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MEASURING THE DIFFERENCES IN
TRANS-TASMAN FRANCHISING

by Simon Lord,
last updated 03/06/2011

May 2011 - A seminar conducted at Massey University’s Albany campus provided an interesting comparison of trans-Tasman franchising.

In 2010, Griffith University in Australia co-ordinated Surveys of Franchising in New Zealand (in conjunction with Massey) and Australia. See our report on the New Zealand survey here. At a seminar at Massey University in May 2011, Professor Lorelle Frazer of Griffith Business School looked at the similarities and differences between franchising in the two countries.

The 2010 survey was the first to be held in New Zealand since 2003, but Australian figures show that franchising enjoyed strong growth over the last decade until the Global Financial Crisis hit. Numbers of franchise systems in Australia rose from 700 in the year 2000 to 1,100 in 2008 before dropping to 1,025 in the latest survey. Professor Frazer is confident that these numbers are accurate and suggested that the failed systems tended to be small and were often relatively new retailers. She noted that while the number of franchised units also declined, many systems in both countries had actually grown in numbers throughout the GFC. While systems might have grown, the majority of Australian franchisors reported decreases in franchisee sales and profitability over the same period, reflecting the concerns highlighted in New Zealand’s Franchising Confidence Index surveys.

The 2010 surveys confirmed that New Zealand has a greater number of franchises per capita than Australia, although Professor Frazer questioned whether this was such a great claim as many of those systems were quite small. Franchises represent just 4% of all small businesses in Australia and 5% in New Zealand by number – no statistics were available for turnover. ‘This means that there may be considerable opportunities for converting independent operators to franchisees,’ she suggested.

Although there are certainly more large franchises in Australia, the franchise sectors in both countries show similar characteristics with most systems having fewer than 20 franchisees.

Size of system

Australia

NZ

Small (1-20 franchisees)

47%

50%

Medium (21-50)

21%

24%

Large (50-plus)

32%

26%

 

Franchisors have similar levels of experience either side of the Tasman.

Franchisor Experience

Australia

NZ

Young (franchising 1-5 years)

26%

24%

Emerging (6-10 years)

23%

16%

Mature (More than 10 years)

51%

60%

 

It should be borne in mind that respondents to the survey represented only 22% of all systems in Australia and 20% in New Zealand, and that non-respondents may include a larger proportion of newer franchisors who are not yet aware of the value of such surveys.

Australian franchises have grown faster than New Zealand franchises over the past two years, with the median number of units in Australia having grown from 18 to 23, while the figure for New Zealand grew from 19 to 21.

Labour & Regulation

One of the areas where the survey showed marked differences between Australia and New Zealand was that of labour patterns. Australian franchises employ more casual employees (66%) as opposed to permanent full- and part-time employees, whereas the figure is only 4% for New Zealand, where full-time employees are the norm (72%). Professor Frazer suggested that, given the current employment situation, those in full-time employment are possibly working harder and longer hours, thereby reducing the need for casual labour.

An obvious difference between the two countries is that franchising in Australia is highly-regulated, with franchise-specific law having been brought in via the Franchising Code of Practice in 1998. Despite this, there is little difference in the level of disputes in the two countries. In New Zealand, the proportion of franchisees involved in disputes was 2% while the corresponding figure for Australia was 1%. Given the sample sizes, this is not statistically significant, suggesting that 13 years of franchise regulation in Australia may not have had a significant effect upon disputes.

The figures suggest that New Zealand franchisors and franchisees are less likely to resolve disputes via mediation than Australians (8% as opposed to 21%), and litigation is also less popular (17% as opposed to 25%). Working through solicitors is the most popular way to resolve issues in both countries (New Zealand – 75%, Australia, 54%).

Apparently, in both countries most disputes arise in the larger franchise systems. Professor Frazer suggested this might occur because in smaller systems there is more direct contact between franchisors and franchisees which makes resolving issues easier – this might be supported by the acrimony among larger systems in the US which has led to the creation of such bodies as the Coalition of Franchise Associations. It could also be that larger franchise systems are more honest about reporting disputes. A new research project to be carried out by Griffith and Massey Universities will look at causes of franchise conflict on both sides of the Tasman.

Next Survey

The surveys of franchising are carried out biennially, with the next scheduled for 2012. Dr Susan Flint-Hartle of the Massey Business School is hoping to encourage increased response from New Zealand franchisors to the next survey, which will be shorter and simpler to complete. The importance of having accurate data on the franchise sector was reinforced by the fact that the Massey seminar drew attendance from officials of the Ministry of Economic Development, Auckland Tourism, Events & Economic Development, the IRD and Lianne Dalziel, former Minister for Small Business and current chair of the Parliamentary Commerce Select Committee.

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