Franchising health check shows strong pulse
last updated 31/10/2024
Findings of the 2024 Franchising New Zealand survey conducted by the Massey University Business School show that franchising is in solid shape.
Contributing record amounts to the New Zealand economy, franchising is weathering the winds of change and economic challenge, well. Despite global economic challenges, the New Zealand franchise sector has demonstrated strong growth over the past three years. The total turnover of the sector has increased from $58.5 billion in 2021 to $73.4 billion in 2024 (including motor vehicle sales and fuel retail), representing a substantial 25.5% growth in the sector and equivalent to 11% of New Zealand’s GDP. This expansion points to the robustness of the franchise model and its ability to thrive even in uncertain times.
The newest survey attracted more franchisor respondents than in 2021, representing 22% of the total franchise sector, and enabling more confident estimations of overall figures extrapolated from the responses. The 2024 survey also confirms that New Zealand is still the most franchised country in the world, with an estimated one franchise unit per 168 Kiwis.
Franchise brands by sector
Interestingly, while the overall sector turnover has increased, there has been a 7.5% reduction in the estimated number of franchise brands operating in New Zealand.
Analysis of these brands shows that the industries with the most franchise brands are Retail (18%), Accommodation & Food Retail (15%) which includes fast food and coffee shops, Administration & Support Services (10%) which includes lawnmowing, commercial and home cleaning services, and Construction (10%) which includes home building and renovation, the trades, installation, maintenance and landscaping.
Note that the Massey researchers use the ANZSIC industry classification system which allows accurate comparisons to be made with other surveys both here and in Australia.
Where do they come from?
The New Zealand franchise landscape continues to be dominated by homegrown brands. Over 70% of the responding franchises operating in New Zealand are founded here, with a further 19% being operated by locally-owned companies under a master franchise or licence arrangement.
How long have they been operating?
The majority (80%) of franchise brands are mature franchises with plenty of experience operating for 10 years or more. There has been an increase in young franchises (1-5 years in operation) since 2021, from 7% to 10%, indicating continued innovation and new entrants in the market.
Franchise system size
The Massey report estimates that the total number of franchise units in New Zealand dropped from around 32,500 in 2021 to approximately 29,800 in 2024 (an 8% reduction).
The industries represented by franchising vary greatly, so a unit might be a shop, a café, a home-based business or a ‘man and a van’ mobile operator.
This means the number of units will vary enormously according to the type of business the franchise operates: a lawnmowing franchise might have hundreds of franchisees; a signage franchise could have national coverage with just 25 and newer systems will have fewer units again. For this reason, the researchers look at the median (the mid-point of the responses received) rather than the average. The median number of units of respondents in 2024 was measured at 22 units.
Matching the increase in young franchise brand entrants since the last survey, there was a corresponding increase in the percentage of brands with a smaller number of units. This shift could also suggest a move towards more specialised, niche franchise concepts that may not require large networks to be effective.
Employment trends
The total number of people employed in New Zealand business format franchises is an estimated 114,340. A significant change in the last three years could mirror the national rise in unemployment but may also have been affected by the particular set of respondents in this year’s survey.
Full-time and part-time employment roles in franchises both decreased, while the number of casual employees and contractors employed increased, which could suggest a shift towards more flexible employment models, possibly as a response to economic uncertainties and changing work preferences post-pandemic.
Start-up costs and training
For the potential franchise buyer, one of the most common questions is always, ‘How much does a franchise cost?’
The Massey researchers asked respondents for average total start-up costs, including initial franchise fee and, where applicable, start-up inventory, fit-out costs and/or equipment, training costs, legal and accounting costs, initial working capital, vehicles and other costs.
The range of start-up costs expanded significantly in 2024, with respondent franchises costing anywhere between $280 and $1.5million. The median total start-up cost for retail franchise respondents was $200,000, for non-retail it was $100,000.
Initial formal training period (days)
According to the survey there has been a trend towards shorter initial training periods, with 48% of franchises now offering 10 days or less of initial training, compared to 39% in 2021.
These changes could indicate efforts by franchisors to lower barriers to entry and streamline onboarding processes, possibly expedited by the use of emerging technologies. 48% of franchisors also offer more than 10 days of ongoing support for franchisees each year, reflecting a strong commitment to the health of their franchise systems.
Dispute resolution
Franchising is a commercial relationship between franchisor and franchisee and, as with any commercial relationship, there can be disputes from time to time. The franchise sector in New Zealand is notable for maintaining a relatively low level of disputes between franchisors and franchisees, despite the occasional high-profile disagreement reported in the media.
The 2024 survey asked how many instances in the past 12 months franchise brands had been involved in any dispute with a franchisee that involved professional external advisory assistance.
The proportion of franchisees involved in disputes remained stable, increasing only slightly from 1.3% to 1.5% and the percentage of franchisors involved in disputes held steady at 19%. While fewer disputes were resolved by involving solicitors, more were being solved by mediation than in previous years, indicating fewer serious breakdowns in communication between franchisors and franchisees.
How disputes are handled
The survey also found that compliance with system rules (71%) is the most likely cause of disputes in franchising (that’s whether the franchisee is following the franchise system properly). Other significant contributing issues were misrepresentation, communication problems, profitability, restraint of trade and legislative compliance.
Community support
The survey reported that 90% of franchise brands contribute to their local communities (financial donations, sponsorships or other assistance). Over 25% of franchise brands contribute more than $100,000 annually.
Who are franchisees?
According to the latest survey and in accord with previous research, most franchisees are in the 31-64 year age group and male or marriage partnership ownership structures are more prevalent than female ownership, while three quarters of respondents reported having migrants or new Kiwis as franchisees.
In summary
The franchise sector has continued to demonstrate resilience and adaptability since 2021. Despite global economic challenges and local market shifts, the sector has achieved significant growth in overall turnover by 2024.
This growth has, however, been accompanied by notable changes in the sector's structure. The trend towards fewer, but potentially stronger, franchise brands and units could suggest a maturing market where quality and longevity of franchise system is paramount. The shift in employment patterns, with a move towards more contractual arrangements, reflects broader changes in work preferences and business models.
The continued dominance of NZ-founded franchises points to the strength and innovation of local businesses. Embracing technology, focusing on efficiency, and adapting to changing consumer preferences will play a key part in franchising success over the next three years. Lower barriers to entry, as evidenced by declining start-up costs, may also bring new blood and fresh ideas into the sector to help ensure it retains its vitality into the next decade.
About the survey
This article provides a snapshot of the main findings of the Franchising New Zealand 2024 survey, which was conducted by a research team from Massey University Business School. The authors are Prof Jonathan Elms and Dr Simon Moore.
The survey was sponsored by The Franchise Association of New Zealand, Westpac, Franchize Consultants, Laser Plumbing & Electrical, Exceed, Nexia New Zealand, Iridium Partners and Stewart Germann Law Office, with support from Franchise New Zealand media.
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