NZ franchising sector poses challenges for Aussie firms: Report

Australian franchisees should think twice before expanding to New Zealand, according to a new report, which highlights challenges within New Zealand’s fledgling franchising sector.

The July 2012 Franchising Confidence Index, conducted by Franchize Consultants, is based on the views of 41 franchisors and 19 service providers in New Zealand.

After record results in the April survey, confidence in general business conditions has decreased, with franchisors less optimistic (net 22%) about the next 12 months.

Service providers echoed this reduction for franchisors generally, but were more optimistic (net 34%).

Meanwhile, franchisor sentiment toward their own growth prospects consolidated to a net 54% level, while service provider sentiment plummeted to a net 18%, from 65% in April.

Those surveyed also reported a decrease in optimism with regard to access to financing and suitable franchisees, franchisee sales and profitability levels.

Encouragingly, there was improved sentiment for availability of suitable locations and staff.

However, service providers were more optimistic than franchisors when it came to future franchisee operating costs.

The report also included a special focus on bank funding for franchisees, and found solid franchisee propositions could still be funded.

For example, franchisor respondents mostly agreed that funding has not changed due to the tough economic climate, with (66%) indicating they “strongly agree” or “agree”.

Similarly, most franchisor respondents agreed their respective franchise network’s growth was not being constrained by access to bank funding for new franchises.

A solid 61% reported they either “strongly agree” or “agree” with this statement.

But there was a slight decrease in confidence from franchisor respondents in relation to ease of access.

“Despite some of the positivity in response and comments, it is clear that substantial challenges to profitability remain,” the report said.

“Many are experiencing pricing pressure, many sectors remain competitive, and many input costs continue to rise. Combined, these and other factors pressure profitability at all levels.”

“Overall, it is great to see responding franchisors largely in agreement that a solid franchisee proposition is still as fundable by banks as it once was.”

“Clearly, the focus needs to be on creating more similarly solid bank-fundable propositions.”

New Zealand has become an increasingly attractive market for Australian franchisees looking to expand, as seen by the likes of Nanotek, StyleTread and Cafe2U.

Drive-through coffee franchise Muzz Buzz is the latest Australian chain to launch in New Zealand, with one outlet opening in Auckland and another in Manukau.

The Auckland store is Muzz Buzz’s first international store. The two New Zealand outlets bring its store count to 50 across Australasia, with another 10 under construction or awaiting approval.

Entering into New Zealand was commonsense, according to Muzz Buzz, which said Australians and New Zealanders have similar spending habits with regard to coffee.

“Muzz Buzz is now in a strong growth and expansion phase. With 50 stores, we’ve reached critical mass in Australasia,” executive chairman Warren Reynolds said in a statement.

“It’s time to expand and develop new markets in the Asia-Pacific region. Our goal is to make Muzz Buzz a global lifestyle franchise brand over the next decade.”