McDonald's is the biggest franchise business in New Zealand by turnover. Photo / Getty Images
McDonald's is the biggest franchise business in New Zealand by turnover. Photo / Getty Images
New Zealand's franchising industry is worth almost $37 billion and tipped to grow by a further 5 per cent to represent about 15 per cent of GDP by 2025.
Franchise businesses currently contribute 12 per cent to gross domestic product, with the industry made up of 32,500 businesses representing 590brands.
The industry employs 157,000 people, with the majority (18 per cent) of businesses operating in the retail sector, followed by construction (15 per cent) and accommodation and food (14 per cent), according to the latest Franchising New Zealand survey conducted by Massey University's Business School.
Sales through the industry are estimated to be $36.8b or $58.5b including motor vehicle or fuel retail through franchised outlets. More than 80 per cent of franchises have been operating for more than 10 years, and over 70 per cent are home-grown.
Some of the country's biggest and best-known retailers and consumer brands operate on a franchise model, but many franchise businesses are unknown to the public.
McDonald's is the largest franchise business by turnover, with Subway the second-largest by store footprint. Domino's Pizza is another high performer, with more than 140 locations nationwide.
Franchise lawyer Stewart Germann, of Stewart Germann Law, who has recently acquired his own franchise business, said New Zealand's franchising industry had "expanded dramatically" in recent years, albeit having downsized slightly as a result of trading restrictions and disruption caused by the coronavirus pandemic.
The number of businesses has fallen by about 5 per cent. In the last survey, there were 610 franchises.
Domino's team member Cody Tauranga. Photo / Supplied
"Covid has been responsible for shrinking that number," Germann told the Herald. He said he believed there would have been a bigger wave of insolvencies and more businesses would have shut down had more of them been independent businesses.
"The last two years have shown a lot of heartache. [The] hospitality sector has been decimated and there's going to be casualties there, but a lot of those casualties aren't franchises."
New Zealand is the most franchised country in the world per capita, outside the United States, according to Franchise New Zealand.
Franchise businesses make their money largely from royalty payments. Food businesses are by far the most common franchises.
Germann said he believed the franchising sector could easily reach a 15 per cent contribution to the country's gross domestic product in the next five years.
He said he knew several American franchisors would be bringing their brands to New Zealand in the next few years. He would not disclose which ones, but said local law made it easy for new franchises local and afar to set up shop here.
"New Zealand is a franchise-friendly country, and the franchise sector has the capacity to be of great value as we seek to rebuild our economy following the Covid shock of the last couple of years," he said.
"The next five years are going to be exciting, to me it is going explode even more."
Germann recently acquired the Franchise Coach, a franchising support and services business, established 30 years ago by David and Laurel McCulloch to help business owners to set up franchise operations.
Within the franchising industry, he expects more fast-food operations, along with businesses within the health and fitness space, such as optometrists and radiology locations, to pop up in the short to medium term.
He does not believe franchising here has yet reached its peak. He also expected more homegrown franchises to expand internationally, he said.
Fastway Couriers, which was acquired by UAE company Aramex and rebranded to its parent company's name and expanded to new international markets, was a recent example.
Stewart Germann, owner of franchise law specialist Stewart Germann Law. Photo / Supplied
Germann said there were many benefits to owning a franchising business, most notably franchisees being able to capitalise on an established name and brand following, and the franchisor not having to put its own capital into expanding.
"A franchisor has very strong marketing power and can do very good deals ... most franchisors pass on the benefit of buying power," said Germann.
Some franchises, such as McDonald's, have two-year waiting lists and strong prerequisites for would-be franchisees, he said.
"If you're a McDonald's franchisee you are basically set up and you're going to make a lot of money because they are very selective in choosing their franchisees."
The average cost to buy into a retail franchisee is $300,000, often not including equipment.
In the case of Domino's, which operates more than 140 stores across the country (some corporate-owned), that business first expanded into New Zealand in 2013.
Domino's Pizza Enterprises is the largest franchisee of the Domino's brand in the world, and holds the exclusive master franchise rights for Domino's in 10 markets including Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg, Denmark and most recently, Taiwan.
Cameron Toomey, general manager of Domino's New Zealand, said there were several benefits to being a part of the franchise model, including the ability to "offer world-class training and development of its people", cutting-edge marketing to increased brand awareness, and corporate support led by teams with in-depth knowledge and understanding of the business.
"The power of the franchising model is that our local store owners are the key drivers of their businesses, but have the backing and support of a successful, global business," Toomey said.
