As the most franchised country in the world, you might be wondering if you should expand your business in New Zealand by franchising. However, franchising is a unique business model that requires consideration before jumping into it. This article will take you through four things you should know about franchising in New Zealand.
What is Franchising?
In its simplest form, franchising is a business structure where a company (‘the franchisor’) expands its operations and brand by granting a person or other company (‘the franchisee’) the right to operate its business model in a new location for a set period.
The most significant advantage to buying a franchise is that you buy the ability to use the brand name and business systems. In addition, the goodwill attached to an established business with demonstrated success is difficult to put a price tag on.
Often, in exchange for access to a company’s goodwill, the franchisee pays the franchisor initial and ongoing fees. Then, the franchisee must facilitate the ongoing growth of the franchise network and continuing profitability.
Franchisees invest in setting up the business in their own location and operate as independent business owners. Although they have support from the franchisor in the form of training, their income comes from successfully marketing their goods or services under the brand name of their franchisor and profiting in this way.
Role of the Franchisor and the Franchisee
An important thing to know is the difference between the roles of the franchisor and the franchisee.
Firstly, the franchisor is the party that creates a business that others can replicate. For a business to be replicable, it must:
- have a good reputation;
- make a good profit;
- have a recognisable brand; and
- stand out from competitors.
Upon meeting the above, a business owner might choose to franchise. This allows a franchisor to expand its business with very little capital.
On the other hand, a franchisee enters into a franchise agreement with the franchisor and then operates their own business in line with this agreement. Costs associated include:
- the initial purchase price of the franchise;
- training fees; and
- royalties.
In return for the above costs, they gain access to the franchisors:
- knowledge and know-how;
- marketing campaigns;
- brand reputation;
- intellectual property; and
- business operations and systems.
Success in New Zealand
Franchising has existed in New Zealand since at least the 1960s and grew significantly in the 1970s with the introduction of well-known fast food brands, such as McDonald’s. Since then, the industry has only continued to grow.
Based on a 2021 survey by Massey University, the franchising sector is estimated at more than $36 billion. Further, there were more than 590 franchise systems, comprised of 32,000 operating units across New Zealand in 2021.
These huge numbers mean New Zealand has established itself as the most franchised country in the world per capita. This is likely due to the appetite for self-employment and the lack of specific franchising laws. Notably, over 70% of New Zealand’s franchise systems are local, demonstrating a strong preference for New Zealand-owned companies.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
Franchising Legislation and the FANZ
There is no specific legislation relating to franchising in New Zealand. Instead, franchisees are bound by existing laws covering:
- contracts;
- business; and
- employment.
Instead, the Franchise Association of New Zealand (FANZ) promotes franchising in New Zealand. The FANZ aims to promote positive dealings with all parties to a franchise agreement, including those looking to buy a franchise or existing franchisees and franchisors.
Many franchisors purchase a membership to the FANZ as a sign of credibility and to gain access to meetings and an annual conference. In some cases, franchisees also become members of the FANZ to connect with other franchisees.
FANZ members must abide by a Code of Practice that sets minimum standards for franchising. However, at this time, only one-third of all franchisors operating in New Zealand are FANZ members, meaning the majority of franchise networks are not bound by this code.
Key Takeaways
Franchising is a unique business model that requires a lot of consideration. Before franchising your business in New Zealand, you should be sure to consider:
- what franchising is;
- the relationship between the franchiser and franchisee;
- New Zealand’s history with franchising; and
- the role of the FANZ.
If you need assistance understanding if franchising your business in New Zealand is for you, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
New Zealand has established itself as the most franchised country per capita. In 2021, New Zealand’s franchising sector was estimated at more than $36 billion. This comprises more than 590 franchise systems.
The Franchise Association of New Zealand (FANZ) promotes franchising in New Zealand. The FANZ aims to promote positive dealings with all parties to a franchise agreement, including those looking to buy a franchise or existing franchisees and franchisors. This is particularly important, given New Zealand has no franchising-specific laws.
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