INTERNATIONAL FRANCHISING: DESTINATION AUSTRALIA AND NEW ZEALAND
by Callum Floyd


Australia and New Zealand are sophisticated markets with dynamic, growing franchise communities. Both offer significant opportunities for franchising. Australia is the larger of the two countries with around 20 million people. New Zealand has four million. Per capita annual GDP income is similar with Australia and New Zealand currently earning about US$20,000 and US$15,000, respectively. Both are predominantly English speaking.

Both Australia and New Zealand are sophisticated countries which rapidly adopt new ideas and technologies. For example, both exhibit similar and/or higher levels of home computer and fixed/mobile telephone purchasing and utilization as Britain, Canada and the USA.

Geographical Dispersion
Australia and New Zealand feature high levels of population dispersion. Given their respective landmass both countries have relatively small populations. For example, the USA is of similar size to Australia but has 14 times the population. Similarly, Britain is similar in size to New Zealand but exceeds its population by a multiple of 15.

Australia and New Zealand's populations are further dispersed by each country's unique geographical characteristics. A great proportion of central Australia is desert and practically uninhabited. The majority of the population is spread along the country's vast south and east coasts. Australia's five largest cities account for half of the population and include Sydney, Melbourne, Brisbane, Perth and Adelaide.

New Zealand, by contrast, is a long and narrow country consisting of two major islands, the North Island and South Island. Of similar physical size, the North Island supports slightly more of the total population. New Zealand's five largest cities also account for half the population, and include Auckland, Wellington, Christchurch, Hamilton and Dunedin.

Franchising
Like many countries, New Zealand and Australia are both late franchise bloomers when compared the United States. Franchising momentum really took hold following the introduction of McDonald's, KFC and Pizza Hutt in the 1970s.

But that late start is not evident in today's figures. Indeed, researchers estimate Australia and New Zealand to have 700 and 300 franchise systems with 51,000 and 14,000 franchised units, respectively.

These figures catapult both Australia, and New Zealand (in particular) to the leader board in terms of franchising utilisation. Both countries have clearly embraced franchising as a method for distributing products and services.

Not surprisingly, given the extent of franchising in both countries, the franchised form has penetrated an extremely broad range of industry sectors. Notably, both have a large and increasing prevalence of mobile service-related franchises, such as lawn mowing, home and commercial cleaning, painting, mortgage broking and PC repairs.

Recent research shows local brands dominate the Australian (92%) and New Zealand (77%) franchise landscape. Both countries are forward thinking with local entrepreneurs fast to develop innovative new formats and apply franchising to previously non-franchised industry sectors.

Numerous homegrown franchises have established nationwide prominence and some have internationalized and/or achieved overseas recognition. Successful Australian examples include Jims Mowing (Home Services), Baker's Delight (Bakery), Cash Converters (Second Hand Retail) and Bartercard (Barter Trade System). Acclaimed New Zealand franchises include Fastway Couriers, Harcourts (Real Estate), Stirling Sports (Sports Retail), Green Acres (Home Services) and Mike Pero Mortages (Mortgage Brokers).

Legal Context
Australia and New Zealand's legal environments differ in respect to franchising. Australia has specific legislation in the form of a compulsory Franchising Code of Conduct, which was introduced in 1998. The Franchising Code of Conduct was introduced to better protect both parties to a franchising relationship, and encompasses requirements for a comprehensive disclosure document, a cooling off period (for freshly inked agreements), and a mandatory dispute resolution procedure. New Zealand, by contrast, currently has no specific franchise regulation. However, the [very active] Franchise Association of New Zealand does have a stringent Franchise Code of Practice which is compulsory for members.

International Opportunities
Both Australia and New Zealand offer significant export potential for overseas franchisors, and Western countries (especially the US, UK and Canada) will find Australia and New Zealand culturally similar, and with few legal barriers. Some international franchisors (such as McDonald's KFC etc) have established strong nationwide networks in both countries but this does take time. Not all forays into Australia and New Zealand are successful, however, as exemplified by Taco Bells recent exit of Australia. While culturally similar to the US (and many other Western countries), subtle differences in taste can make a big difference to the feasibility and potential of certain formats.

The relative close proximity of New Zealand to Australia, when compared to the distance from Europe and the Americas, means large international franchisors sometimes bundle both countries in a single regional agreement. Yet while the two markets certain similarities there are distinct differences that render such decisions questionable. For example, New Zealand and Australia are actually physically further apart than often perceived. Furthermore, the two countries also do vary markedly on basic factors such as landscape, climate, legal context and customer tastes.

While significant and exciting potential exists, international franchisors are wise to seek local assistance for evaluation and assistance with Australian and New Zealand franchise expansion.

This article first appeared in International Franchising (Spring 2004)

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