SA franchise sector continues to grow

Jeremy Lang

Speaking in light of Franchise Month, he said that there are a number of emerging trends in the local franchise industry that are creating opportunities for franchisees. The first trend cited by Lang is the influx of international franchisors expanding operation to South Africa, such as Burger King, Starbucks, Domino’s Pizza and Pizza Hut, which is re-entering the market, and the soon-to-launch Dunkin Donuts. “The launch of such large international brands in South Africa highlights of the long-term investor confidence in the market, as well as the franchise sector,” said Lang.

The second trend is the increase in the establishment of franchises with a smaller set-up cost requirement. With access to capital remaining a significant challenge for aspiring franchisees, franchised systems with smaller set-up costs provide a good opportunity for franchisees to enter the market, where it otherwise would not have been possible. Set-up costs in this instance typically range between R500,000 and R2m.

Lang further explained that the third trend - the growth of various child education and entertainment franchises - is attributed to an increased demand for safe, fun and educational environments for children.

Fast food and retail strongest

While the sector as a whole is showing strong growth, the fast food and retail industry remains the strongest player. Pointing to recent figures released by Franchise Association of South Africa (FASA), Lang said that the fast food franchise sector comprises approximately 24% of the total franchise activity in the country.

He explained that the significant growth of the country’s middle class is resulting in this growth, with consumers seeking faster, more efficient ways of going about their daily lives. “The working class is experiencing increased pressure from both their work and personal lives, and, as a result, more people are seeking quick and convenient solutions for life’s menial tasks, such as cooking, cleaning and grocery shopping. It is in these sectors where we are seeing significant growth as franchisors capitalise on this demand.”

With these positive trends in the industry, Lang points to two important take-outs for those seeking to purchase a franchise (franchisees), and business owners who are considering franchising their business (franchisors):

For the franchisee:

• Understand the system, concept and agreement, in its entirety: Entrepreneurs looking to purchase a franchise must perform due diligence on all aspects of the business, sector, location and franchising agreement. This may include talking to other franchise owners in the same sector and even of the same franchise, examine the budgets, start-up costs, as well as the rights and obligations which may form part of the agreement; and

• Match your skill set and personality to the business: When buying a franchise, business owners should consider a franchise that suits their character and skill set. For example, if the individual is not comfortable with long hours, a franchise in the restaurant industry won’t be suitable. It is also important to consider a sector in which they have some experience, and are therefore familiar with the operations and possible challenges.

For the franchisor:

• Ensure that there are sufficient tools and systems in place: Franchisors must be prepared to manage and support a host of franchisees, as well as cater to their needs effectively, but without micro-managing the franchisee. All risks that could affect the brand should be identified, and measures should be put in place to protect the business against these risks. This is of particular importance as a crisis that affects one franchise can easily affect the entire brand; and

• Don’t franchise too early: This is one of the most common mistakes made by business owners. Before franchising a business, there should be a proven business concept and model in place, and all the flaws should have been already ironed out.