Franchises such as home-based services and mobile operations (man-in-a-van businesses) experienced growth.
Last year proved to be challenging for the New Zealand franchise sector, mirroring difficulties faced across various business industries. The phrase ‘survive to ‘25’ captured the sentiment of many within the sector, highlighting the resilience required to navigate these times.
Economic and operational pressures
The 2024 Franchising New Zealand survey, conducted by Massey University in collaboration with the Franchise Association of NZ, revealed key insights into the sector’s landscape. Franchisors encountered significant hurdles – such as inflation-driven increases in labour, rent and operational costs – which squeezed profit margins.
Declining consumer confidence and heightened competition from global e-commerce platforms added further pressure. These challenges were compounded by some regulatory complexities unique to the franchise sector and high interest rates, creating barriers for both new and existing franchise businesses.
For individual franchisees, inflation eroded margins while reducing consumer spending, making it harder to maintain profitability. On the franchisor level, economic uncertainty and lack of business confidence meant investments in franchise expansions or new opportunities required prolonged due diligence and careful financial planning. High debt servicing costs also constrained the ability to fund growth initiatives.
Bright spots amid challenges
While the overall environment was difficult, certain segments of the franchise sector showed promise.
Franchises with lower initial investments and minimal reliance on physical premises – such as home-based services and mobile operations (man-in-a-van businesses) – experienced growth. These models appealed to entrepreneurs seeking to mitigate risks associated with leasing and high operational costs.
Additionally, many franchisors adapted to the evolving landscape by diversifying product and service offerings and embracing digital tools to optimise operations and enhance customer engagement. Sustainability initiatives and workforce training programmes were also prioritised to prepare for long-term success.
Franchising NZ 2024 Survey highlights
The survey saw a notable increase in franchisor participation, compared to 2021, providing valuable data for stakeholders. The report underscored the resilience of the franchise model in challenging times and potential to adapt to changing market conditions.
Looking ahead
Despite difficulties in 2024, the outlook for 2025 is cautiously optimistic. Interest rates are expected to continue to decline, potentially easing financial pressures and encouraging investment in franchises. Business confidence is also projected to improve modestly, leading to increased interest in franchise ownership.
Traditionally, New Zealand has seen an uptick in franchising activity during economic downturns as individuals facing job losses or seeking career changes turn to franchising as a viable path to self-employment. While the recession in 2024 did not lead to significant unemployment, the sector may benefit from a modest rise in demand driven by broader economic recovery and ongoing immigration.
Overall, the franchise sector demonstrated resilience and adaptability despite economic and operational headwinds. In many sectors of the economy, there are examples where franchise businesses outperformed their independent cousins – a major reason many choose a franchise business.
As we enter 2025, signs of recovery and renewed optimism suggest a brighter future for franchisors and franchisees alike with opportunities for growth and innovation on the horizon.
