Fast-food franchise has seen 7% of its outlets close

FAST-FOOD franchise store Chesa Nyama is losing its appeal with South African consumers, having closed 21 stores since last year.

Owned by JSE-listed Gold Brands Investments , Chesa Nyama has shut shops in Gauteng, KwaZulu-Natal and the Free State.

The group has also bought back seven of its franchise stores in Gauteng since the beginning of this year.

Gold Brands chief operating officer Stylianos Nathanael acknowledged that Chesa Nyama’s popularity had stalled. “In a five-year cycle, you’ve got your first two years of growth and the third year it peaks and in the fourth year it declines. We are now in our fourth year.”

He said the closed outlets represented 7% of its stores in South Africa and neighbouring countries.

Gold Brands CEO Praxia Nathanael, his wife, said three of the stores had closed because their leases came to an end. Some had closed because they were not being run by the owners.

“We now encourage our franchisees to run their own operations, rather than being manager run, and are finding that this is making a big difference,” she said.

One Chesa Nyama franchisee who did not want to be named said the bank they had been working with to finance the operation, Nedbank, was now reluctant to provide loans because it felt the brand’s outlets had a high risk of failure.

Nedbank declined to comment in detail but said: “The franchisee has to comply with the Nedbank franchising criteria in order to access funding.”

Morné Cronjé, head of franchising at FNB, confirmed that the bank did business with Chesa Nyama but said he could not comment on the performance of clients.

But in general, “for our business model, the financial performance of the franchisor is extremely important and so is the history of the franchisee”, he said.

“We put emphasis on the performance of the franchisor, because it’s safer to fund a franchise than to fund a non-franchise start-up.

“In franchising you are in business for yourself, but not by yourself, so you’ve got the support of the franchisee network.”

This year, Cronjé said, FNB had received about 400 applications from people wanting to run various franchises and had approved close to 75% of them.

Stylianos Nathanael said: “We continue to see strong demand from applicants for Chesa Nyama stores. The pace is maybe not as high as one or two years ago, but that is normal because of our higher base of stores.”