Franchise companies register growth despite pandemic challenges

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(Image from Massey News)

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Auckland, December 9, 2021

The annual turnover of business format franchises in New Zealand has grown by $9.2 billion in the past four years, according to the latest Franchising New Zealand 2021 Report.

This growth was despite the challenges resulting from the Covid-19 pandemic.

The Survey, the tenth of its kind, was conducted between September 30 and October 29, 2021 by the Massey Business School and sponsored by the Franchise Association of New Zealand.

Professor Jonathan Elms, author of the Report, said that the $9.2 billion increase in business format franchise turnover, which excludes sales from motor vehicle and fuel retail, despite difficult trading and operating conditions and lower projected total units reflects the intrinsic resilience of the franchising business model.

Significant contributor

“The New Zealand franchise system is a significant contributor to the economy and involves multiple businesses and industry sectors. Despite a very constrained operating environment, the franchise system continues to deliver through being adaptable and flexible. There are some world-class operators leading the way in New Zealand,” he said.

According to the Survey, there were 590 business format franchisors in New Zealand, with 71% of which are homegrown. The sales turnover of the business format franchise sector is estimated at $36.8 billion, up from $27.6 billion in 2017.

The Survey data was gathered during a period of continued border closures and business restrictions that limited trading opportunities and generated operating and economic uncertainty.

Sales through franchised units are estimated to be a massive $36.8 billion, equivalent to a remarkable 12% of our GDP. This figure does not include motor vehicle or fuel retail through franchised outlets. Add those, the total amount would be $58.5 billion.

Impact of the pandemic

Franchise Association Chief Executive Robyn Pickerill cited three significant issues resulting from the pandemic. They included significant disruptions to trading, greater levels of stress and mental health concerns, and adjusted hours of operation.

“The key challenges in the future would be labour shortages with a lack of suitably skilled staff in many areas, supply chain issues and the uncertainty of periodic business interruptions,” she said.

Ms Pickerill said that despite these impacts, franchise operators continue to show resilience and adaptability to succeed, recognising a number of opportunities that the pandemic had brought to light.

“Diversification, having an increased online presence and targeting local disposable income were all identified as areas of opportunity that the pandemic have highlighted to business owners,” she said.

Professor Elms said that franchise employment has also risen, at a rate of around 8000 a year since 2017. “Franchise businesses are employing more staff than in 2017, which again speaks to the resiliency of the business model. At present, it is estimated that there are 156,820 people employed in a franchise operation in New Zealand,” he said.

The support franchise owners receive as part of the business model is another feature that Professor Elms believes is integral to its success.

“The support offered by franchisors and fellow franchises is unique to the sector. This is evidenced through sharing best practices, investment in training and development, and community engagement. All are necessary to help franchises weather the Covid-19 storm,” he said.

Key findings

The key findings of the Survey included the following: (1) New employees within franchisee units receive 40 hours of training within their first year, while established employees receive 20 hours of training per year (2) 97% of franchisors provide training to reinforce employment best practices and compliance (3) 65% of franchise brands actively implement environmental sustainability and ethical measures within their operations (4) There are 32,000 business format franchise units operating in New Zealand AND (5) Auckland is the most popular location for franchise support offices.

The main purpose of the Franchise Survey was to obtain current information about the structure, practices and performance of the franchise sector in New Zealand, including recent trends and challenges.

Conducting the survey regularly will help the sector to build an analytical time series and set benchmarks for future performance. Among the sponsors of the Survey were Westpac, Nexia New Zealand, Franchise Consultants, The Franchise Coach, Stewart Germann Law, Iridium Partners and Franchise New Zealand Media.

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