Franchising ‘has ability to grow in tough conditions’

Franchising continues to show strong signs of growth despite SA’s general poor economic performance in recent years.

According to figures from the Franchise Association of SA, the sector’s share of the country’s GDP in 2017 stands at R587bn, or 13.3%, an increase from the 11.6% of GDP recorded in 2016.

The number of outlets (franchisees) rose from 31,111 to 40,528 and the number of franchise groups (franchisors) grew from 757 to 845 in 2017.

The sector now employs 343,319 people, an increase of 14,074 jobs from 2016.

According to Jeremy Lang, regional GM at Business Partners, a specialist risk finance company for formal small and medium enterprises, the franchising sector is growing on all fronts, and is increasingly offering opportunities for local entrepreneurs and enabling the creation of employment opportunities — something SA desperately needs as the economy continues to shed jobs.

Lang said the franchise sector’s apparent ability to continue to perform in a weak economic climate could be linked to its “tried-and-tested” business approach. “The fact that a franchised business has a proven business model gives it a relative advantage over independent businesses, which may still be finding their feet through trial and error. Similarly, while an independent business has to double down on marketing to draw in reluctant customers, franchised outlets have the added advantage of brand strength and market acceptance,” he said.

The continued entry into SA of global franchise systems looking for expansion was also driving the sector’s growth and creating opportunities for local franchisees, Lang said.

Since the launch of Business Partners’ R150m Brands and Franchise Fund in 2014, the company had noticed higher interest from local existing and aspiring entrepreneurs seeking to own and expand their own franchises through finance and mentorship “in order to capitalise on franchising’s remarkable ability to grow in tough market conditions”.

The sector will continue to grow in fast food services, automotive services, child entertainment and education.

“In the foreseeable future, the dominant trend for franchise outlets across all industries will be a continued and even more intense search for efficiencies, at least for as long as bottom lines remain under pressure.

“As such, franchisors and franchisees should consider how they can do things better, more cost effectively and timeously, without sacrificing the quality of their product or service offering,” said Lang.