Franchises beating the recession: study

By Christopher Adams

Jim's Mowing. Photo / Hawke's Bay Today
Jim's Mowing. Photo / Hawke's Bay Today

The number of New Zealand businesses operating under a franchise format has almost doubled since 2003, a Massey University study has found.

Franchising New Zealand 2010, conducted in conjunction with Brisbane's Griffith University, found the number of staff employed by franchise businesses had soared over the past seven years to more than 80,000 people.

The study says about 23,600 businesses are operating under 450 franchise systems - ranging from McDonald's to Jim's Mowing - in New Zealand.

In 2003, 12,300 franchise businesses were operating under 350 systems and employing 40,915 people.

Study leader Susan Flint-Hartle, of Massey University's school of economics and finance, said the research suggested most franchise businesses had come through the recession largely unscathed.

About 70 per cent of the franchisors - those who operate franchise systems - who took part in the study reported sales revenue increasing or staying the same since 2008, she said.

"It looks like the franchise format is protective of businesses - that there's more power in the kind of joint approach that franchises have rather than just an independent business on its own."

It was possible the number of franchises had fallen since the international recession started, she said, although it was difficult to be certain, as there were no figures for the time between 2003 and early 2008, when the economy began to contract.

Flint-Hartle said franchises were an important part of New Zealand's commercial landscape, and she expected the growth seen since 2003 to continue.

She said Australia had only just over twice as many franchise systems as New Zealand, despite having more than four times its population.

But the franchise industry in New Zealand had "enduring challenges", including the difficulty franchisors sometimes had in recruiting good franchisees, Flint-Hartle said.

"Finding people with good business and time-management skills is not that easy, and I think the industry needs to have some better measurement processes to judge who is going to be a better franchisee."

Flint-Hartle said some franchisees struggled to secure capital to set up their businesses.

The current economic environment also meant franchise businesses could not become complacent, as independent operators were picking up their game to increase their share of a shrunken market.

"The general level of competition has increased over the last couple of years during the recessionary period."

Flint-Hartle said franchisors were reducing costs - through increased efficiency and staff training - to counter the effects of the economic downturn.

The study also found going international was a challenge for New Zealand's homegrown franchise operators.

In 2003, when the last in-depth survey was carried out, 20 per cent of New Zealand's franchise systems operated overseas, but 50 per cent were making plans to do so.

Since then, the number of systems operating internationally had increased by only three percentage points, although 32 per cent had a strategy for going overseas, the research found.

Flint-Hartle said the study was done to collect "robust figures" that could be provided to the public, franchise businesses and policymakers.

The study would now be carried out every second year, provided money to pay for it could be obtained.

Name brands

* About 23,600 franchise businesses are operating in New Zealand, employing more than 80,000 staff.

* Franchises make up 5 per cent of New Zealand's 476,558 small-to-medium businesses.

* 94 per cent of the franchises are homegrown.

- NZ Herald

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