Kiwi franchises keep low digital profile

04:00, Nov 12 2012

New Zealand's franchising sector has annual turnover exceeding $20 billion and employs nearly 102,000 people, but maintains a low online profile, a Massey University survey shows.

It is the first time the sector's contribution to the economy has been measured for nearly a decade. Franchising New Zealand 2012, conducted by the university and Brisbane's Griffith Business School, estimates the franchise sector had turnover of between $19.4b and $21b. A 2003 survey put annual turnover at $6.9b.

The latest data found the sector had proven resilient in tough economic times. But Dr Susan Flint-Hartle from Massey's school of economics and finance said while franchise businesses increased turnover, there were marginal decreases in size and profitability since the 2010 survey (although there was insufficient data that year to assess overall revenue).

These decreases reflected the effect of a high dollar, rising commodity prices, the ongoing impact of the global financial crisis and the Canterbury earthquakes, she said.

"Franchise businesses are a microcosm of the SME (small and medium enterprises) sector as a whole which has reduced by nearly two per cent over the past two years," Flint-Hartle said.

"But around $20b in turnover is a significant contribution to the New Zealand economy."

New Zealand has 446 franchise brands, 88 per cent of which are home-grown systems. That's up by a net 23 franchisors in the past two years.

There are about 22,400 franchisee businesses in New Zealand, comprising about 5 per cent of the country's SMEs. That's a marginal decrease over two years, most noticeably in retail, the survey showed.

Numbers employed in the sector have grown from 80,400 in 2010 to 101,800, while 23 per cent of franchisors have entered international markets, mostly in Australia.

More than half of respondents reported increased sales but a quarter also said their overall profit margins had declined. Some 20 per cent were not profitable at all, Flint-Hartle said.

"It's an extremely competitive environment at the moment and 60 per cent of franchisors said they were forced to spend more on marketing to attract dwindling levels of business," she said.

The most important issue for franchisors though was how to develop their businesses.

Flint-Hartle said they needed to look at better selection criteria for franchisee recruitment, more focus on online sales, social media marketing and sustainable business practices.

The industry fell way behind Australia in online marketing, which was critical given 70 per cent of Kiwis surf the web on smartphones, she said.

Just over a third of  Kiwi franchised businesses were on Facebook compared to 50 per cent in Australia. And only a third of franchisors in New Zealand were using intranet within their system to communicate with their franchisees compared to 60 per cent in Australia. Of those surveyed, 6 per cent were on LinkedIn relative to 27 per cent in Australia.