For many years, savvy franchisors have recognized the benefits of the New Zealand franchise market – thanks to its consistently high ease of business rankings, track record of deregulation, and ongoing government developments. But after its exemplary handling of a global pandemic, this little island is garnering some huge interest from international brands.
Words by Kieran McLoone, editor of Global Franchise
Even before the world witnessed its impressive handling of the coronavirus pandemic, New Zealand had a lot going for it with regard to international business development. Its distinct lack of ‘red tape’ and continued business reforms to make international trade as seamless as possible have elevated the country beyond its close neighbors, and have positioned it as a true franchising frontrunner – despite its small size.
There’s no getting around the fact that across its entire land mass, New Zealand only has a population of just below five million people. This shouldn’t dissuade franchisors from bringing their concept to the Kiwis, but it’s important to consider if an organization is looking for the kind of numbers that may be found in a country like the U.S.
That’s not stopping even the largest and most exciting U.S. brands from exploring New Zealand’s potential, however. In April 2021, for instance, flexible workspace franchisor IWG announced plans to aggressively expand throughout Australasia, with Christchurch, Wellington, and Auckland being targeted as key markets throughout the country.
An understated gem
It shouldn’t come as any surprise that big brands are targeting New Zealand for growth, of course. After all, it’s consistently recognized as the least corrupt country in the world, and pre-pandemic, almost as many tourists visited its friendly shores on a yearly basis as people living in the country. This is a figure that’s naturally taken a considerable dip since its complete lockdown, but certainly, expect it to climb in the coming months as international travel begins to open the world up again.
“New Zealand typically features a relatively benign competitive environment compared to, for example, Australia or the U.S.”
“New Zealand has been very lucky to manage and maintain extremely low levels of COVID-19 community infections, domestically – with the majority of infections arising from returning kiwis and in quarantine facilities,” says Callum Floyd, managing director of Franchize Consultants, and chairperson of the Franchise Association of New Zealand (FANZ).
“Notwithstanding, New Zealand did have ‘lockdowns’ where residential and commercial movements were curtailed; in particular, nationally from late March through early May 2020, and in Auckland, especially, in February 2021. Personal and business international travel had been curtailed until April, with the commencement of a quarantine-free travel arrangement between New Zealand and Australia (aka ‘Trans Tasman bubble’).”
An extension of Australia?
Many international franchising deals involving New Zealand seem to be part of a larger Australasian strategy. This leads to the impression that New Zealand is simply an extension of the Aussie market – an impression that couldn’t be further from the truth, in the same way that Canada isn’t simply the 51st U.S. state.
“Historically, it was common for international franchisors to encompass New Zealand within a wider Australasian opportunity, although New Zealand firms were and are sometimes granted Australasian rights,” says Callum Floyd. “Not surprisingly, the bundling of Australia and New Zealand rights appears less common, as it should be, in the last decade – perhaps as international franchisors recognize the unique circumstances, opportunities, and challenges associated with addressing both markets.”
That’s not to say that Australia and New Zealand don’t share some commonalities. The travel agreements currently in place between both regions, for example, allow business transactions to continue, even while New Zealand locks down from the rest of the world.
“Both markets certainly have similarities, but there are as many differences meaning a targeted entry strategy is needed for both countries, separately. It is very rare for a company to enter New Zealand from Australia or vice versa without some considerable adaptation to their local unit-level model,” explains Floyd.
“Not surprisingly, the bundling of Australia and New Zealand rights appears less common, as it should be, in the last decade”
The best-suited industries for growth
Much like other leading franchise markets, New Zealand is no stranger to the variety that franchising can bring. While the restaurant industry is rife with huge contenders – both domestic and international – other areas such as home services, real estate, and education are just as lucrative for the right kind of brand. Make no mistake: there’s plenty of domestic competition. But that doesn’t mean that a strong international brand can’t still capture the minds of local consumers.
“Notwithstanding, history has shown there is always opportunity for a strong organized operator to enter – and New Zealand typically features a relatively benign competitive environment compared to, for example, Australia or the U.S.,” says Floyd.
The problems of a pandemic
We’ve touched on New Zealand’s handling of the coronavirus pandemic, but that doesn’t mean that the country has been completely spared the sometimes devastating impact that this global event has had on the franchising space. As Callum Floyd explains: “There is no question that New Zealand franchising has been impacted negatively, in general, by COVID-19, although there are clearly some firms whose services have grown (such as supermarket and courier operations).
“However, improvements in perceptions are noted this year. Franchize Consultants’ franchising specific business confidence research (conducted over 11 years) of franchisors in January 2021 reported, in general, improvements in perceptions toward general business conditions, access to suitable franchisees, staff and locations, and growth prospects for themselves.
“Challenged or reduced areas included perceptions toward sales levels per franchisee and franchisee profitability. Importantly, and not surprisingly, COVID-19, and its varying impacts, were noted by franchisors as the number one challenge to their company’s franchise development for 2021.
“For most New Zealand companies, contemplating or servicing international growth is currently more challenging. The recent easing of restrictions with Australia has certainly helped, though business travel is only beginning to commence – with most cautious to travel due to the disruptive risk of needing to self-isolate (in the event of a new outbreak) on return. Further international development seems greatly curtailed until further travel restrictions are lifted, and the timeline for such lifting is incredibly uncertain – with many countries, including New Zealand, still early in their vaccination programs.”
Thankfully, the New Zealand business community has been able to rely on the support of FANZ to help navigate the toughest moments over the past year. This includes member communication and networking, webinars, landlord advocacy, employment advocacy, regular meetings, training, and a national conference.
Planning an entry strategy
While brands won’t be launching in New Zealand just yet, once the market opens up to international travel once again, it’ll be important to have planned a foolproof entry strategy that includes location, as well as the model of franchising that will be utilized.
“When deciding on franchising form, incoming franchisors need to plan their entry structure carefully, paying particular attention to the size and dispersion of New Zealand’s population,” says Floyd.
“New Zealand’s relatively small population means total potential chain size is limited and outside of Auckland (1.6 million), there is some travel required across both North (3.8 million) and South Islands (one million).
“Domestically, given the above, single-unit franchising, with some targeted multi-unit expansion via incremental or sequential franchising is typically most optimal – preserving owner operation and optimizing any further growth in a controlled manner. Very few organizations have the scale and margin to sustain sub franchising in New Zealand.
“With regard to connecting the franchisor country to New Zealand, we would often recommend direct franchising or a master franchise for the whole country. However, the recommendation needs to be based on a thorough feasibility assessment which encompasses many other important related factors.”
NZ’s lovin’ it
It’s not just the consumers of New Zealand who support the country’s franchise industry and, in turn, its economy. Last year, McDonald’s New Zealand spent $156.9m on ingredients ordered from the nation’s primary industries, with a further $222.5m of produce exported. In total, the golden arches injected $379.4m into New Zealand agriculture in 2020.
Face-to-face collaboration
One element of the franchise industry that was severely impacted by the pandemic was industry events, which are often a prime way for franchisors to meet and network with prospective development partners. We simply haven’t been able to meet face-to-face, let alone have a gathering of thousands of individuals at an industry exhibition.
New Zealand could be the case study for what the future holds, however. By locking down early and managing the spread of the virus, the country was able to host the iconic Wellington street festival Cuba Dupa in March 2021, and in April, popular Kiwi band Six60 played to 50,000 fans at Eden park.
