Editorial: Franchising's success rate shows value of safeguards

…it should consider franchising's spectacular success story, including the fact that more than 80 per cent of franchise businesses succeed. A significant reason for this has been the ease with which they can be set up.

The New Zealand Herald
January 12, 2008

Editorial: Franchising's success rate shows value of safeguards

Nothing matters more to a business than its good name. That axiom rings particularly true when the name is that of New Zealand's largest franchise, with almost 1000 franchisees doing more than a million services each year.

It is little wonder, therefore, that Green Acres has spent much of this week striving to repair a severely dented reputation.

Its woes stem from an alleged fraud in which about 200 bogus ironing businesses were sold by one of its master franchisees for about $3 million. Green Acres said it knew nothing about the franchises. Nonetheless, it has conceded a moral obligation and developed a rescue package, saying the people who bought the franchises did so in good faith.

Green Acres' response has not, however, stopped Commerce Minister Lianne Dalziel suggesting there may be a need to tighten the legal framework around franchising.

Currently, no laws specifically govern franchising. That, in itself, could be enough to trigger the Government's regulatory itch. Before it succumbs, it should consider franchising's spectacular success story, including the fact that more than 80 per cent of franchise businesses succeed. A significant reason for this has been the ease with which they can be set up.

All this is not to say franchisees are not protected from misrepresentation. Both the Fair Trading Act and the Contractual Remedies Act apply. That, with franchisors' need to protect their brand by maintaining the highest of standards and an implicit requirement for mutual trust in such an arrangement, suggests robust safeguards are already present.

Green Acres' response suggests the current franchising framework is eminently workable. The Commerce Minister should leave well alone.


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