Woolies gets it wrong on franchises

Franchising, which Woolworths said this month it would drop as a business model, is "an absolutely magic formula" for encouraging new entrants into SA's concentrated retail sector and is a way to bring about genuine black economic empowerment, Ackerman said.

"While I think Woolworths is a great company, I find it very strange that in today's SA ... franchising isn't a major part of what Woolworths (and) Shoprite ... do," he said at the launch of a guide he has written about starting small businesses.

"Franchising is a wonderful way to keep small business in the food industry."

Woolworths CEO Simon Susman said this month the decision to buy out the owners of its 76 franchised stores, about one fifth of the 339 stores it has in SA, would make more money for the company and allow it to roll out a uniform IT system.

'Woolies is following a trend'

He said Woolworths is following a trend in which retailers operate mainly as corporate-only or franchise. The number of black franchisees in the Woolworths stable was only a "small minority", Susman said, citing the high start-up costs.

Shoprite, SA's largest grocer, has 1166 corporate stores and 283 franchises, all under the OK, Usave and Hungry Lion brands.

Retailer Spar has 848 groceries, 439 liquor stores and 253 building materials outlets in its group. All are franchises.

Pick n Pay started franchising in 1994, Ackerman said. This was a year after Susman said Woolworths started.

Making less out of franchised stores

Pick n Pay has 300 franchised stores in its total of about 700 stores. "We make much less out of our 300 franchised stores than we make in our corporate stores," said Ackerman, who stepped down as chairman in March.

He also said the company's franchise fees are low. Pick n Pay franchisees pay 1% of sales back to the company and receive three-quarter of that back if they source more than 90% of their stock from the company, he said.

"If I changed Pick n Pay to maximise profit, we would stop our expansion of franchising like that," Ackerman said, clicking his fingers.

Source: Business Day