[BizTrends 2016] Franchise outlook for 2016

© Illia Uriadnikov – 123RF.com

Though there has been little media coverage of franchising, existing franchisor's efforts do not fail to disappoint us. The speed of decision making and business savvy is built into the foundation of the business and remains part of the entrepreneurial roots on which the business was started.

Based on the feedback of franchisors, new retail developments take at least two years for 'the dust to settle'. You need only take note of the mix of independent versus franchised businesses in the tenant mix. It is apparent though that landlords have far greater levels of confidence with branded, proven franchise concepts. Franchising has the inherent risks of any business, but the risk factors are greatly reduced by virtue of the fact that it's a franchise.

Keen interest in South Africa

International franchise brands continue to show a keen interest in South Africa and even more so in recent years. Whilst the master licence fees and our exchange rate still renders this somewhat restrictive, 2016 will see a further introduction of new master licence concepts from other countries. The opportunity, however, remains in home-grown concepts. We are confident that both successful local entrepreneurs and existing corporate entities, in some cases large listed networks, will entertain the franchise model.

In terms of opportunity, the business-to-business service category remains underdeveloped here in relation to international benchmarks - in particular professional services. Other professional concepts in the medical sphere, supplies hardly feature on the current franchise database. These categories offer opportunity for growth of new concepts.

The contribution to the growth of the industry is twofold: the introduction of new franchise systems and the growth of existing franchised networks. The prevailing market conditions generally push one of these into the lead. In 2016 we believe we will see new franchise systems by way of existing corporate networks reorganising their distribution channels to include an owner-operator format. Based on the regional tenders issued, the government has also become enlightened with the idea of the franchise concept for more effective community service delivery and social development.

Reorganising the distribution channel

No SMME, or corporate for that matter, has the extra cushion of yesteryear, nor the luxury of time. The squeezing of the market requires that organisations focus on more efficient and effective ways of conducting business for better returns. As a result, the current environment is ripe for adopting an owner-operator format. This will be seen through the expansion of existing operations, or the introduction of a conversion strategy that brings the franchise model into the existing distribution channel.

A franchise strategy is characterised by owner-operators with vested interest and accountability. Unfortunately the model is typically associated with fast food, restaurant and retail concepts, but the scope is far wider than this. South Africa is beginning to catch on to international trends and already we are seeing the mechanism (or its core principles) being applied into traditional wholesale businesses. This is both in business-to-business sectors as well as with the introduction of innovative ideas, such as owner-driver schemes.

There remains an inherent fear at board level of a loss of control or of upsetting the wholesale customers with the introduction of a branded franchise channel. Loss of control is a franchise myth. Committed owner-operators who have invested in the franchise business and brand have significantly more at stake than an employee. Furthermore, the casualty of wholesale business, which takes the majority of the margin at extended payment periods, becomes a distant memory with a consolidated loyal branded channel to market.

Twenty-sixteen will bring change and we are confident franchising will feature positively in this shake up.