Franchisors positive about future outlook
Franchising in SA has been part of the local business landscape since the early 1960s.
The country is regarded as the entry point for franchising into the rest of Africa, offering a business model that has the potential to alleviate some of the employment and service delivery challenges in SA and on the continent at large.
SA’s franchising industry is represented by the Franchise Association of SA (Fasa), a governing body that promotes franchising as a business format to entrepreneurs and organisations as well as to those interested in becoming franchisees and, ultimately, to the public itself. The association works to safeguard ethical franchising and, in recent years, has focused on transforming the industry.
ADVISORY ROLE
One of its mandates is to ensure that the international franchise community is aware of the potential available in SA and across the African continent. Through the establishment of the Pan African Franchise Federation, Fasa plays an advisory role to various African countries on the benefits of franchising and has helped other countries to look into establishing businesses on the continent.
SA’s middle class is growing, while at the higher end of the market there is a definite appreciation for luxury goods. Lower end franchise opportunities in the services and recycling categories are also potential areas for growth.
Fasa’s annual survey, an independent body of research which is sponsored by Sanlam, provides a relevant snapshot of franchising in SA, what it contributes to the GDP, how it assists with job creation and best practice in terms of business models.
The latest survey, released in January 2020, shows a positive outlook across the board. Of the 167 franchisors interviewed for the survey (72 of which were Fasa members), most are satisfied that their businesses have reached the “success” phase (achieving and nurturing) while the rest believe they are in the “mature” phase of control and profit. Franchisors are optimistic about the future outlook of their businesses, a sense of positivity that has strengthened over the past few years.
This says much about positive growth within SA’s franchising industry, which in 2019 achieved an estimated turnover of R734bn, inclusive of revenue from listed companies operating within the franchising space. This turnover amounts to 13% of SA’s annual GDP, which totalled R5,270.06bn.
Fasa reports a slight decline in the number of franchise businesses in the past year from 865 to 813. Despite this decline, the association maintains that the franchising industry continues to offer a more secure way of establishing a new business as opposed to starting an independent, standalone business.
Fasa’s study revealed that ownership of franchises by previously disadvantaged individuals has increased slightly, from 17% in 2017 to 20% in 2019. That said, the industry remains dominated by white franchise owners, who comprise 80%.
Government has outlined a target of 5-million new jobs this year. To meet this target requires that 495,000 new businesses are established. The franchising model, maintains Fasa, is a good fit for small business expansion. To this end, the association has initiated a transformation Master Plan Project aiming to foster entrepreneurship in the emerging sector. Fasa’s survey reports that franchising in SA provides employment to about 221,380 people — 48% of whom are black, 39% white, 7% coloured and 6% Indian.
Also in the industry’s favour is that as the franchising market becomes saturated in developed countries, emerging markets such as Africa are the next logical next step for growth. Together with this is the growth of the African middleclass consumer, a market which is driven by technology, urbanisation and an expanded labour force.
CHALLENGES
However, along with opportunity, the industry faces certain challenges. According to Fasa’s report, there are six main challenges facing SA’s franchising industry. These include finding the right franchise in which to invest; finding staff who have the correct skills; accessing prime locations in which to establish the business; high rental costs; SA’s poor economic performance; and franchisees who fail to meet the standards laid out by the franchisor. That said, finding the right franchise and the right people to man it are listed as declining needs.
On the upside, says Kevin Antonie, CEO of SA Franchise Brands, a franchise consultancy with a website dedicated to the franchise industry in SA, franchising is a proven system with a blueprint for success; it is a valid way for business owners to garner brand recognition and equity and is a rapid way to expand a brand.
The Consumer Protection Act has done much to protect and help regulate the industry, says Antonie, with implications for both franchisors and franchisees which must be strictly adhered to. Ultimately, the act is a safeguard against unscrupulous business measures and sets the scene for a fair, sustainable and accessible marketplace for consumer goods and services, governed by legislation.