Trends to watch this year

New Zealand tends to follow macro trends happening overseas and the franchising sector is no different. However, our unique geographic location in the world, our outlook on life and the fact that we are a nation of SMEs produces some interesting local twists and focus. Here are what we see happening and some areas to watch on our near horizons.

Multi-brand franchisors
As the franchise sector matures, a number of franchisors and systems that have been around for upwards of 20 years have grown as large as the market can support.

Increasingly we are now seeing franchisors expand and develop systems that are distinctly different to the categories or businesses they operate in.

We expect to see this trend accelerate with established franchisors spreading into new categories and businesses where they can apply their capital, skill and network growth experience.

Multi-site and multi-brand franchisees
We expect to see growth in the number of franchisees that operate more than one location or franchise, called multi-site franchisees.

An increasing trend in the US, which we also expect to see here, is an increase in the number of multi-brand franchisees, or franchisees that operate businesses across brands.

In our regional economies – where geographic restrictions may prevent franchisees from expanding to become multi-site franchisees – the possibility of becoming a multi-brand franchisee allows them to utilize their local understanding, and perhaps gain economies of scale by sharing resources.

Health and well-being
Well-being is definitely not a new concept. It has been a hot franchising category for some time.

In the hospitality area we will see continued demand and development for food and beverage brands with a focus on freshness and health.

The fitness category will continue to expand from new types of workouts to offerings focused on the kids' market and mirco-franchising in the personal trainer and well-being spaces.

Demand is consumer driven and by potential franchisees that want to feel they are contributing to others well-being and develop a life style business.

The tide change on plastic bags is just the beginning, expect to see new categories, new services as part of a move away from packaging and a general environmental focus.

Consumer demand will also be coupled by savvy investors that spot opportunities.

Plant based food will be a category to watch as it becomes mainstream.

Disruption and technology is the macro-trend of our times.

Food delivery has disrupted the traditional bricks and mortar-based food and beverage model like nothing else.

We are already seeing the rise of the ghost kitchen.

Will we see the rise of ghost brands, where there is no physical contact with the market?

Combine this concept with multi-branding franchising and issues of margin, wage and rental pressures and there appears to be a massive opportunity. Watch this space.

Shared and gig economies
Trends will include micro or small investment franchising or systems that people are able to bolt onto either an existing business or their own skill sets.

These include personal and professional services.

Also expect to see some larger capital-based developments like the franchising of shared office space.

And don't forget traditional standbys
But while we are looking forward at the new, the disrupters and innovators, keep an eye on the established and traditional brands and categories.

There are often very good reasons for their longevity.

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Use the Force for good

Use the Force for good

Use the force for good - Bay of Plenty Business News

As in Star Wars, we are surrounded every day by the force - in this case, the force of franchising.

 As in Star Wars, we are surrounded every day by the force – in this case, the force of franchising.

Franchising is an impressive contributor to the New Zealand economy: 631 systems, 37,000 individual business units employing more than 124,000 people.

Growth of the sector over the past five years is equally impressive, with total sector turnover growing from $30.8 billion to an estimated $46.1 billion.*

But why is the force of franchising so strong and why should we consider it a force of good? Let's look at it through three distinct lenses, as consumers, investors and from a social perspective.

As a consumer, it is hard to think about an area of life that does not directly or indirectly involve franchising, from food to petrol, housing construction and real estate, even our mail delivery.

Franchising is usually associated with brands, which as consumers we love.

They provide an unwritten contract to meet our expectations, making for easier purchasing decisions, and in many instances providing us with better, less expensive and more consistent products and services.

These are, I would argue, all good things.

On an individual business unit level, franchising extends beyond the local branded café, or burgers to all sorts and sizes of businesses.

Compared with standalone businesses, franchises have a lower failure rate, often reach the breakeven point faster and benefit from a pool of experience.

The cliché of being in business for yourself, but not by yourself, holds true.

Moreover, franchising benefits a spectrum of investors across a broad range.

Large or small, investors know what the business is going to look like. Landlords know the individual local owner has skin in the game and will be supported and have the best chance of success.

And, if the unfortunate were to occur, often a franchisor will step in to operate the business, continue employment and pay the rent.

Banks may look more favourably on a franchise versus a stand-alone business.

It provides for more accurate business planning, and the banks are able to compare, benchmark and measure against other units.

Last but not least, franchising is a significant force of social good.

Contributing directly by generating employment, leading to growing strong economies, creating and supporting vibrant communities.

The statistics are evident.

Often under-acknowledged is the social contribution franchising makes via giving back to their communities to causes including children's welfare, medical research, and social services.

That can extend to local and school sporting sponsorship, in many cases supporting activities that otherwise would not be possible.

The indirect and unmeasured contributions are huge. Just look at the pride of a young player of the day enjoying their prize.

So, the next time you buy a burger, have your grass cut by someone with that branded van, deal with someone you know that owns, is employed or supplies a franchise business – or even attend a local rugby game – you should be able to feel that you are contributing to the force of good created by franchising.

*All statistics in this article are quoted from The Franchising New Zealand 2017 Survey.

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© Copyright Nathan Bonney

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Game Changer Ahead

We can find the franchise that is right for you - 

Our experience is extensive and our approach is unique, we match people, brands and businesses.

Iridium Partners help potential franchisees research, evaluate, and navigate the franchise industry. We'll be by your side with advice and guidance as we pair you with a franchised business, examine the systems and processes, and help you take your first steps towards success.

We work with a number of high-profile and well-known brands to offer franchise opportunities, and can also assist with purchases outside of our network. 

Call us to discuss the opportunities we have for you right now 

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With 6311 franchise systems operating in New Zealand a potential franchisee could be forgiven for asking how on earth would they identify and choose the industry sector, brand and location in which they are going to be successful?  What are the key factors that come into play and how do these differ between individuals?

1.The Franchising New Zealand 2017 Survey

Before we start to look at how individual potential franchisees find the right brand and location match, let's look at how Iridium Partners decide what franchise systems we will work with and why? In our minds, everything happens in threes, there are three primary colours, the rule of three - good things, and bad, come in threes, the triangle is the strongest geometric shape, the most stable stools have three legs…and we look for brands that have all three of the following characteristics;

Good single unit economics
A well-defined and resourced franchise support structure
Evidence or likelihood of long term sustainability

We would suggest that these should be at the forefront of any potential franchisee's mind, and pre-requisites ticked off before pursuing any opportunity. Let's look at these areas in a little more depth and identify some of the indicators or telltale signs that may or may not be evident.

1. The franchise system must have good single unit economics
Success has many measures, in business a good starting point is that the investment provides a reasonable profit and return to the capital and human resources engaged in the business. That is basically, one, the franchisee will at some stage, obtain an income from the business which either in absolute terms or in their mind, replaces the income they could have been earning as an employee, two, that the rate of return or income provides a return to the capital invested, and three, that the business is able to exist and generate these returns over time, including the actualisation of the business being on-sold and returning capital to the investor.

A single unit business or franchise which is able to achieve these three targets is often referred to as having good single unit economics.In the most basic sense, the business works on a single business unit level.It sounds and is fairly fundamental but not always evident when looking at franchise systems or brands! Do not be fooled that a franchise system with loads of outlets and franchisees and looks very much like a successful system has good single unit economics.  Remember that most franchisors make their income from the sales from within the system via franchise fees, or from granting new franchises, and franchisees make their living from the profit at a franchise unit level.  They are different dynamics and not always linked or both present in a franchise system.

So, what do we look for?  We discount the top and the bottom performers and look at how many units operate in the middle of the pack, do the middle or average operations in the system have good single unit economics.  How focused is the franchisor on ensuring that franchisees are profitable? What benchmarking information is available and reviewed by the franchisor? The questions for the potential franchisee should be about mitigating risk; on average does the system have good single unit economics, on average, if I follow the system, will I make money?  A potential buyer should be looking at the set-up costs for a new franchise versus those on the market or recently sold, and how long existing franchisees have been in the system.  Does the franchise system have any or many multi-unit franchisees, and are the multi-unit operations due to good single unit economics or poor?

2. Does the franchise system have a solid support structure?

The second criteria Iridium Partners examines is the support structure provided by the franchisor.  Starting with, what does the head office structure look like? Again, there are three particular areas that we focus on and believe need to be effective to consider a brand or system, initial training, ongoing support and marketing.

Initial Training - what is provided in initial training and on-boarding?  How long is the initial training period, who conducts the training?2 What does the franchisor believe successful training looks like?  Is it actually effective?  If the franchise operates bricks and mortar businesses a good indicator from an outsider's perspective is to visit different franchise outlets, is the experience consistent, this also speaks to our second point in the support structure – ongoing support.

2.Back in 2011 Nathan was interviewed by Simon Lord for Franchise Magazine when at Columbus Coffee on their training program and how to identify a franchise system with a good training program. The pointers are still very relevant!

We want to understand, once a franchisee has completed initial training and is underway in their franchise business, what support is offered and provided by the franchisor?  How structured is this support and how effective is it?  What will the franchisor do if things do not work out well?  It is not enough that the franchisor has a great brand or even operates fantastic and successful outlets or franchises themselves, how do they support their franchisees?  What does the structure of the franchisors support office look like and who's on their team? As a potential franchisee, ask these questions, meet with the different support team members before you sign, ask to meet and get to know who you will be dealing with on a regular basis.

The third area of franchisor support structures that we scrutinise is marketing.  We look at what marketing activity on a brand level, how this is managed and how the franchisees marketing contributions are being spent and how effective it is.  Consideration should also be given to what support and material is provided for franchisees to undertake local marketing and how this integrates with national programs.  For a potential franchisee we suggest that they ask their friends, what do you know of x brand, does the perception of the brand created by marketing match the brand delivery and or what the franchisor is hoping to project?

3. Is the franchise system sustainable?

We look for a sense of where the brand sits on the scale of economic sustainability.  We're looking for brands with both demonstrated longevity and that will be around in 5 years.  Brands where franchisees have the best chance of ensuring profitability over that time, and the ability to exit the business.

Questions include; how long has the brand be around, how long has the franchisor operated the brand, will the brand (or even category) be around in five years?  Is the brand growing, if not why? It may be the leading brand in a market which is or is close to saturation, it may have peaked? Does the brand have a point of difference to it's competitors or a unique product?  Over time, how does the brand stack up against our first two measures, single unit economics and a solid support structure?  As much as its looking forward, we look at the previous performance of the brand and franchisor and how they have adapted and maintained, grown or waned in their market position.

Start a conversation with Iridium Partners

Our discussions with potential franchisees will usually start with their own set of three questions; what can you see yourself doing? In what location, site or market position?  What can you afford to invest?

But before we suggest or recommend any franchise system to a potential franchisee, Iridium Partners has run our ruler over the brand against our own rule of 3.
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