Franchising provides means to create jobs

With better access to cheaper funding, as well as additional support and partnership between the private sector and the franchising community, Mr Davel says hundreds of thousands of small and medium enterprises can be created and help put a dent on the country's worsening employment crisis.

The franchise sector employs more than 500000 people, contributes almost R300bn to SA's gross domestic product (GDP) and some franchises were beginning to expand into sub-Saharan Africa, says Clive Pintusewitz, director for business banking and enterprise development at Standard Bank.

Some of the well-known franchised outlets include those operated by fast-food company KFC and Tiger Wheels and Tyres.

"We hear of the government talking of creating 5-million jobs by 2020 and we all know that large companies do not have the capacity to create so many jobs," Mr Davel says. "This is where franchising comes in because it is a tried and tested formula that has worked well in other countries and in SA."

The fact that the franchise sector grew in SA during the recent recession when large companies cut staff, demonstrates its potential to create jobs, he says.

"There is no question that franchising can and is making a marked difference in driving the South African economy," Mr Davel says.

"If we consider that in two of the toughest economic years (2008 and 2010) ... franchising added more than 2300 new franchised business outlets and more than 28000 jobs, it is performing well above the norm and will continue to do so."

Mr Davel estimates that there are about 17 sub-sectors with about 550 franchisors (owners of franchises) ranging from property and petroleum to training and education, and restaurants, through which more than 30000 franchised outlets have been started.

"If you compare to markets like the US, where one in every two retailers is a franchisee, there is great opportunity to grow further," Mr Pintusewitz says. "South African franchises are starting to go into Africa and there is an interesting story there."

Mr Davel says the bottom did not fall out of the franchising sector during the height of the economic downturn even though SA shed over 1-million jobs.

But franchises operating in the property and petroleum sectors were hardest hit, with the former hit by tougher lending criteria imposed by banks which reduced house sales. In the petroleum sector, high operational costs and inflation eroded gains made from fuel price increases.

Mr Davel believes the future is bright for franchising but warns it is not an industry for those chasing quick money. "It needs patience but the rewards are worth it."

Probably the single largest barrier to entry is funding, he says, as many potential franchisees are expected to meet the upfront costs of purchasing the franchise and for running costs.

While bank funding is available, credit conditions have been tightened as banks respond to high debts in mortgages.

Mr Pintusewitz says Standard Bank is open for business and is developing innovative funding models for franchisees. The bank is also studying funding schemes used to support small and medium businesses in other global markets, while developing business and financial management tools to help them understand how they can perform better.

"We are lending to six out of the 17 (franchised) sectors and these (include) quick-service and general restaurants, fuel and telecoms, and we have this year started to focus on automotive accessories like tyres service," he says.

Mr Pintusewitz says franchisees are now increasingly siting their operations at one central point to benefit from their combined customer pulling power, while franchised fast-food outlets are opening within the premises of franchised fuel retailers. "Multiple franchises operating together draw much more demand into that area."

Mr Davel says the association plans to get government recognition as a professional body and also wants to tap into various job-creating initiatives and push for the accreditation for qualifying franchisor members to access grants to fund skills development projects.

The association has meanwhile published its annual franchise directory to provide information to existing and potential franchisees about opportunities in the sector.

Source: Business Day