New Zealand’s franchise industry is both experienced and welcoming, with the island’s natural beauty cementing it as a solid choice for overseas growth.
Report by Kieran McLoone, deputy editor for Global Franchise
It’s not every day that you come across a market that’s consistently rated first in ease of business, lack of corruption, and has a track record of deregulation to encourage ongoing developments.
In fact, such a triple-threat might sound like something of a fantasy, but that’s exactly what franchisors encounter when scoping out the possibility of New Zealand expansion. This relatively small island located southeast of Australia might not seem like a natural step in international growth, but it has several perks up its sleeve that make Kiwis some of the most attractive franchise partners in the world.
An island of potential
Located on an island chain in the South Pacific, New Zealand comes across as relatively modest, considering its potential. The country’s total population only stands at 4.86 million, and the largest city, Auckland, is home to 1.46 million of that total – followed distantly by the capital of Wellington at 415,000, and Christchurch at 398,500.
The island’s healthy economy is driven by the New Zealand dollar, colloquially known as the “Kiwi dollar”, and reforms have allowed the country’s economy to transition from being dependent on Britain to now being a powerful and stable free market.
The New Zealand economy is supported by a multitude of industries, with tourism being a huge boon for the country. In fact, in 2018, almost as many tourists visited New Zealand as people living in the country at the time. Franchising, of course, is also a staple of Kiwi culture and finance, and in 2017 the franchise industry brought in a sales turnover of $46.1bn, which equated to around 22.4 per cent of New Zealand’s total GDP at the time.
“The type of support and collaboration needed within the franchise industry must be fluid and have the ability to evolve quickly to counteract a changeable trading environment”
This impressive turnover figure is created by the more than 630 franchise brands that operate within New Zealand, with around 37,000 franchisees spread across the country. This means that New Zealand has the highest proportion of franchisees per capita of any country in the world, with one location for every 7,400 people.
It’s safe to say that franchising isn’t just a part of Kiwi culture; it’s the backbone of several industries across the country.
“Kiwis are very comfortable with being self-employed within a franchise system, so for many New Zealand businesses, franchising is seen as a sensible growth strategy when compared with traditional methods that typically rely on employees and all the challenges they present,” says Tereza Murray, CEO of Tereza Murray Franchising, a New Zealand consultancy focused primarily on small businesses. “Kiwis need to look no further than their own back yard to find a franchise opportunity that meets their needs, and because of our close economic ties and geographical proximity to Australia, we are a logical first step on any expansion plans outside of a brand’s respective country. For an overseas brand to establish in New Zealand, it will need to convince our franchise-savvy population that it can offer something different or better than the homegrown options.”
Smaller brands, big opportunity
Although more than 124,000 people in New Zealand are directly employed by the franchise industry, according to the Franchise Association of New Zealand (FANZ), the island’s networks remain relatively small. The median size of a New Zealand franchise network is 32 units, with small brands – those with up to 20 units – making up most of the marketplace at 40 per cent.
However, as Tereza Murray explains, a small footprint is sometimes all that’s required to make a big impact: “As many of our smaller franchise brands are service-based, often only one or two franchises can be sustained in these smaller towns and regions before you begin to cannibalize the available market. The wise franchisor will select and nurture an ambitious franchisee for these areas that will actively promote the brand and win market share to fully capitalize on the market’s potential. This way, multiple operators are not needed, because one or two good franchisees can be worth several average performing ones, and require far less head office resources.”
Large networks can still certainly thrive, however. Brands with 50 or more units make up around 27 per cent of the Kiwi franchise industry, and this figure includes the likes of Australia-based The Coffee Club with 65 New Zealand locations, or popular American cleaning franchise Jani- King, which currently has around 360 Kiwi franchisees.
“Our smaller towns and regions have a lot to offer emerging franchise brands and the business environment can be more accommodating and forgiving in these areas”
From an industry perspective, retail trade makes up the bulk of New Zealand concepts, with 143 brands operating in the country. This is followed by services such as pet care and automotive at 125 brands, and then accommodation and food retail at 115 unique offerings.
A couple of the main attributes of New Zealand franchises is that they’re relatively young and notably cautious. The majority of franchised businesses within the country have an average of 25 years’ operational experience, with 17.5 years of franchise experience under their belt. Many of these organizations – 64 per cent, to be exact – tested their concept for at least four-and-a-half years before franchising it out to external partners.
Retail brands, including the likes of food and beverage offerings, have significantly more experience on average than non-retail businesses, with 22 years for the former and only 15 for the latter. This is likely pinned on the fact that franchising as a business model has often been associated with the fast-food industry in New Zealand, and other types of business are only recently turning to franchising as a viable growth strategy.
Fairness gets you far
We know what the market consists of, but how do incoming brands succeed with business-savvy Kiwi consumers and entrepreneurs? The secret is simple: transparency.
“Kiwis tend to take others at face value, so a brand that genuinely embraces our culture, seeks to make a positive difference in the community, and is invested in the success of its people, will ultimately be well received,” says Tereza Murray.
As well as coming first on the World Bank Group’s ease of doing business ranking, New Zealand is also ranked generally high for business honesty and integrity. Perhaps more so than many other markets in the world, New Zealand businesses are open and sincere, which could explain why in a 2017 survey conducted by FANZ, only 22 per cent of franchisors in the country were involved in a substantial dispute.
The main cause of franchise disputes come from compliance (or lack thereof) with system requirements. These are often alleviated by an adherence to the FANZ Franchising Code of Practice, which requires that franchisors provide a detailed disclosure document 14 days prior to signing and that all agreements come with a seven-day cooling-off period so that franchisees don’t feel pressured into entering an agreement they find unsatisfactory.
Come prepared
Even if an international franchise comes to New Zealand with fairness, integrity, and a solid business plan, seamless national growth isn’t always a guarantee. Starbucks, for example, encountered the challenge of home-grown favoritism impeding its penetration of the market, as it came up against popular local coffee brands such as Columbus Coffee that already delivered exactly what consumers needed.
There can also be misplaced stock put into a dedicated focus on Auckland, as while one-third of the country’s population lives in the sought after city, smaller towns and cities throughout New Zealand are also ripe for franchise development. This is coupled with the fact that there’s only so much retail space to go around, especially in a dense market like Auckland, so retail brands could run into trouble when trying to find available sites to develop.
“As with any large city, you have the inherent difficulties of more competition and consumer choice, plus higher rents and establishment costs, which leaves less room for error,” says Tereza Murray. “Our smaller towns and regions have a lot to offer emerging franchise brands and the business environment can be more accommodating and forgiving in these areas.”
The complaint has also been leveled at New Zealand, and Auckland in particular, that immovable traffic can cause drastic problems for transportation and operations. However, according to the Department of International Trade, an estimated $129bn is being spent on New Zealand’s infrastructure between 2019 and 2029, so this should soon be a problem of the past.
FIVE GUYS: KIWI FRIES
International make-your-own burger franchise Five Guys: Burgers & Fries recently announced it would be heading to Australasia with a master franchise agreement signed by Seagrass Boutique Hospitality. The first location to come from the deal will open in Sydney, Australia, but New Zealand development shouldn’t be too far behind.
