New Zealand's Best Source of Franchising Information Since 1992

Linkedin Twitter Googleplus Facebook

2001 SURVEY - SECTOR TOPS $10 BILLION

by John Paynter,
last updated 30/06/2017

John Paynter reports the results of the FANZ Survey of Franchising 2001, sponsored by The National Bank

For the first time ever, this year's Survey of Franchising shows that franchising in New Zealand has topped the $10 billion mark. This is a dramatic increase on previous years' figures, and reflects continued growth in the sector.

This year's Survey confirms the continuing upward trend for franchising,' says Robert Fowler, Chairman of the Franchise Association. 'Growth is coming from several areas. We are seeing more franchise systems starting up. We are seeing more people buying franchises. And we are seeing franchisees enjoying increasing turnover levels as their businesses become established.'

The Survey drew responses from 114 different franchise systems - over a third of the country's estimated 300 active franchises. Results revealed that 768 new units had opened in the previous 12 months, a growth rate of 16% per annum, and respondents reported an impressive 20% increase in overall turnover from last year's Survey.

Key facts identified were:

  • The New Zealand franchise sector is estimated to account for a total annual turnover of NZ$10 billion
  • The number of people working in franchising totals approximately 70,000
  • The number of franchised and company-owned outlets is estimated to be 14,000
  • 77% of franchise systems operating here originate in New Zealand
  • The fastest-growing sectors are Business & Property Services, Construction & Trade and Personal & Other Services
  • Franchise units have a survival rate in the first three years of over 94%
  • 51% of franchisors are based in Auckland � Christchurch is the next largest centre

The fifth annual survey was again carried out for the Franchise Association of New Zealand by John Paynter of the University of Auckland and sponsored by The National Bank. The 114 responses represented over 4000 franchised and company-owned units throughout the country.

'An annual survey such as this enables us to track the growth of franchising in this country and its increasing importance to the NZ economy,' says Robert Fowler. 'Year on year, the figures show impressive growth as franchise systems improve and new companies join the market. We thank everyone, members and non-members, who participated.'

John Paynter points out that this year's figures have confirmed a slight aberration in the 2000 Survey results. 'Last year, the numbers actually suggested a slight drop in the overall turnover of the sector and the number of people employed. However, close examination suggested that this was the result of our having a larger number than usual of new start-up systems among the Survey respondents. This year, the proportion of new start-ups is more in accord with previous Surveys and the results reflect that accordingly.'

What Is Being Franchised?

Last year's survey highlighted the growth in areas other than the traditional franchising strongholds of food and retail, and this continues to be the case, perhaps surprisingly for those who equate the word 'franchising' with burgers and fries.

Services of one kind or another now dominate the sector, making up a total of 56% of all systems. Property & Business Services account for 16%, Construction & Trade 15%, and Personal & Other 8% of the total. Retail (Food) is only 11.%, while Retail (Non-Food) continues to be the largest individual category at 24%.

These three areas also show the highest growth rates - Property & Business Services is up by 18% in the last year, Construction & Trade up by 16% and Personal & Other up by 6%.

Respondents were also asked to describe the style of operation their franchise used. 61% were based in fixed premises, 35% were mobile operations and 14% were home-based.

Where Is The Growth Coming From?

The $10 billion barrier has been broken for the first time thanks to continuing growth in three different areas: new franchise systems starting up, increasing numbers of franchisees, and higher reported turnover.

New Systems The UniServices team actually identified 300 active franchisors, of whom 111 responded to the Survey. However, although the overall sector figures are calculated on the base of those 300, new franchises are constantly being developed.

Franchisors were asked when their business commenced operations, and when it commenced franchising. The median year in which the business was set up was 1992/93, and franchising commenced in 1996 (the median, or mid-point of the response range, is used rather than the average in order to avoid distortions caused by a small number of extremely old or large systems). This increasing experience is reflected in higher turnover figures, especially when compared to last year's Survey with its higher proportion of new start-up systems.

77% of systems originate in New Zealand - another figure to surprise the newcomer to franchising. Of those that originate overseas, the majority operate through a sub-franchisor (master franchise) based here.

More Franchisees

The growth in the number of franchised units was spectacular - over 16% in the 12 months prior to the Survey. The actual number of new outlets reported was 768, which compares with 611 in 2001 and 360 in 1999.

The average number of franchised units per respondent grew from 38 in 2000 to 40 in 2001, while the median figure has shown steady growth over the past three years from 9 in 1999 to 11 in 2000 and 13 in 2001. 'Although we have some very large systems with hundreds of franchisees, the relative newness of many systems explains why so many are around this level,' says Robert Fowler. 'The interesting thing is the steady growth as they mature and improve their marketing and operations - most clearly have room for more growth. However, most franchises should not expect to reach the 100 mark - recent statistics from the US tell us that even in that giant market the average franchise system has fewer than 100 units.'

Higher Turnover

Respondents were asked to give estimated total turnover figures for their franchised and company-owned outlets. The median figure for franchised outlets was $4.64 million, which represents an increase from last year of an enormous 25%. While some of that can be put down to the effect of increased franchisee numbers, it still represents considerable year-on-year growth for franchisees.

Of the 83 franchises who reported their turnover (some declined to do so for confidentiality reasons), the total turnover for franchised units was $2,214 million and for company-owned units $697 million - a total of $2,896 million.

By extrapolating that figure out over the 300 identified franchise systems, we reach a turnover for the entire franchise sector of 10,467 million (10.4 billion).

What Are The Goals?

Although some observers have suggested that franchise growth must slow down at a time when unemployment is low, the franchisors surveyed are planning on further expansion. In the next 12 months, respondents plan to open 915 new units almost all of which will be franchised (883) as opposed to company-owned (32).

In addition, new franchises, mergers and acquisitions are in the minds of many. 13% of respondents indicated that they would buy a new franchise, 17% planned to create a new one, and 15% would merge with an existing one. Respondents typically indicated that expansion would be within the same industry sector as their existing business.

The respondents specified an average increase in those involved of 55% over the next five years. While some systems indicated they had reached saturation within New Zealand, the ongoing entry of new franchisors and franchise systems should ensure continued growth beyond 2005.

Employment

How many people are involved in franchising?

The Survey respondents reported 24,669 people in their systems, but this figure is under-reported as some respondents misunderstood the question and did not include themselves (as franchisors) or their franchisees in the totals.

Of those reported, there were 12,081 permanent staff, 9,614 part-time workers and 2,974 casuals. The largest single group (41%) were in full-time employ in franchised units, with another 38% being employed part-time and 11% on a casual basis. The estimate for total employment in franchising (based on 300 systems) is 70,000 people, up from 41,000 last year. This figure does not include those involved in providing support services (eg. specialist advisors) or those employed in a supplier capacity (eg. food and packaging manufacturers).

'Again, this is a measure of the increasing value of franchising to the economy,' says Robert Fowler. 'Franchised systems form a significant part of the employment base in this country, both through self-employment and the employment of staff. Further, the application of well thought-out management and operational systems by those franchises means that franchisees and employees are receiving vocational and business training of a far higher standard than they would receive in many small businesses.'

Starting Up

The median start-up cost for New Zealand franchisees was recorded in the 2001 Survey as $125,000. While this figure is up from last year ($93,000), this probably reflects the mix of responses rather than any major cost increase. Total costs varied from $6,800 for a small home services franchise to several million dollars for large retail operations.

93% of systems charged an initial franchise fee. 88% of franchisors reported that franchisees have a specified territory, and 89% of these considered that the territory was guaranteed and protected.

Low Failure Rate

In previous years, franchisors have been asked to report on disputes with their franchisees. This figure has consistently remained around 1% of all franchised outlets, which is a commendably low figure. This year, over 97% of franchisors considered that they enjoyed a very good relationship with their franchisees, and 94% believed that they offered adequate conflict resolution methods.

The Survey also required franchisors to estimate the failure rate for franchisees in their system over a three-year period. 'Failure' was defined as: went bankrupt; terminated because unable to pay royalties or other fees; sold back to franchisor; distress sale to third party; unable to earn a profit; cancelled, reacquired or abandoned.

Franchisors reported that the failure rate for franchise units in their systems over a three year period is less than 6%. While there are various conflicting claims made for the failure rate of franchises versus independent small businesses, this figure indicates a very high success rate for franchising.

'It must be emphasised that just because a business describes itself as a franchise it does not mean that it will necessarily have a very low failure rate,' stresses Robert Fowler. 'Unfortunately, some people do offer what purport to be 'franchises' which are not sufficiently well thought-out, well-proven and well-supported to achieve the sort of success ratio achieved by those franchises in the Survey. Nevertheless, it is clear from these statistics that if you choose your franchise carefully you can reduce the risk of going into business for yourself by a very significant margin.'

Support Systems

Franchisors were asked to indicate what sort of support services they provide for franchisees. 91% offered pre-opening training (for a median of 10 days), and 87% provided on-site start-up support (for a median of 8.5 days).

Franchise manuals are obviously fundamental to any system. 92% of franchises had manuals with the median length being 250 pages. The maximum number of pages was 2,000, although some franchisors reported that the manuals were in an electronic form and the number of pages could not be determined.

Another question related to how franchisors were using the internet in their business. 95% had access to the internet, 80% used it to communicate with franchisees and 84% now have their own website. This last figure shows a substantial increase from the 1997 (17%) and 1998 (39%) Surveys. In addition, many franchisors have started using the internet to market products and recruit franchisees � another major change from last year.

Making A Difference

'The results of this year's Survey of Franchising have proved that the sector is a more powerful force in the economy than has generally been realised,' says Viv Vesty, Senior Manager Franchising of The National Bank, which sponsors the Survey. 'The first Survey, in 1997, suggested that franchising was worth around $3 billion - now it is estimated at $10.4 billion and shows no signs of slowing. This growth combined with the increase in outlet numbers reflects our view that more and more people are looking to enter business through franchising.

'The availability of high quality, well-supported franchise systems is encouraging people to invest in themselves. By creating their own businesses, they are not only controlling their own futures - they are also re-investing in the New Zealand economy. They're creating significant numbers of worthwhile jobs and, very importantly, providing quality vocational training for large numbers of young people. Franchising is making a difference.'

Additional support for the 2001 Survey of Franchising was provided by Snap Printing, Franchise New Zealand magazine, Hotel du Vin and de Redcliffe Winery.

Free

Shadow

Send for your free copy of our printed magazine, New Zealand's most respected,
comprehensive
guide.

featured

Goodwinturnerlogotile Jim_s_building_inspections_logo_tile_web Westpac_tile_ad_2016 Dominoslogotile 2385_fran_acc_fnz_web_tile_fo Sba_tile_2014 Freelisting Nsme189586-0916-webtile-288x288px-white Franchisenz_july_2017 Wide_span_sheds_logo_tile
Wide_span_sheds_logo_tile Goodwinturnerlogotile Jim_s_building_inspections_logo_tile_web Westpac_tile_ad_2016 Dominoslogotile 2385_fran_acc_fnz_web_tile_fo Sba_tile_2014 Freelisting Nsme189586-0916-webtile-288x288px-white Franchisenz_july_2017
Franchisenz_july_2017 Wide_span_sheds_logo_tile Goodwinturnerlogotile Jim_s_building_inspections_logo_tile_web Westpac_tile_ad_2016 Dominoslogotile 2385_fran_acc_fnz_web_tile_fo Sba_tile_2014 Freelisting Nsme189586-0916-webtile-288x288px-white
Nsme189586-0916-webtile-288x288px-white Franchisenz_july_2017 Wide_span_sheds_logo_tile Goodwinturnerlogotile Jim_s_building_inspections_logo_tile_web Westpac_tile_ad_2016 Dominoslogotile 2385_fran_acc_fnz_web_tile_fo Sba_tile_2014 Freelisting

PUTTING PEOPLE in BUSINESS