very strong market for international franchisors to consider. For the right profile of franchise concept, it has the potential to provide very good and stable franchising returns – the latter of which is no doubt increasingly valued at a time where there is some considerable world turmoil.
New Zealand is a highly developed free-market economy and ranks very well on indexes of freedom, ethics and general ease of doing business, and GDP per capita.
New Zealanders are also known for:
- Having an international perspective, with a large proportion having worked, lived or regularly holidaying overseas
- Rapid adoption of new ideas, technologies and trends
- Being friendly and embracing other cultures and perspectives.
New Zealand has strong GDP per capita (>$41,000), average income ($34,000) and simple business laws. Also, depending on your niche, there may be a relatively benign existing competitive environment – meaning good profit margin potential.
Increasing legal focus on franchising
It is important to note that while New Zealand does not currently have any specific law that regulates how franchising operates, similar to other countries, like Australia and the U.S., there are an increasing number of laws that mention or involve franchising.
It is therefore important that would be international franchisors consider how, for example, recent cartel amendments to the Commerce Act and unfair contract term amendments to the Fair Trading Act, are considered as part of their planning. Similarly, there are considerations relating to employment, immigration and health and safety that overseas franchisors should take into account.
It is important to note that none of the above has seemed to dampen franchising activity in New Zealand. However, franchisors today do require more planning, greater structure and direction for franchisees and, greater monitoring of franchisee compliance than previously.
A strong franchise association
The Franchise Association of New Zealand (FANZ) has also proven its resilience during the pandemic, retaining, and growing its support for, members. FANZ is the peak body representing franchising in New Zealand.
New Zealand does not have specific legislation governing franchising structure and management, so FANZ plays an important self-regulatory role with our mandatory code of practice and code of ethics. A key benefit to members is the status of FANZ membership, demonstrating members’ franchisee-friendly commitments made in order to achieve and maintain FANZ membership status.
FANZ advocates for member issues, which has been particularly important during the recent pandemic, but also in relation to various legislative proposals. FANZ also provides regular networking, learning and development opportunities by way of webinars, regular meetings, training and a national conference. FANZ also operates an annual awards evening recognizing franchising leaders, and undertakes surveys on franchising’s size, composition and contribution. FANZ also provides members with marketing benefits by way of direct membership and strategic partnerships.
Companies coming to New Zealand should contact FANZ for insights. The FANZ team can provide background and make introductions to experienced franchisor and service provider (e.g., consultants, lawyers, accountants, banks, publishers, or brokers) members – helpful to would be entrants into the New Zealand market.
What are some of the key guidelines laid out by the FANZ code of practice?
Franchisors members are required to uphold the Code of Practice.
Key requirements relevant to franchisees include:
- Providing a disclosure document 14 days prior to signing a franchise agreement
- Encouraging legal and financial advice
- A seven-day cooling-off period
- A simple dispute resolution process and ability to complain about a member
- Continued adherence to the code of practice and the code of ethics.
Recognizing Māori culture
Māori culture and history are very rich and appreciated in New Zealand. While any incoming brands need to be respectful of all New Zealanders, their cultures, and beliefs, international franchisors need to know that Māori culture and language is increasingly being integrated into business language, concept presentation, marketing and everyday use.
By way of language examples, many people will greet one another with Kia Ora, use the phrase Kia kaha instead of ‘stay strong’ or ‘keep going,’ say mahi in place of ‘work,’ and sign off emails with Ngā mihi which means ‘acknowledgements.’
That said, it is also important to be authentic and know what you’re doing in using Māori language. Consequently, while many New Zealanders (like the author) like these words and phrases, they may not feel confident enough yet to use all of them.
At the same time, New Zealand is becoming increasingly multicultural. New Zealand’s ethnicity is diverse with cultural affiliations defined European descent (70 per cent), Māori (16.5 per cent), Asian (15.3 per cent), Pacific Island (9 per cent), and, Middle Eastern/Latin American/African (1.5 per cent).
In general, there is a strong unified respect and sensitivity to ensure all New Zealanders (including recent migrants) are recognised and treated as New Zealanders.
Market feasibility and forms of franchising entry
New Zealand offers a lot of potential, however it must (like many other countries) be approached with great care. Perhaps most important, overseas companies need to recognize that New Zealand has a small population that is geographically dispersed across our North Island (77 per cent) and South Island (23 per cent).
Both Islands, in turn, have a reasonable landmass (268,021 square km). That means international companies need to accept that their structure and support model may need to be optimized for New Zealand – in order to ensure a viable investment opportunity is available to all stakeholders.
Auckland, our largest city of 1.6 million (32 per cent), does need to play an important part within any international entry strategy into New Zealand. However, franchising successfully in New Zealand, and creating great and sustainable returns for all stakeholders, will most often require a total market approach. Also, it is important to recognize that many regional markets feature very strong unit-level returns, due to sometimes less competition coupled with lower operating expenses.
A strong feasibility study will help understand what is required and help entry strategy focus.
The two most common forms of entry into New Zealand are:
- Finding a master franchisee for the whole country
- Franchising directly with single units. Very few companies seek to appoint regional master franchisees, however there are examples. Domestically, most companies utilize single unit franchising as the predominant model. However, there are numerous multi-unit franchisees that have accrued units on a sequential basis. Area development is quite rare; however, there are examples – including one of New Zealand’s publicly listed companies with rights for KFC, Taco Bell and Carls Junior.
The author
Dr. Callum Floyd is the managing director of Franchize Consultants, New Zealand’s leading franchising and licensing consulting company. He is also the immediate past chair of the Franchise Association of New Zealand
