Experience 'crucial' for food retail franchisees

Although SA's 100 billion rand plus food retail franchising business was lucrative and had a minimal failure rate, it was a difficult environment that required newcomers to have huge amounts of business management experience and capital, patience and a willingness to learn, according to Thabiso Ramasike, Standard Bank's head of franchising.

Entering the food retail sector was made more difficult by the fact that it was among the most expensive franchise sectors, and previous experience in retail or in managing related ventures was a critical success factor for prospective entrepreneurs wanting to crack the industry.

According to Ramasike, a small retailer's franchises sells for nothing less than five million rand, while category "A" super brands go for anything up to 45 million rand, and as a result, franchisors and banks usually insist on newcomers having prior experience or else expect them to be prepared to go through "a very steep learning curve".

He noted that prospective players should always consider starting small, and then graduating into the big league over a period of time.

"Food retail is a very tough sector; margins are very low, ranging between 5% and 7%. It is a complex environment and it would be very helpful and a huge advantage if franchise owners have experience in the broader fast-moving consumer goods (FMCG) sector.

"This is because food retailing has many moving parts, such as perishables and inventories. The typical retail outlet has easily more than 500 different products, and owners need to have some knowledge about sourcing, logistics, supply chain management and inventory management," he said.

Furthermore, prospective entrepreneurs needed to understand that there was intense competition in the industry - not just among the food retailers, but from retailers in other sectors like fast foods, Ramasike said, noting that Standard Bank had been developing an enterprise development and mentorship programme to support less experienced first-time players.

Despite the high entry barriers in the sector, Ramasike commented that he believed that there was still scope for growth in food retail franchising.

"Standard Bank's view is that expansion will continue, especially in rural areas and many other townships, and another area that provides scope for further expansion for franchisors is the liquor business. According to reports, the highest number of new applicants for liquor licences comes from food retailers," he said.

The food retail sector is one of the five sectors that Standard Bank believes needs financial, entrepreneurial and mentorship support in order to improve the success rate of franchisees and growth in employment opportunities.

Telecommunications, fast-foods, restaurants and fuel are the other four sectors with strong franchising and job creation potential, and in which Standard Bank is closely involved.