CHOICE! - A BUYER'S GUIDE TO FRANCHISES
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September 2018 - Business confidence might have taken a bit of a knock recently, but many franchisors are saying that their biggest problem isn’t a shortage of customers or sales, but a shortage of new franchisees. In many sectors, there are more opportunities and locations available than there are people to develop them.
If you’re keen to own your own business, it’s a good time to start looking. A good franchise can provide you with the training, the support, the marketing and the products or services to get you off to the best possible start. But what do you choose? Here’s a sector-by-sector guide to help you work out what’s available. To keep things simple, we’ve divided the franchises available in New Zealand into ten main categories:
- Auto Services
- Business & Commercial Services
- Computers & Telecommunications
- Financial Services
- Food & Beverage
- Fitness, Health & Beauty
- Home & Building
- Home Services
- Leisure & Education
In each category, we’ll tell you a little bit about the franchise environment, explore the investment range, outline the type of franchises operating and the sort of skills franchisees need. You can search opportunities by category or investment level in the Westpac Directory of Franchising.
With the number of cars on New Zealand roads constantly increasing and WOF regulations becoming tighter, auto servicing and repair is a growth sector. Franchises available in this category divide into two: the fixed type, such as Pit Stop, or Midas, where customers bring their vehicle to you, and the mobile type, such as Touch-Up Guys and Snap-on Tools, where the franchisee goes to the customer. Often, franchisees deal with garages and car yards or fleet operators where they can get bulk business as well as servicing private individuals. An exception to this is the windscreen repair industry, which is largely financed by the insurance companies.
The investment required in this sector varies widely from $40,000 for a mobile business up to $180,000-plus for a fully-fitted automotive service centre. Other types of auto franchises include car valeting and, at the upper end of the investment spectrum, full automotive dealerships.
New Zealand has a very high proportion of business-to-business (B2B) franchises compared to other countries. The high incidence of small businesses which need to buy-in external services rather than having them in-house may explain this. Whatever the reason, B2B has been one of our fastest-growing franchise sectors for some time and shows no signs of slowing down.
The sector offers a huge range of services: business coaching, commercial cleaning, courier delivery and accounting, among others. There’s an emerging niche in health and safety, and even promotional goods and media offer franchise opportunities for sales people.
A lot of B2B franchises are home-based and mobile, with investment levels starting from as low as $5,000 (although don’t forget you’ll need working capital, too). However, services such as EmbroidMe are premises-based. Having premises usually doesn’t mean franchisees don’t have to make sales calls, though – marketing to local businesses is usually a vital part of the franchisee’s role. In every case, good interpersonal skills are required to market to other businesses and it is equally important to have an understanding of, and empathy with, the market you are serving.
The computer and telecommunications sectors can change rapidly and any opportunity in this sector needs thorough investigation with an eye to future developments.
Computer franchises have had their ups and downs but are now on the rise again with the development of a number of stable systems. They divide mainly into two types: those which provide support when individual computers and small networks break down (the domestic/home and small office market) and those which provide specific development and management of software solutions such as accounting packages. A third sector offers sales and marketing-type franchises based around the provision of technical services such as website development.
Most franchises in this sector are usually home-based and mobile, with the investment required ranging from $20,000 to $70,000. While some training is provided, most will require you to be technically proficient or have good sales skills. The computer servicing franchises will provide many support functions to maximise time spent on the technical side. However, you will still need good interpersonal skills as well as computer skills in order to make a success of this type of business as you are the person in front of the customer. The software solutions-type franchises may require additional skills, such as an accounting background or a knowledge of Xero or MYOB.
While mortgage broking is not quite the hot number it was ten years ago, there are still plenty of opportunities in the finance sector such as direct finance, invoice factoring and financial planning. There are also accounting franchises such as SBA that cross the divide between financial and business services.
Generally home or small office-based, financial franchises start from around $40,000 although they may require substantial working capital on top. Some can be operated as part-time businesses and may require home visits out of office hours. There are two vital attributes for franchisees: people skills and an understanding of figures. Business finance and cost-reduction franchisees need to be able to work at senior management level within businesses; accounting franchisees do not need accounting qualifications but must be familiar with the needs of small business. Many franchisees in this sector have banking experience; however, it is not essential.
This is the sector where modern franchising began and it still accounts for a huge proportion of the market. Such names as Wendy’s, Burger King and KFC are franchise icons, but in New Zealand there’s just one catch – none of those famous brands is sub-franchised here, with all the outlets of each chain being owned by a single master licensee.
Not to worry, though, for there is still plenty of choice. Burgers are still hugely popular in New Zealand, with local companies BurgerFuel and Burger Wisconsin focusing on the gourmet (and less price-sensitive) end of the market while the mass appeal brands slug it out. Pizza has become a staple in many people’s diets, with Domino’s constantly innovating in digital and delivery technologies while Hell occupies a space it has made all its own.
The café sector continues to do well with franchises constantly revising their offering to stay on trend. Conversion franchising – where you buy an existing independent outlet and convert it to a franchised brand – is increasingly popular. New Zealanders were slow to convert to Mexican food, but Mexicali Fresh has led the way here, also being an early adopter of what is called Fast Casual dining – a more relaxed version of traditional fast food. For many premises-based food franchises, the emergence of Uber Eats has enabled them to offer a delivery option without the need to employ specialist drivers. This can maximise the productive use of specialist equipment and staff, but can also put additional pressure on at busy times – and Uber’s fees may take a significant chunk of the profit.
There are several dedicated mobile options, from coffee carts to pizza, and retail distribution franchises such as Anchor have always been solid. Product delivery via vending machines attracts many looking for flexible hours, while companies such as Provender and Xpresso Delight deliver straight into workplaces. As a result, you can enter the industry for as little as $25,000 or spend as much as $500,000 – and the rest!
Among the fixed premises franchises, there are two different philosophies. Some franchises make a big thing of having all their food prepared on the premises (promising more freshness and higher margins) while others prepare off-site (requiring less expensive floor space and fewer skilled staff). At the end of the day, this is a business driven by margins and the bottom line, and any of the successful franchises clearly has a model that works given the right site and the right franchisee.
In return for the potential to make a lot of money, hospitality franchisees need the management ability to deal with staff training and turnover, complex regulations, long and irregular hours, leases, landlords and customers who can get quite emotional if something goes wrong. Many people have romantic notions about running a little eatery but the reality is hard work. You need high levels of energy and patience as well as good people skills. If you have these, you might even join the growing number of multi-unit franchisees who own more than one outlet in the same – or even different – chain(s).
The mobile franchises have few of these drawbacks (apart from the early starts) as they tend to be one-man-bands or husband-and-wife operations. However, they do not lend themselves to ownership of multiple outlets in the same way and require constant hands-on attention from the franchisee and/or family members.
One of the major growth areas internationally, the ageing of the baby boomer generation means the number of opportunities in fitness, health and beauty has been steadily increasing in recent years.
On the fitness side, there are a number of gym and personal training brands available. There are transport franchises like Freedom Companion Driving which cater for older or less able clients; Body Audit offers mobile health and weight management monitoring; and the beauty industry offers everything from hair salons to appearance medicine. While a fitness business could be yours for under $40,000, a Caci appearance medicine clinic could cost you several times that to establish – with commensurate rewards.
This is an area where appearance counts. If you have difficulty with your personal image, even superb people and management skills may not be enough to help you succeed in a slimming or fitness centre franchise. Equally, if you are in the beauty business, you’ll need to put your make-up on every time you go out. But if you aren’t the type of person who is passionate about this sort of lifestyle anyway, you probably shouldn’t be considering a business in the sector – no matter how big the expected growth over the next 20 years.
Building has been going through a growth period and, as well as franchised home building companies, home renovation, repair and enhancement franchises have been doing well. Building is traditionally a boom-and-bust industry, and having (and using) good management processes is essential to build a long-term, sustainable business. Dream Doors, which specialises in kitchen refurbishment rather than replacement, is a prime example of this, having developed award-winning systems to help support franchisee profitability.
Home and building franchises can be divided into three types: complete house-building franchises like Milestone Homes and Platinum Homes aimed at builders and business people looking to develop a competitive edge; specialist service providers supplying new homes like Pink Fit; and new or renovation suppliers such as Carpet Court and Woolgro. Building inspection and home handyman franchises add to the mix of options.
Many of the franchises in this sector are necessarily mobile and therefore fit into the middle bracket around the $25,000 to $80,000 investment level. Industry experience is often desirable but not all franchises require it as long as applicants have some practical ability and a good state of fitness. Sales and people skills are usually important.
Some franchises allow franchisees to sub-contract or employ specialist staff; others forbid it. You need to check carefully what is and isn’t permitted before committing yourself if you are considering such an option.
In terms of sheer numbers, this is the biggest sector of all with perhaps 3-4,000 franchisees offering everything from lawnmowing to pool cleaning. Most of those franchisees are individual operators or couples, although several of the larger franchises operate via a three-tier system: the local franchisees are supported by a regional master franchisee who, in turn, is supported by the national franchisor. This is an efficient system which ensures that ‘head office’ does not need a huge management and staffing structure and which, at its best, empowers and motivates those supporting franchisees through their financial stake in the business – exactly the same factors that motivate the franchisees themselves.
This is typically a low-investment sector. Franchises generally cost around the $15,000 - $35,000 level plus equipment and a vehicle, although some of the specialist services can range as high as $100,000. It is also the sector in which you are most likely to find the offer of a work guarantee or income guarantee. If this is important to you, check carefully to see exactly when it kicks in and what it offers.
The home services sector has seen tremendous growth over recent years, and the larger companies say there is still plenty of demand and that their biggest problem is not finding new customers but new franchisees. For this reason, it is a very competitive market, with each of the companies looking to find an edge and sometimes prone to putting their competitors down. Ignore this: if you are looking for a franchise in this sector, look for one with a structure that best meets your own needs and with a culture and people you feel comfortable with.
This tends to be a sector for people who like children, whether you want to operate an out-of-school care programme like sKids, teach a passion like computer programming or sport, or conduct tutoring with maths or English students.
As parents become increasingly concerned for their children’s education, so a number of specialist franchises are springing up to assist in areas such as pre-school gyms, drama and maths. Art, music, computer, science and language tuition are growing fast in many countries. This is an area where caution is required: while music lessons have always been a ‘user pays’ add-on to traditional education, it may take a while for academic tuition to catch on and the niches may be too small here for some concepts to thrive.
Core curriculum subjects such as maths and English are well-proven here, though, and find a ready market not just with immigrants looking to catch up but local school and even mature students, too. Computer programming specialists Scratchpad are also finding a ready demand for their services.
The retail market in New Zealand tends to be dominated by a few major players, which means that franchises have to develop their own specialist niches to compete successfully. The big issues in retailing are premises, location and size, all of which have a huge impact upon margins, particularly in mall locations. While some franchises operate successfully in malls, most operate outside the malls where they make a big point of being destination outlets serving local communities. Liquor stores and garden centres make a virtue of easy parking and non-mall hours. Alternatively, companies like Pack & Send aren’t tied to their premises: franchisees must be prepared to go out and market their services.
Most retail opportunities start from $200,000 and go up to $1 million plus. Retail, like food, has become a seven-day business and initially most new franchisees can expect to be working for most of those days. However, as with food, retail offers the advantage that staff are essential and with good people and good management a franchisee can rapidly build a business that does not require their presence on-site all the time. Currently, both food and retail businesses are reporting that good staff are hard to find, although family-owned businesses may find this less of an issue.
Most franchisors say that new franchisees require no previous retail experience. In reality, though, this is another area where good people skills are vital for leading your team and providing your customers with friendly and efficient service, and such people will often have a retail background. You need the ability to smile and to stay on your feet all day! Many retail franchises are ideally suited to couples who between them have a range of financial, administrative, management and people skills which few individuals can match.
The great delight of franchising is that if you look hard enough you can find a franchise opportunity in almost any field you choose. Real estate, transport, accommodation, whiteware rental, industrial servicing and all sorts of industries now offer franchise opportunities to those with a taste for adventure and a desire to determine their own future. If you want a real challenge and have management experience, you might also look at master licence opportunities where you establish an overseas franchise in this country. Take a look through the Westpac Directory of Franchising – there are over 275 different franchises there, so whatever you’re looking for, you can almost certainly find your choice.
So if you want to live the dream of owning your own business or make a new start in New Zealand, now could be the moment. Read through this magazine and look at the huge range of options available. If something appeals, find out more – and then start doing your homework. Buying a franchise can be a great way to begin the rest of your life.
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