THE POWER OF A FRANCHISE

At its most basic, you can consider franchising as a method of marketing and distribution. The franchisor expands by granting a franchisee the right to operate a copy of its business. That right usually includes the ability to use the name, the business system and the know-how of the franchisor, and is granted for a fixed term.

Franchising enables companies who have a good product or service the power to expand faster because they are using the capital, local knowledge and commitment of individuals who are in business for themselves. It gives those individuals the power of going into business properly trained and equipped, with the security of a well-proven product and system behind them.

But when you become part of a franchise network, you also benefit from the power that the whole network enjoys, including brand recognition and loyalty from customers, brand strength with suppliers and funders, and the power that comes from standing together with others in your franchise – other franchisees and the support team that exists solely to help you and those other franchisees succeed.

Let’s have a look at the different types of power that a franchise offers: brand power, buying power, funding power, marketing power, nationwide power and the power to choose.

Brand power

Franchising in New Zealand is more powerful than many people realise. Despite being made up almost entirely of small to medium sized businesses (SMEs), franchise networks contribute around 11% of New Zealand’s GDP. At last count we had 540 franchise brands and almost 30,000 franchised units in New Zealand, including large international brands like McDonalds, Pizza Hut, Signarama (operating as Speedy Signs in New Zealand), Jan-Pro Commercial Cleaning, Pirtek, Anytime Fitness, Jani-King and RE/MAX to name but a few.

There are many more international franchises that would like to find a foothold in New Zealand. For the right investor, a master franchise or licence can offer scale, leverage and long-term value, provided the brand, the agreement and the local market are properly aligned (see www.franchise.co.nz/articles/4059-the-power-of-the-master-franchise).

But 70% of franchises in New Zealand are homegrown franchise brands. Many of them really are so ‘famous in New Zealand’ that they have the right to be considered powerhouse brands. Again, just to name a few, think of CrestClean, Columbus Coffee, FreshChoice, Green Acres, Liquorland, Night’n Day, Paper Plus, Pit Stop, Rodney Wayne, Stirling Sports and the Coffee Guy.

Whether you are looking at buying into a large, nationally well-known franchise brand, or one that is just getting going, you still have the advantage of the brand power in the following areas:

Product or service - The franchisor has already proved that the market exists. Franchisees are not risking their money on a new idea.

System - The most efficient way of delivering the product or service has been developed and will be shared with the franchisee.

Equipment - Franchisees start with the best equipment for the job and only the equipment they need – often specially-designed or developed.

Suppliers - Bulk buying means franchisees benefit from lower prices and better service than independents.

Brand marketing - The company already has a name which attracts customers and makes marketing more effective.

Training - A franchisee can enter a brand-new industry and be trained in how to run that specific business to best effect.

Support - The franchisor keeps a watchful eye on the progress of the business to help the franchisee grow at the right speed and avoid errors.

Research & development - While the franchisee focuses on customer service, the franchisor works on new products and techniques to ensure franchisees remain competitive.

Most people who buy a franchise establish a long-lasting, locally owned business. They learn how to plan, how to cost and how to manage cash flow. When they move on, they take with them all sorts of valuable business skills that they would not have learned any other way. But many franchisees recognise that a franchise is not just a business school – the brand power that it provides is helpful to even the most experienced of operators.

The proof is in the growing number of people who sell one franchise to buy another, or who keep adding multiple units to their franchise business portfolios. Franchising can also be a powerful tool for business growth.

Buying Power

Although franchises are made up of independently owned businesses, the franchise group as a whole uses the same brand name, the same operating systems and, crucially, offers the same products or services. This means that the franchisor can negotiate volume discounts on supplies based on the needs of the whole group, rather than each individual franchisee having to do their own deals.

When you’re first getting started, for example, buying power applies to one-off expenses that can make a big difference to the cost of getting up and running:

• Equipment
• Fit-out
• Signage
• Vehicles

Apart from the fact that you’ll pay less than an independent business would, the franchisors’ experience should mean that you are buying exactly what you need when you first get started. That saves you spending your much-needed capital on the wrong things or equipment that won’t last or isn’t up to the job as you grow.

Buying power is even more important on an ongoing basis. Every day, it can affect the price you pay for essentials...

You can read the full article in the digital magazine or request a free print copy of the magazine to be sent to your postal address in New Zealand.