Franchising sector on a roll

By KARYN SCHERER

The number of franchised businesses is continuing to explode, with the industry reporting one of its most strongest years of growth.

The Franchise Association's annual survey has concluded that about 100 new systems started up in the year ending June - a 50 per cent increase over the previous year.

Most established systems are also experiencing strong growth, the survey concludes, with more than 600 new outlets opening during the year.

The bulk of the growth is estimated to have occurred in Auckland, Christchurch and North Island provincial centres, and has mostly been in white-collar services such as property and business services, and construction and trade services.

Despite some concerns about the economy, franchisors are planning further growth over the coming year, with plans for at least 700 outlets on their drawing boards.

However, the spectacular rate of growth has produced several new problems for the sector.

About a third of those surveyed expressed concern about substandard operators getting into franchising.

They also complained that it was becoming more difficult to find suitable franchisees.

A substantial number were also concerned about the economy, with many claiming that more competition and the limited size of the New Zealand market were forcing them to rethink their strategies.

The association admits the survey needs to be treated with some caution, given that some major players, such as McDonald's, declined to take part.

Nevertheless, it maintains that the next year will continue to see strong growth in the franchising sector.

"One of the problems at the moment is getting good franchisees," association chairman Win Robinson said yesterday.

"Another problem is that business confidence is not all that good at the moment. Although we're getting a lot of inquiries, a lot are just waiting to see what happens."

However, that did not appear to be stopping new franchisors, said Mr Robinson.

"Just judging for our practice alone, we're getting a good number of people coming in with some very good ideas."

Big business was also showing more interest in franchising, he said.

Companies such as Colonial and Fletcher Challenge have enthusiastically embraced franchising, and Mr Robinson said he had noticed a marked increase in the number of queries from large businesses.

The association estimates franchised businesses account for about $6 billion in sales each year.

However, it admits the figure is only a guess at best, given that last year's estimate was $6.5 billion.

The association believes more than two-thirds of franchised businesses operating in New Zealand are homegrown ideas, with the median cost of getting into a franchise being just over $90,000.

While the latest survey shows that about a quarter of all franchisors continue to get involved in substantial disputes, such rows involve just 1 per cent of franchisees.

But more businesses are using mediation, rather than litigation, to resolve disputes.