I have previously written on when is a good time to purchase a franchised business and asserted that post Covid lock-down, we could see a renewed interest in entrepreneurship through franchising in New Zealand. But what about the prospects for franchises themselves and also companies, concepts and business that are considering growth via a franchise model?
I am going to go out on a limb and say 2021 and beyond could be the golden years for franchise development and growth.
My reasoning is based around two fundamentals and the factors influencing these: the first being the franchisee market and the second being the economic and social environment.
Without a question the single most referenced and actual challenge to growth in a franchise model is being able to recruit franchisees. Franchisees are the consumers or purchasers of the business model – without them there are literally no franchises.
Significant increases in franchising
We are not at all surprised that in late 2020 and into 2021 we are seeing significant increases in franchisee enquiry.
Over 2020 I outlined what I believed would influence this trend.
This included record high property prices and low interest rates, regional migration, returning expatriate Kiwis and structural employment changes, either forced by redundancies or via personal choices and those seeking lifestyle changes.
The combined effects are filling a franchisee pool to levels that I have not seen in New Zealand in my 20 years of franchising.
Current or potential franchisors may have potential customers, but equally economic and social environment are also ripe for growth.
There is almost daily commentary on record low interest rates and high property prices.
Rising property prices are great if you have or are selling property, and as discussed, if you are borrowing against equity.
Lower interest costs present the opportunity for franchisors or would-be franchisors to have the ability to invest in business units, test innovation and development and/or pass the reduced costs through to franchises by altering traditional fee or cost models.
Rising property prices are also driving down returns from rentals and smart investors will inevitability start to look elsewhere.
Franchise business models that can demonstrate good returns will be desirable and effective investment vessels. This can assist with fueling growth, and every system needs to grow and get to a certain size to be viable.
Surprising rebound for economy
The New Zealand economy’s surprising rebound in late 2020 no doubt has pleased business. Many areas that we are seeing spending happen to have strong franchise brands or sectors.
Whilst conditions for business growth may generally be promising, there is one last and significant reason why a franchise model may fair better versus a corporate model over 2021 and beyond. There is a real and significant limitation on labour supply.
With continued border restrictions adding to the pressure, there may just not be the labour supply for continued growth under a corporate model in many sectors.
Conversely, by the nature of the relationship, franchising re-allocates the responsibility of labour attraction and retention to the franchisee, and in many cases the franchisee provides the labour.