New Zealand: first stop for franchisors?

Given its geographic proximity and cultural similarities, New Zealand is often regarded as a natural ‘first base’ for Australian franchisors branching into export. According to the 2006 Australian Franchising Survey conducted by Griffith University, of the 27 per cent of Australian systems franchising overseas, 76 per cent export to New Zealand, making it our most popular offshore destination.

But is it simply a matter of transposing the Australian model into our neighbour’s territory? History tells us not. A number of Australian (and other foreign) systems have tried and failed in New Zealand, often because they did not carry out the necessary market analysis and feasibility studies required prior to developing their entry plan (if, indeed, they had one).

While New Zealanders are generally welcoming of good Aussie (and other) concepts looking to cross their shores, success in Australia does not automatically guarantee success across the Tasman. Despite the many similarities, and a friendly business environment, there are a number of marked differences, including population size and distribution, ethnic mix, size of market niches, shopping mall size and layout and average transaction levels.

The smaller scale actually makes doing your homework even more important, as it may not be possible to reach sufficient critical mass to generate acceptable returns on investment for all involved (especially in the retail sector where availability of good sites and occupancy costs are key considerations).

Another common mistake by new entrants, especially those with strong market positions in Australia, is underestimating the level of competition from well-entrenched local and foreign brands in New Zealand. You will not know where you stand in this regard unless the appropriate analysis is undertaken. Gut-feel is not sufficient.

Although small, New Zealand is a developed and open economy, well represented by international brands. Franchisors looking to enter therefore need to have a recognised point of difference and a strong value proposition. Pushing Australian origin is not usually a brand enhancement in New Zealand and systems should look to localise their offerings as much as possible. This extends to sourcing inputs locally, where practicable.

While franchising as an acceptable business model only really took hold in New Zealand in the 1990s (following a few notable failures in the previous decade), it is now well established with around 350 different systems (77 per cent of these local) and 14,000 outlets. Australian concepts are well represented, especially in the food and services sectors, with long term players such as the VIP Home Services franchise , the Dymocks franchise , the Action International franchise , Wet-Seal and Bakers Delight operating successfully alongside newer entrants like Holy Sheet!, Howard’s Storage World, Go Gecko (real estate) and Poolwerx.

Master Franchising is a common entry strategy, although a number of Australian systems franchise directly. Regardless of the chosen model, it is important to have on-the-ground support available. It is also advisable to set up a pilot operation and fine tune the business model before rolling it out.

When choosing business partners (a critical success factor), it is important for franchisors to undertake the necessary due diligence. Given there are almost half a million New Zealanders living and working overseas (many in Australia), franchisors might consider seeking potential Master Franchisees/business partners (and even franchisees) outside New Zealand, especially in Australia. There is a high level of interest by NZ expatriates (supported by the NZ government) in viable business opportunities which would allow them to return home.

Although there is no franchising code in New Zealand - the relationship between franchisor and franchisee is governed by general contract law - there is a self-regulatory Code of Practice, introduced in 1996 by the Franchise Association of New Zealand, which requires all franchisor members to supply franchisees with disclosure documents. In addition, franchisors would need to understand and comply with local legislation governing fair trading, employment and occupational health & safety.

Overall, New Zealand remains high in terms of market attractiveness, with the biggest drawback being market size. As with other markets, it is important to undertake the necessary research and to seek advice from local advisers before diving in.

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.