by Simon Lord & Nathan Bonney

last updated 24/06/2020

Simon Lord is Publisher of Franchise New Zealand. Nathan Bonney is Director of Iridium Partners and has many years’ experience in franchise operations and recruitment.

Opportunity Knocks

by Simon Lord & Nathan Bonney

last updated 24/06/2020

Simon Lord is Publisher of Franchise New Zealand. Nathan Bonney is Director of Iridium Partners and has many years’ experience in franchise operations and recruitment.

What do the expected recession and redundancies mean for franchising? Simon Lord and Nathan Bonney share some insights

Over the last 10 years or so, New Zealand has had a strongly-performing economy with low unemployment. Although many franchises have grown well as a result, the economy had a negative effect upon franchisee recruitment in some sectors. Increasing property prices made it attractive for people to invest in property rather than in themselves.

 Add the fact that business confidence has been surprisingly low since the last election, meaning that people in well-paying jobs have been reluctant to make the jump into self-employment, and you can see why surveys have consistently ranked ‘availability of good franchisees’ as the number one challenge for most franchisors. Lower immigration levels haven’t helped, either. 

Well, now all that looks set to change. Traditionally, franchising has always performed rather well during recessions. 

For good franchisors, recessions offer a chance to expand: new locations become available; old competitors suffer; and there is a larger market of potential franchisees and staff as people are moved out of declining industries. 

For well-supported franchisees, being part of a franchise group offers benefits that an independent business can’t: buying power; branding; support; new product or service development; and many other factors – not least, the ability to share ideas and opportunities with fellow franchisees. Truly, there is strength in numbers.

And while large companies struggle to reduce overheads and reorganise, or overseas companies leave the market altogether, the flat and localised management structure which most franchises enjoy means that they are well-placed to grow.

Back to the future

The recession following the 2008 Global Financial Crisis was unusual in New Zealand because unemployment did not increase as much as had been the case in previous recessions. The next few years look more likely to follow the normal post-recession pattern, with more growth opportunities and more financial stimulus following the inevitable initial pain. 

Tragically, some franchisees (and many independents) will not have sufficient financial reserves to survive an extended downturn and their businesses will close or be resold. This means that there will be a number of otherwise viable franchised businesses which come on the market and represent good opportunities for those in a position to buy. Buyers will also have a choice of new opportunities and new sites.

The fact that most economists are currently tipping property values to avoid a major plunge in values, or to suffer only a temporary dip, means that people with property will still have equity against which to borrow. In addition, record low interest rates make it possible to borrow more than might otherwise have been the case (although they would be wise to build in a safety margin for rates to increase in the future).

Who’s going to buy?

So who’s going to buy, and where is the biggest growth going to come from? Well, redundancy is going to be a key factor. While it will affect people across all wage groups, investment levels and industries...

 

This article is published in full in our most recent issue of Franchise New Zealand magazine. Request a free print copy or download our free digital magazine to read the entire article.

Simon Lord is Publisher of Franchise New Zealand. Nathan Bonney is Director of Iridium Partners and has many years’ experience in franchise operations and recruitment.

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