Franchises adapt to new normal, innovation in wake of pandemic
WHILE the pandemic has brought great devastation in the global economy, many franchise brands said they had surprised themselves with how quickly they and their franchisees had adapted to the new normal, were able to pivot quickly and give the necessary cushioning and support to overcome the obstacles.
This was revealed when the Franchise Association of South Africa (Fasa) asked some of its members from various sectors to share how they were faring in the current situation of load-shedding and economic uncertainty.
Cash Converters managing director Richard Mukheibir said the continual load shedding was unsustainable, increased costs and reduced profits, resulting in job losses and reduced opportunities.
“If living through a pandemic for over two years has taught us anything, it is that it’s imperative to have a recession-proof business, one that will make it through the good and bad economic cycles. We have continued to thrive through these challenges, becoming more streamlined and efficient – and demonstrated how resilient our model is,” Mukheibir said.
Tony da Fonseca, the chief executive of OBC Better Butchery, as a franchise supermarket group that traded mostly at the country’s coalface – in the township, city centres and taxi ranks – was adversely affected by the pandemic and more so with the rioting and looting of July last year.
“OBC’s store sales since then have increased significantly, achieving sales in most stores that are well above average growth and inflation.”
Johan van Wyk, the managing director of On Tap, a supplier for a wide range of quality bathroom, kitchen and plumbing products and accessories, said the impact of the pandemic, coupled with other economic hardships had taken its toll on industry as a whole.
He said that during the lockdown, the supply chain was marginally impacted, with many of their chosen suppliers either manufacturing locally or in Europe, with more of an impact from suppliers from the Asian regions.
“During 2021 On Tap saw some great growth figures with some stores even breaking previous sales records. This was due to smart planning and financial decisions made prior to 2020 which resulted in us offering our franchisees provisions or reductions in their franchise fees – giving them some extra breathing space to save on operating costs.”
Van Wyk said more stores were in the pipeline for Gauteng and the coastal regions.
InXpress South Africa country manager Tersia Visagie said apart from the continuing Covid-19 lockdowns since 2020, the latter part of 2021 was extremely challenging due to supply chain disruptions.
“The looting turmoil followed by the Transnet cyber-attack in July had further repercussions on our supply chains, adding fuel to an already constrained service. Thanks to our great business model, InXpress franchisees have been able to not only survive, but to thrive through international recessions, pandemics, natural disasters and supply-chain difficulties, thanks to world-class partners – recording record-breaking revenue growth of 48percent in 2020 and a growth of 76percent in 2021 year-to-date (October 2021) – proving our resilience in tough circumstances.”
Ricky Ruthenberg, the chief operating officer for the Bootlegger Coffee Company, said 2020 was extremely difficult for Bootleggers as they spent a lot of time and effort on testing different applications, refining the franchise model as well as the market they served, be it franchisees, suppliers, landlords and employees without losing site of their core focus and franchising model.
“Demand for our brand continues to be strong and, in addition to the 37 we currently have in the Cape and in Johannesburg, we are busy opening two new stores with another 12 stores in the pipeline for this year. Our goal is to push above 15 stores annually, focusing on the Johannesburg and Pretoria areas,” Ruthenberg said.
D’Amico Incorporated Attorneys founder Maria D’Amico said the pandemic and unrest threw quite a few curve balls in the business environment that raised legal, tax and administrative questions ranging from the human resources side to the fine print in insurance claims or in rental leases to the impact of delivery service charges on franchise/royalties/management service fees.
“Many of these issues impacted on the franchise agreements as they stood prior to Covid-19 and franchisors had to address the legal landscape changes that have affected them.”
Absa’s head for wholesale, retail and franchise banking, James Noble, said industry challenges brought on by the pandemic and economic restraints forced businesses to think outside the box and to become smarter at delivering their products and services with some sub-sectors of wholesale, retail and franchise showing strong recovery, recording sales on the same levels and better as pre-Covid-19.
He said franchising, in particular, was still a safer way of getting into business and becoming financially independent with the support of a franchisor and value of brand recognition still outweighing the risk of starting a business individually.
Fasa chief executive Freddy Makgato said that franchising was successful because it worked as a collective and Fasa had a crucial role to play by facilitating the creation of more franchises to add to those already successful ones that contributed almost 14 percent to the country’s gross domestic product.
He said businesses and especially franchises that had sound business ethics could create jobs and should be prioritised, and the government should free up all legislative obstacles for them to create opportunities that would contribute to skills transfer and job creation.
“We, therefore, need to strengthen our collaborative and co-operative efforts with other stakeholders and to get government to partner with us in finding new avenues for growth. With franchising covering 14 different business sectors, and with more that have the potential to be franchised, there is an important role for Fasa and the franchise community to play in the country’s future.”