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Franchising: A national saviour

All sorts of industries are being disrupted by technology and franchising is no different. (123RF)

All sorts of industries are being disrupted by technology and franchising is no different. (123RF) All sorts of industries are being disrupted by technology and franchising is no different. (123RF)

The franchise sector has held its own over the past four years, growing its contribution to the GDP from 9.7%
in 2014 to 13.3% this year. Its estimated turnover has grown from R465 billion to R587 billion in the same period. This is according to the latest survey by the Franchise Association of South Africa (FASA).

The survey pegged the number of employees within the franchise sector at 343 319, with the retail sector being the biggest employer. Twenty-five percent of franchised businesses are owned by women, and 17% are black-owned.

The largest sector among the 845 franchised systems is the fast foods and restaurant category at 25%, followed by retail at 15%, and building, office, and home services at 13%. The balance is made up of childcare, education and training services, automotive products and services, plus health and beauty.

Benefits for the economy

“The industry is a huge contributor to the economy,” says Vera Valasis, executive director, FASA. “Brands in the franchise industry are in many cases the biggest clients of many suppliers. If you study the annual reports of franchisors like Famous Brands, for example, revenue from supplier activities far exceeds revenue from franchised businesses.” It should be noted that the statistics from the survey exclude the supplier contribution to the economy.

Of the franchisors surveyed, 78% are optimistic about future growth in their businesses, despite the country’s weak economic numbers, although this figure is down from 92% in the previous year’s survey.

One of the reasons for the popularity of
 the franchise format is that it’s aspirational for franchisees, who view owning an
 outlet of a famous and successful brand 
as the opportunity of a lifetime. “For many, representing a popular brand is their life’s mission,” says Valasis. “Add to that the explosive growth of shopping centres, and
 the national pastime of trawling the malls on weekends, and it makes sense that franchising remains buoyant.”

Moreover, aspiring entrepreneurs are keen to invest in a
proven concept with a track record they can investigate. “Franchising offers risk mitigation factors to the franchisee. There’s expert help at hand should the franchisee battle with issues like local marketing, cost control, personnel management and many other issues small business owners face,” says Valasis.

At the same time, investors too are risk averse and franchising is seen as a ‘safer’ business model due to the ongoing support, systematisation, and expertise provided by the franchisor.

Two out of three franchisors claim to have been in business for more than ten years and a further 17%
for between six and ten years. The longevity of these businesses speaks to the success of the model, and supports the industry’s promise of risk mitigation.

Expansion into the continent

According to the survey, many franchisors in South Africa are expanding to other African countries, with 31% having set up shop outside the country’s borders. More than 100 brands and 1 450 stores are located in Namibia, Botswana, Zimbabwe, Lesotho, Swaziland and Mozambique, and interest in expansion further north continues to grow.

“In the early years, some
 franchisors failed badly in their
 attempts to trade in other African countries,” says Valasis. “However, over time, many have paid their school fees and now there’s a lot of expertise available to any franchisor looking to open branded outlets on the continent.”

She notes there has been a recent trend away from franchising among certain international brands that recently entered the local market through branded outlets. “This could be attributed to the requirements of the Consumer Protection Act, easier direct control over the management of an outlet, supply and distribution practices, labour law, lease negotiations and influence over the landlords, although this distribution model is capital intensive and may not be sustainable in the long-term, but that remains to be seen.”

Opportunity awaits the tech savvy

All sorts of industries are being disrupted by technology and franchising is no different. “There’s probably not a single aspect of management and control that’s not been improved by the implementation of smart technology,” says Valasis. “From the simple example of waiters taking orders on iPads in restaurants, to the convenience of cellphone banking for small outlets in rural areas. You could implement cloud-based operational checks and procedures that are accessible from anywhere, Skype interviews and YouTube training sessions, and marketing apps that provide great exposure at low investment levels. Undoubtedly, technology is enabling the sector to become more agile and nimble, and to contain costs more efficiently.”

Ultimately the success of the franchising model relies on a clever combination of branding, marketing, uniformity, customer experience, training and entrepreneurship. “It provides a reliable income stream to the franchisee and their family, as long as the business model has been finely tuned, correctly implemented, and managed in accordance with the requirements of the franchisor which, in turn, should be able to demonstrate a proven track record,” concludes Valasis.

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