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Franchising guide: New Zealand

Franchising guide: New Zealand

Awe-inspiring vistas and world-class wines aren’t the only things the Australasian country has to offer. It also boasts a receptive market for incoming franchises

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Almost as many tourists visited the beautiful country of New Zealand in 2018 as the total population of the country. Most of us know New Zealand as the place where bungie jumping started, the Hobbit movies were made, and excellent wines are found. New Zealand is about the size of the U.S. state of Colorado and is a parliamentary democracy under a constitutional

monarchy and is an independent commonwealth country. New Zealand is known for its export of dairy products and lamb as it has a very high sheep population.

But what is not widely known outside the country is that according to the 2017 Franchising New Zealand survey, New Zealand’s population of 4.9 million is served by around 630 franchise brands with 37,000 franchisees, giving it the highest proportion of franchises per capita in the world. This is about one franchised location for every 7,400 people, which is very high in comparison with other countries.

The franchise sector’s turnover is valued at $17.2bn – equivalent to 11 per cent of New Zealand’s GDP. Add in motor vehicle sales and fuel retail, and it comes to $28.8bn. As a whole, New Zealanders love brands and businesses that succeed, and franchising offers people a chance to leave the security of employment and purchase a franchised business which should succeed provided the system is followed.

“Appointing a specific master franchisee for New Zealand will often be more effective than a joint Australia/New Zealand master”

Despite the country’s small size, incoming franchisors will find that the country is geographically diverse and that the regions are distinct. Although one-third of the population lives in Auckland, other cities are smaller (the next largest is 380,000), meaning that a realistic approach to growth is required. Appointing a specific master franchisee for New Zealand will often be more effective than a joint Australia/New Zealand master, as there are significant regulatory, geographical, commercial and cultural differences between the two countries. Incoming franchisors will need to demonstrate the financial viability of their model within the New Zealand context, while the ability to offer multi-unit ownership is also attractive.

Traditionally, most New Zealand businesses are small. Approximately 97 per cent of New Zealand’s businesses have fewer than 20 employees. Franchising has become an important business model in New Zealand. By purchasing a franchise, New Zealand’s investors take advantage of the benefits of scale offered by a larger corporation, such as brand recognition, marketing, operations support, and training.

Flourishing franchises
Over 70 per cent of the franchise systems operating here are locally bred, but New Zealanders have also given a warm welcome to appropriate franchise systems from all over the world. Brands such as Carl’s Jr. and Wendy’s have achieved world record opening weeks in New Zealand; Speedy Sign-a-Rama’s local master franchisees are among the brand’s global best achievers; Anytime Fitness has grown well. Denny’s has been established in New Zealand for many years.

In many sectors, local New Zealand franchises already dominate familiar niches. In-home services, for example, Green Acres is the largest player in some way. Starbucks failed to achieve traction in the country in the face of better local operations such as Columbus Coffee – it’s worth noting that Kiwis are coffee snobs! The supermarket sector is dominated by franchised brands from Foodstuffs such as Pak’nSave and New World,

and Jani-King is smaller than New Zealand-created brands such as Crest Clean and Paramount Services. In many cases, these local brands are world-class, as evinced by the results of the annual Westpac New Zealand Franchise Awards, which evaluate entrants on the basis of criteria developed from international quality standards.

Currently, the hot sectors in franchising include food, where attractive new brands are able to make a splash. Gourmet burgers, meat-free proteins, chicken and vegetarian/vegan are all growing fast, although the impact of delivery services such as Uber Eats on the bottom line is causing concern for many chains. Distribution franchises are proving attractive, and new app-based services delivered through local franchisees are also springing up – two recent examples include a maintenance service for boat owners, and a matching service offering relief teachers for early childhood centers.

Education is a strong sector, as is leisure, and business-to-business services can be very successful if appropriate to the SME market.

BurgerFuel, which started in Auckland in 1995, is a leader in the gourmet burger market, dedicated to serving high quality burgers in an atmosphere as charged as the food. BurgerFuel has stores in New Zealand, Australia, America and the Middle East. The Coffee Guy is New Zealand’s largest mobile coffee franchise system. New Zealand Natural was created in the early 1980s in a quaint ice creamery in Christchurch, New Zealand. Its creator was an ice cream lover who was allergic to the artificial colors, preservatives and additives that featured in many popular ice creams of the day – the brand is now in 30 countries.

Kiwi law and ethics
There are no franchising specific laws in New Zealand. However, there are existing laws which protect franchisees. The three most pertinent laws are the Fair Trading Act 1986, the Commerce Act 1986, and the Contract and Commercial Law Act 2017. These Acts focus, in particular, on misrepresentations and restrictive trade practices which include anticompetitive behavior.

There is no mandatory disclosure régime in New Zealand but the Franchise Association of New Zealand (FANZ), which was formed in 1996. The FANZ has a code of practice and a code of ethics and all members of it must comply with both codes. New Zealand is a sophisticated market and fairly deregulated with respect to business. The FANZ has been very successful in promoting self-regulation and high standards in franchising, and its code of practice is widely understood and accepted by franchisors in New Zealand.

While there is no Small Business Administration (SBA) in New Zealand, this country is one of those rare ones where banks strongly support franchise growth. Westpac, for example, has dedicated franchise-only specialist managers throughout the country. ANZ and ASB are also very active in funding franchises brands.

The tax regime is favorable for international brands licensing into New Zealand. For example, for companies from the United States, the normal 15 per cent withholding tax on royalties is reduced to five per cent by a tax treaty. New Zealand generally does not levy withholding tax on payments of technical service fees.

NEW ZEALAND: ESSENTIAL INFO

• Country Population: 4,885,000
• Median age: 32
• Urban population: 82%
• Exchange rate: 20 pesos per $1
• GDP per capita: $38,000 (2018)
• Projected 2020 GDP growth: 2%
• Market size ranking: 4 on a scale of ‘1’ being largest
• Franchise friendly ranking: 1 on a scale of ‘1’ being best and ‘4’ being worst
• Ease of doing business ranking: 1
• Investment risk ranking: 1
• Corruption index ranking: 1

THE AUTHORS
This article was jointly written by William Edwards, CFE, CEO of Edwards Global Services, U.S.A., Simon Lord of franchise.co.nz, Auckland, and Stewart Germann, CFE, Stewart Germann Law Office, Auckland

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