The Market

by Simon Lord

last updated 13/11/2013

is New Zealand becoming TOO FRANCHISED?

by Simon Lord

last updated 13/11/2013

May 2011 - The Australians might not believe it, but New Zealand is the most franchised country in the world. Are we approaching saturation point? Simon Lord looks at the figures.

An article in the Sydney Morning Herald last year posed the question, ‘Is Australia too franchised?’ It suggested that, with up to 1100 franchise systems for 22 million people Australia is already the most franchised nation in the world on the basis of number of franchises per capita. It goes on to suggest that, before long, there will be over 100,000 franchised outlets – one franchise for every 224 Australians. ‘Do we want to become McAustralia?’ writer Tony Featherston asked.

It’s worth comparing those figures to New Zealand. On the basis quoted, New Zealand is actually more franchised than Australia with around 450 franchise systems for 4.4 million people. According to the 2010 Massey University survey of franchising in New Zealand, there are probably around 23,600 individual franchised outlets here. That would mean one franchise per 186.5 Kiwis or, as Tony Featherston might put it, ‘McKiwis’.

The SMH article was not seeking to cause controversy. The writer commented that the franchise sector has boomed by giving customers more of what they want, noted that the best franchise systems do a terrific job and accepted that the failure rate of franchised outlets is much lower than that for independently-operated small enterprises. What he did was use the figures to express his opinion that franchising has enjoyed a boom and that, as all booms must end sometime, new franchise buyers must be cautious about the choices they make – sound advice.

Where the debate became interesting was after the article was posted on line and we were able to see the comments of the great Australian public – and the antipathy some people have towards franchises. ‘I personally avoid franchises as I think they are a blot on the landscape,’ commented one Perth reader. ‘They have turned every shopping centre into clones of each other.’ Another comments, ‘Yes we are too franchised but it is up to us to start the backlash… Try to go one week without giving your dollar to a franchise.’ An Australian recently returned from London commented… ‘There are so many fantastic streets in London which are just let down by all the franchises. One high street becomes like any other.’

Most people in the franchising sector would have heard versions of these comments before. For some strange reason, franchising has been singled out to take the blame for the development of all retail chains. But when you go into a mall anywhere in New Zealand these days, many of the familiar names – Whitcoulls, Countdown, Bendon, Farmers, Kmart, Bond & Bond, Living & Giving – may be part of national or multinational chains but they are not franchised. In fact, a quick trawl through the list of tenants at the huge Westfield Albany suggests that only around 25% of the names there are franchises. It’s usually the same story in Australia, or most other western countries.

So why do franchises get the blame for this homogenisation of the retail scene? After all, compared to continental Europe, New Zealand and Australia actually have very few retail franchises. Well, I suspect it’s partly because franchising has enabled brands to expand more easily beyond the ‘traditional’ chain store areas into sectors such as hair salons, cafés, restaurants and even opticians where service, rather than price and range, has always been a key component – service, after all, is one thing that owner-operators should be motivated to do better than company employees. At the same time, modern specialist retailers such as sports shoe shops, video stores and hot bread shops have developed almost totally through franchising rather than through corporate chains. The gaps between the traditional retail chains are therefore more likely to be filled by other named brands these days, and a good proportion of these may be franchised.

At the same time, the development of franchises in almost every other walk of life, from lawnmowing to commercial cleaning, gyms to builders, has heightened the perception that franchises have become ubiquitous.

Yet it’s this huge range of franchises available beyond the retail scene that gives the lie to Tony Featherston’s assertion that ‘the boom must end.’ Franchising is, after all, not an industry in itself – it’s a method of marketing and distribution that can be applied to almost any industry. While industries themselves may wax and wane, business overall goes on developing and will result in new, as yet unimagined franchises arriving to meet new, as yet unimagined demands. For example, I’ve just published an article about a company that operates mobile showrooms offering workplace safety equipment. Twenty years ago, such a concept would have been almost unfathomable; now, with government pushing health and safety through everything from legislation to ACC discounts, it’s a serious business opportunity – and it’s one ideally suited to franchising.

So is the fact that New Zealand is the most franchised country in the world a cause for concern? I don’t believe so. In fact, in another article I look at some of the reasons why it’s probably a cause for celebration.

This article is updated from one first published in NZ Business magazine.

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