April 2017

Focus
on Business
Joining a franchised network – legal tips
and insights from a specialist retail and
franchise lawyer
The retail sector in New Zealand is changing
rapidly, global brands and retailers are
increasing their presence both online
and instore. Optometrists and opticians are
undoubtedly feeling the impact and they are
not alone, other healthcare providers such as
veterinarians, general practitioners and pharmacists
are experiencing a similar shift. Independents are
moving to incorporate retail concepts offering
complementary products and services, for example
veterinarians are expanding their practice and
offering pet products, dog grooming services and
educational courses for pet owners.
Remaining as an independent optometry outlet
may suit your business and patients, however
many small businesses and start-ups find joining
an existing franchise works best for them. We look
at the pros and cons.
Good reasons to join a franchise
New Zealand is the world’s most franchised
country per capita, with a 2012 survey by Franchise
New Zealand showing 485 brands and 22,400
franchisees – with anecdotal evidence showing a
significant increase in the last few years.
Common motives for joining a franchised
network:
• increased competition
• a change in client/patient and retail consumer
expectations
• advancement in technology and access to
training and support
• buying power and access to suppliers
• professional marketing and advertising,
including social media
• employee recruitment, training and career
support
• succession planning, for example, sale of the
business on retirement
Franchisees gain the benefit of using the
franchisor’s local or global brand, know-how,
operating systems, marketing, online/social media
presence and have access to the approved product
supply chain during the term of the franchise
agreement.
You remain responsible for your business
operations, employees, tax and payments to
the landlord and suppliers; you are after all an
independent business proprietor.
The fees and payments generally include an
initial franchise fee (upfront fee and training
costs) and an ongoing royalty and marketing levy
that is usually based on a percentage of gross
sales. It is important to understand the scope of
what services and support are provided to ensure
you get value for money.
The marketing and advertising support offered
by a franchisor is generally provided on a national
level and importantly includes social media
as one of the growth channels for targeting
patients/clients and retail consumers. If your
optometry outlet is in a regional area, you should
ensure there is sufficient local spend or you have
the ability to negotiate local marketing and
advertising. This may include radio, print and
community event sponsorship.
A franchised business operating under a known
brand might be easier to sell. It is common for
business owners to join a franchised network
as part of an overall succession plan. This can
assist with the sale process on your exit or
retirement. You should check if the franchisor
has an accreditation with any of the major banks,
this will assist when a prospective purchaser is
securing finance to purchase.
Why don’t we all join a franchise?
Franchising is not a business model that suits
everyone. As a franchisee you need to be
coachable and open to sharing information
about your businesses, including employees,
development areas, product/range knowledge
and financial performance.
Compliance with a franchise agreement
and accepting guidance and directions from
BY KATRINA HAMMON*
a franchisor may not be palatable to all
independent optometry outlet owners.
If you are motivated to work on the business not
just in the business, then you may be put off by
the fees payable to a franchisor for the support,
marketing and other training offered.
The costs to join a franchised network should
be negotiable and take into account the extent to
which you need to make changes to the fitout and
other equipment in the business (this will depend
on the current state of repair and the franchisor’s
requirements), the balance of the term of your
lease, any landlord or franchisor contributions
to the fitout costs and the current financial
performance of the optometry outlet.
It is important to understand the obligations
that will apply in the event you propose to sell or
transfer the franchised business. Generally the
franchisor will have a first right to purchase and the
franchisor must approve any prospective purchaser.
Consent to the sale and approval of the prospective
purchaser cannot be unreasonably withheld, this
includes the sale of shares and changes to the
franchisees ownership. The franchise agreement
may contain a transfer fee to be paid to the
franchisor in the event the franchised business
is sold or transferred. Often this amount covers
the franchisor’s costs to approve the franchisee
and legal costs of preparing the new franchise
agreement and related documents.
There may be an additional training fee payable
by the purchaser to complete the franchisor’s
training programme. All of these costs should be
considered when you set the sale price for your
franchised business. The franchisor may offer
support to a franchisee wanting to sell their
business, this may include introducing prospective
franchisee purchasers and recommending brokers.
Due diligence, legal advice and Franchise
Association of New Zealand
As with purchasing any business or signing a
contract, you should do your due diligence and
seek legal, accounting and business advice from
your trusted advisers.
Talk to existing franchisees in the network,
request financial details from the franchisor
and read the franchise agreement and related
documents that the franchisor provides. Most
sophisticated franchisors have a disclosure
document that explains the terms of the franchise
agreement and provides more detailed information
regarding the franchisor, payments, costs and
obligations you should expect as a franchisee.
It is important that you consult with a lawyer that
has experience advising prospective franchisees.
A fee estimate should be obtained before you
instruct your lawyer to review and report to you on
the Franchise Agreement. If there are protracted
negotiations then legal costs can escalate, an
experienced franchise lawyer will direct you as
to the key clauses that should be discussed and
where necessary, amendments to the franchise
agreement requested.
New Zealand has no specific franchise law, but
the Franchise Association of New Zealand acts
as a voluntary regulatory body for responsible
franchisors, providing a voluntary code and
rulebook, networking, learning opportunities and
advice. Refer to the Franchise Association of New
Zealand website for helpful information, checklists
and a free course for prospective franchisees. www.
franchiseassociation.org.nz ▀
ABOUT THE AUTHOR:
* Katrina Hammon is a specialist
franchising, distribution and
licensing lawyer at Duncan
Cotterill. Katrina has wide-ranging
experience in the retail sector and
has worked with local and global
brands to expand locally and to
emerging markets in the Asia-
Pacific region. Katrina is excited
about the changing face of retail
and the opportunities for retailers.
NZ holds its own at awards
New Zealand
Specsavers
were well
represented in the
2017 Specsavers’
Awards for Excellence,
celebrating the UK
company’s 10 years on
this side of the world.
In a glittering, black-tie
ceremony, complete
with Australian
bespectacled icon,
Dame Edna Everage,
more than 600
Specsavers store
partners gathered
together for drinks and
dinner at the newly reopened
International
Convention Centre
(ICC) in Sydney’s
Darling Harbour.
Nigel Parker, Specsavers Australia and New Zealand
managing director, talked about the extraordinary
growth the franchise company has experienced since
opening its original wholesaling and manufacturing
business in Port Melbourne 10 years ago, today
recording a turnover of A$800 million in Australia
and A$110 million in New Zealand.
With the formalities out the way, store partners
were more than ready to party following a full-day
of closed-door partner seminar presentations.
Winners were announced in several “excellence”
categories covering dispensing, clinical, overall
performance (Australia and New Zealand),
customer service, team culture and Store of the
Lynsey Beeney and Ian Russell
MC, Australian Today Show’s, Lisa Wilkinson with
Dame Edna
Overall award winners Specsavers Mount Maunganui’s Glenn Dunkerley, Ian Buchanan and Clare Hodge
with ANZ MD Nigel Parker and global CEO John Perkins
Year (Australia and New Zealand).
Mt Maunganui Specsavers was named overall
winner in Excellence in Overall Performance and
Store of the Year (NZ), while Hastings Specsavers
scooped Excellence in the Community for its
charitable work. Dunedin was a finalist in
Dispensing Excellence, while Riccarton Windmill
and Hastings were also finalists in Clinical
Excellence.
The upbeat evening was capped off in riotous
form by Dame Edna who presented a cheque
for A$125,400, raised over the course of the
evening, to the evening’s charity partners, CanTeen
Australia and New Zealand.
Simon Barradell, Rahul Parmar and Chris Edwards
Hastings’ Jennifer Dobson and Niall McCormack flank Nigel Parker (left) with co-award
winners Rob Petrini and Yavani Mudally from Shellharbour, and global CEO John Perkins
Specsavers welcomed 74 new graduate optometrists to its stores in its first 2017 intake, including
19 from New Zealand (pictured below). The new graduates were put through their paces during
a three-day graduate induction process, covering communication, team work and establishing an
effective clinical routine to ophthalmic equipment technical knowhow and the franchise company’s
charitable endeavours, at the company’s Port Melbourne Support Office, Manufacturing and Training
Academy. A second Graduate Induction will take place in July. ▀
10 NEW ZEALAND OPTICS April 2017