Bounce Back

Some sectors have been doing it tough, some have never had it so good. Which franchises are looking forward to good times ahead – and what should buyers look for?

The economists warned us that 2022 would be a challenging year, and they weren’t wrong. Although the pandemic has largely passed, the problems it left in its wake have multiplied, with inflation, supply chain issues and the added pressure of oil price rises created by Russia’s war on the Ukraine all coming together to create a new set of problems.

Only an idiot would think of starting a new business under these circumstances, right? Well, no. Many businesses have actually been doing pretty well, while in those industries badly affected by Covid, the only way is up – and that’s often the best time to start a new business. And while New Zealanders have traditionally been big investors in property, the slowing market, more stringent rental conditions, removal of tax deductibility for interest costs and higher interest rates mean that’s not looking so attractive right now. That’s why we’ve taken a look at a number of different sectors in franchising to see what opportunities they offer to those ready to take the plunge.

And remember: when you buy a franchise, you can see how the business model performs before buying it. You’ll also get the training, support, systems and marketing you need to get yourself established, not to mention the buying power that comes with being part of a larger group. All these things add up to reduce risk and increase your chances of success.

The big picture

Looking at the overall picture, the borders have opened again, although the tourists aren’t exactly flooding back yet. However, it’s winter, and we might expect more of that pent-up demand to be released over the Christmas/ summer period, as friends and whanau reconnect.

While some New Zealanders will head overseas again to travel or work, we can also look forward to the return of international students and migrant workers, easing some of the labour shortages that have caused such disruption in many industries. And as people who have become disaffected or disconnected from their jobs look for something different in their lives, New Zealand offers many attractions. Sometimes, we have to read the overseas commentators to be reminded of that.

That’s not to say everything is rosy but, as the saying goes, change creates opportunity. What opportunities might it have opened up for you? Here’s a guide to some of the main sectors within franchising, with comments from leading franchisors about what’s been happening and their current outlook for the next 6-12 months. Once you’ve read this, you’ll find lots of other advice in the following pages to help you.

Auto services

Franchises available in this category divide into two: the fixed type, such as Pit Stop, where customers bring their vehicle to you, and the mobile type, such as Touch Up Guys, where the franchisee goes to the customer.

Les Seiler, Pit Stop’s Franchise Divisional Manager, says that there are several good reasons the category is an attractive option for new business buyers right now. ‘With more cars on the road than ever, the market continues to grow. People are back in their cars following the Covid lockdowns, and are using them both for work and domestic travel. All these vehicles need servicing.

‘The cost of replacing a second-hand vehicle has increased by over 30 percent in the past two years. There are also delays in supplying new vehicles from overseas. This means people are retaining existing vehicles for longer, increasing the demand for servicing and repairs.’

Martin Smith of Touch Up Guys adds, ‘In times of high inflation and uncertainty, we pride ourselves on our business being effectively recession-resistant. Rather than buy a new car, customers tidy up their existing car instead. The market dynamics might change, but the demand is still there in one form or another.

‘Staffing, inflation and supply chain problems are not really an issue for our owner/operator franchisees, other than that some of our costs are increasing. At this stage, we’re trying to hold our customer prices for as long as we can.’

Les admits that the automotive industry has faced a shortage of qualified mechanics and technicians for several years, which has now been exacerbated by Covid and new visa regulations. ‘Our focus has therefore been on guiding our franchisees to support the well-being of their staff and increase retention, with access to Employee Assistance Programmes; enhanced training; flexible working hours; travel assistance; performance bonuses; and financial support for apprentices.’

These are all areas in which the size and buying power of franchises can offer huge support to business owners, especially when starting up.

Building & construction

Building has been through a massive growth period – as well as home building franchises, the home renovation, repair and enhancement sectors have also been doing well. But now all the talk is about the shortage of supplies, the increasing cost of goods and a potential fall in house prices. So should you believe the doom-mongers? Stuart Humphrey of Latitude Homes doesn’t think so.

‘We think the market is just waiting for that natural self-correction to find its own equilibrium,’ he says. ‘The market is getting used to returning to 5-6 percent interest rates after the last few years of record low rates, but we believe it will bounce back more quickly than expected as demand is still strong. We believe the market will be in a far better place in 8-12 months’ time, and the advantages of the franchise are more relevant than ever: it’s a cash-positive business; we have solid relationships with key suppliers for best group bulk prices; and our franchisees enjoy preferential supply in the current market.’

Neil Hawker of Trident Homes agrees. ‘Joining a well-respected and recognised brand puts you firmly in the public arena from the get-go, and being a volume-based builder affords you many additional benefits from our major supply network. Loyalty pays dividends.’ And he adds another key benefit. ‘Becoming a member of our country-wide team of franchisees means you’re not alone during tough times and there’s plenty of support and guidance available.’ BOUNCE BACK

Indeed, in his article on page 28, long-serving franchise banker Dean Madsen tips the group home builders to continue to grow, one of the reasons being that they have developed strong management processes to build long-term, sustainable businesses in what has traditionally been a boom-andbust industry for individual operators.

Meanwhile, renovation and maintenance specialists like Dream Doors and Oncore continue to report record sales, while portable cabin hire business Mizin found the pandemic actually boosted business as various medical service providers hired cabins as distanced facilities. Franchisor Mary Green says, ‘Rather than “bouncing back”, we are still “bouncing along”. We’ve awarded eight territories to new franchisees, and still have opportunities to complete the remainder of our network throughout New Zealand.

‘We haven’t had a supply issue as yet although we envisage material costs increasing which will, unfortunately, have to be passed on. Again, we work closely with our local and regional suppliers. Having been in operation now for eight years, we have built a reputation for honesty and appreciation of ongoing work among our suppliers, staff, contractors and clients. We expect our franchisees to hold the same values.’

Business and commercial services

Business-to-business has been one of our fastest-growing franchise sectors for some time and shows no signs of slowing down. It covers a huge range of services: business coaching, commercial cleaning, signs, courier delivery and accounting, among others. There’s also a growing market in health and safety services as tougher compliance regimes are introduced.

Ian Robertson of the Ecomist franchise says that insect and pest control are key requirements for food safety across the hospitality industry. ‘We’ve been focussing on growing our commercial servicing footprint hand-in-hand with the residential market to help build even stronger businesses for our franchisees.’ He notes that the separation between commercial and domestic work has reduced as more and more people worked from home during Covid – commercial cleaning companies have found the same. And warmer weather has also stimulated demand for Ecomist’s programmable dispensers, with franchisees benefitting from fulfilling sales via the company’s website. ‘Website sales grew 36.5 percent in the financial year ending 2021, a further 26 percent in 2022, and are continuing to grow this year.’

Grant Archibald, managing director of the Business Franchise Group, which operates both the Speedy Signs and EmbroidMe franchises, says that B2B sales have been good with double-digit growth right throughout the pandemic, despite sectors such as hospitality and tourism being quieter than usual. The franchise quickly responded to demand with new products such as cough protection screens, safety signage and PPE and, as businesses bounce back, there’s been consistent demand for the brands’ signage, uniforms and promotional products.

That’s not to say there aren’t challenges, but franchises are good at finding solutions. ‘In a tight labour market, we’ve had the ability to add equipment which reduces the need to hire more employees. As a franchisor, we’re currently making a major investment in new software and systems, and we are seeing an improvement in productivity. Having said that, good staff management practices have been the biggest factor in franchisees recruiting and retaining quality employees.

‘To counter the effects of supplier price increases, we constantly review our own pricing and the majority of our customers are quite understanding of the need to increase prices to reflect the increased costs of doing business. Because of our franchise buying power, our preferred material suppliers are giving us priority with regard to supplies. In many cases, they are even providing stock on consignment which means franchisees can hold more inventory and not pay for it until it’s used.’

Education

Most franchises in this space are child-focused, meaning this tends to be a sector for people who like children. As Lorraine Yu of Bricks4Kids points out, ‘We’ve found that most prospective franchisees have children of a similar age to our target market – they can see the benefits of our educational programmes to their children, and they would like to have a family business that their children would love too.’

Franchises in this sector also appeal to experienced teachers and educators, Lorraine says. ‘They can continue to have a rewarding role which makes a real impact on a child’s future, while enjoying flexible hours as a business owner.’

As parents become increasingly concerned for their children’s education, so a number of specialist franchises are springing up to assist in areas such as drama, maths, music, computer, science and language tuition – not to mention pre- and post-school care.

Vanessa Henry of Just Kidz says, ‘Education is always in need as borders open, more families arrive, and existing parents return to work after the lockdowns. We are partially government-funded, which supported franchisees through the difficult times and ensured stability.

‘Our supply chain has been minimally affected. Our business is largely people-oriented, and our main service is offering customer service through education and nurturing care. We have a range of suppliers to source products from, which means our business can continue with minimal disruption.’

Fitness, health & beauty

Hands up who didn’t put on weight during the lockdowns and heightened alert levels? And hands up who didn’t look at themselves on a video call and realise how much they valued the services of a professional hairdresser, or the need to do something about their complexion under imperfect lighting?

The number of franchise opportunities in fitness, health and beauty had been steadily increasing in recent years even before Covid, and although the sector has had ongoing restrictions for much of the past two years, the temporary unavailability of some services has made them more appealing than ever.

‘I think the consensus during lockdowns was that hairdressing should be added to the list of essential services,’ says Julie Evans, CEO of Rodney Wayne. ‘Without doubt, hair continues to grow and, more than that, having your hair done makes you look and feel fabulous.’ That combination of constant demand and the feel-good factor makes bounce-back inevitable.

Over at Caci, the skin clinic’s innovative subscription model kept cashflow coming in for franchisees as members waited patiently for their regular treatments to resume. With normal service resumed, demand is such that the long-established franchise has launched a series of initiatives to help new franchisees into business, says Melissa Soich, group marketing manager for Fab Group, owners of the franchise. ‘These include: a Mini Clinic model for smaller areas, which offers reduced overheads and capital outlay, leading to quicker breakeven; a fit-out contribution, repayable over three years, to reduce ingoings; and a willingness to take the head lease on property even before finding the franchisee in order to secure a prime location in a new town.’

Rodney Wayne and Caci are both good examples of how franchises are pro-active about solving problems before they become critical – like the current staffing issues many businesses face. ‘Rodney Wayne has always placed a lot of emphasis on training, and we are committed to growing our stylists’ apprenticeship programme to help eliminate the national shortage of qualified hair stylists,’ says Julie.

Caci also established its own Training Academy back in 2007, which offers practical training for franchisees and clinic team members and ensures consistency in customer service and treatment delivery across the network. ‘We employed a consultant to handle staff recruitment for franchisees during the vaccination mandate period, and we are committed to ensuring we position all Caci clinic franchisees as an employer of choice to secure a pool of talent ahead of recruitment needs,’ says Melissa.

Food & beverage

Along with tourism, hospitality was the sector worst affected by the pandemic, with cafés and restaurants forced first to close and then to operate under considerable restrictions, with greater distancing between seats and table-only service. CBD locations suffered worst as working from home became first mandatory and then popular, and combined with the lockdowns and landlord issues, many businesses were sadly forced to close – including a number of franchise outlets.

Meanwhile, take-away and click-and-collect services boomed, with companies like Restaurant Brands (KFC, Pizza Hut, Carl’s Jr. and Taco Bell) reporting over 9 percent annual growth on same-store sales in 2021. Suburban locations also benefited from the work-from-home revolution.

Andy Lucas of The Coffee Club says that it’s been a hard time for hospitality operators but there is a silver lining for new entrants. ‘Throughout the struggles of Covid, unfortunately a number of independent operators will have found it hard to sustain their businesses, and this provides opportunity for franchise groups with strong brands and systems to grow.

‘This is a dynamic industry that is always evolving with new and exciting food and beverage trends. It provides a highly social industry and working environment, with a great opportunity to meet new people from all walks of life. And it also offers the platform to be part of the wider community, bringing people together. This can be highly rewarding.’

And it’s another area where the buying power of a large franchise can offer huge advantages. ‘We are working closely with our key suppliers to ensure consistent supply of key products or, in cases where this is not possible, to establish approved substitutes,’ says Andy.

Daniel Cloete of Westpac comments that, as a result of Covid, ‘Many franchise systems have already adapted their business models, achieving improved product margins or reduced investment levels. In addition, closures of other businesses may mean that there are sites available in locations where franchisees could not find a suitable store before, or at a rent ratio that now fits the franchise’s profitability model.’ It all adds up to more opportunities in a sector that is set to bounce back more than most.

Home services

Tried getting a cleaner lately? The home services sector has seen tremendous growth over recent years, and the larger companies say there is still plenty of demand and that their biggest problem is not finding new customers but new franchisees.

While current staff shortages are making it easy for people to find employment, much of this is in low-paid work, often with unsociable hours. It might be much more rewarding to own a business of your own which offers both flexible hours and a much higher hourly rate with, say, lawnmowing or cleaning franchisees able to earn over $10,000 a month.

Estelle Logan of V.I.P. says there are other advantages, too. ‘You’re not dependent on a fixed location with leases, rent or other overheads. You have total control over your scheduling and income. Like hair, grass always grows, and homes always get dirty, too. The sector has proved to be resilient in times of pandemics or financial hardship – in fact, we gained more customers than we lost during Covid. Good franchisees excelled, with some exceptional incomes being earned for a relatively small financial outlay.’

Most franchisees in this sector are individual operators or couples, often supported by a regional master franchisee who is in turn supported by the national franchisor. ‘Where you provide the entire service from start to finish, you’re not dependent on someone else doing their bit to give excellent service,’ Estelle says.

This is typically a low-investment sector (see page 34), and also the one in which you are most likely to find the offer of a work guarantee or income guarantee. If this is important to you, check carefully to see exactly when it kicks in and what it offers (see our article at www. franchise.co.nz/articles/2475).

It won’t happen overnight … but it will happen

Success in business is partly about good decisions and hard work, but it’s also about timing. Those who bought building, courier or logistics franchises three years ago know all about that, as the example on page 37 shows. The fact is that, as other sectors bounce back, franchisors will be using all their hard-won experience, marketing muscle and buying power to help their franchisees make the most of the opportunities.

If you’re looking at buying a business, the other thing to be aware of is that good things take time. Before you open your doors or get out on the road, you’ll need to find the right business, do your pre-purchase research, arrange funding and go through training. Even though some franchisees have customers ready and waiting, you won’t be fully up to speed in your new role for several months – and that’s when the real growth kicks in.

As Rachel Hunter used to promise, ‘It won’t happen overnight … but it will happen.’ That’s why it’s worth starting now.

About the Author

Simon Lord is editor of Franchise New Zealand magazine and website and has worked in franchising in New Zealand and the UK for almost 40 years.