Franchising: Big increase in start-ups - survey

By Graeme Kennedy

Friday 9th August 2002

ROBERT FOWLER: People want to get into a business but are often stopped

The New Zealand franchise industry continues its spectacular growth with a new survey indicating a 16% increase in start-up outlets and a 20% lift in total turnover to more than $10 billion.

The fifth annual survey, sponsored by the National Bank and carried out by Auckland University senior systems lecturer John Paynter for the Franchise Association, found more than 300 systems operated 14,000 outlets and employed around 70,000 workers last year.

More than 75% of franchise systems originated in New Zealand with 37% in retailing - combining food, beverage and other retail and accommodation products - property and business services were 16%, construction and trade 14% and personal and other services 7%.

Franchise Association chairman Robert Fowler, owner of the $30 million turnover 18-store Bedpost chain, described the survey figures as startling and showed how many entrepreneurial New Zealanders chose franchising as a means of starting their own small businesses.

"People want to get into business but are often stopped by a lack of knowledge - with franchising that knowledge is already there," Mr Fowler said. "Of all new businesses, four out of five disappear in the first two years and the main reason is that they fail financially through lack of expertise.

"They get involved in the idea of running the business rather than the administrative, back-room things that also have to be done but with franchising the franchisor has already gone through all that to guide the franchisee through the process to make the business a success."

The survey found that the average failure rate of franchised units has been less than 6% within three years of starting.

"Someone with no experience can be involved in their own business by following established systems and they have the benefit of a network of mentors to help solve problems," Mr Fowler said.

"And they join resources as a group to contribute to national advertising and marketing in a way that is more effective and less expensive than a one-off operator could ever achieve."

Mr Fowler said franchising had been in New Zealand for about 15 years and had taken shape in the last decade but was still relatively new compared with the US and Europe where it had been an accepted form of business for at least half a century.

"But it has now really taken off here and will gradually become0me as accepted as it has overseas."

The survey showed Auckland remained the country's franchise capital, with 51% of the business, followed by Christchurch with 13%.

The average start-up cost was $125,000, ranging from less than $7000 for a small business such as lawn-mowing to several million dollars for a major retail franchise. Almost 30% was spent on acquiring plant, 15% each on working capital and site costs and 11% on stock.

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