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Trends in franchising for 2009

By: Jaqueline Martinez
Date: 2009/01/26

Franchising in South Africa is showing itself to be one of the leading contributors to the country’s GDP (Gross Domestic Product).With its abundant natural resources, excellent transport and logistical infrastructure, a world-class financial system and a relatively large labour force, South Africa is the ideal platform for franchising success.

During the tough economic times the world is experiencing at the moment, there is hope for the South African market, simply because franchises are usually able to support themselves.

The Standard Bank Franchise Factor 2008 Survey showed a 37% increase (R256.46 billion) in turnover and the creation of 67 000 new jobs in the sector. Sustainability rate was almost 96%, with the sector’s contribution to GDP at 12.57%.

Says Bendeta Gordon, Director of Franchize Directions: “This survey has brought home what a terrific mechanism franchising can be – especially in the context of our current situation in the country, and considering its socio-economic needs.”

The future of franchising is set to change the country’s outlook on business as a whole, since South Africa is already known as the ‘gateway’ to African business and as a springboard for franchising systems in Africa.

The survey’s review of trends in African expansion showed that 95 respondents to the survey operate in 21 African countries, with South Africa’s neighbour Namibia holding the highest position at 159 units at the time of the survey.

It’s clear from the statistics delivered by the Standard Bank Franchise Factor 2008 Survey that areas such as Retail and Fast Food grew in leaps and bounds, and this is highlighted in situations such as the International Franchise and Entrepreneurs Expo (IFE) that was held in May 2008. At this expo, food and restaurant systems drew over 45% of visitors looking to buy into the franchise sector, making it the most popular sector. A combined 41% of visitors to the expo were interested in systems related to either retail or entertainment and leisure.

For years, South Africa has maintained a high rate of 80% home-grown systems. This is because of its natural resources and its strategic position in Africa. One such home-grown system is Famous Brands, Africa’s leading Quick Service Restaurant and Casual Dining franchisor.

Famous Brands currently stands at 1557 franchised restaurants in South Africa and seventeen other countries, and has expanded into the United Kingdom as well. Its brand portfolio includes Steers, Wimpy, Debonairs Pizza, Fishaways, House of Coffees, Brazilian Café and Tashas.

In the 6 months under review, the group recorded a 25% increase in business while internationally comparable restaurant turnovers declined 2.63% as a result of the economic slowdown.

Marius Lubbe, CEO of Creative Minds, another home-grown South African franchisor, has this to say about the current trend in franchising: “In my view, the key trend in our economy and the African trend in general must be in high-quality educational businesses. I may be biased, but – as far as I am concerned – this is the number one issue staring Africa in the face. Appropriate skills development – at a rapid pace – is the now and the future in business, and especially in franchise business, where proper leadership and mentorship can happen.

“I believe that home-grown solutions are in some cases more appropriate and sympathetic business models for Africa’s unique issues. For years, the rest of the world has tried in vain to solve Africa’s problems. Maybe it is time we tried solving things in our own way. The traditional franchise model is also not always a great idea if you have to provide services in low-density, but high-need, areas. If franchisors just keep chasing high-profit/low-risk business, the economy will just keep becoming more and more concentrated in the main centres.”

Kobus Oosthuizen, chairman of the Franchise Association of Southern Africa, believes that South Africa is on a par with any of the top countries when it comes to franchising excellence. “Our franchise concepts,” says Oosthuizen, “compare favourably with the world’s best in terms of viability, return on investment for franchisor and franchisee, décor, design, product quality, image and in the support and training of the franchisees.”

There is, according to Oosthuizen, huge potential for further growth. “When one considers that less than 20% of retail business is done via the franchise route, compared with over 50% in countries like the United States, and with only 17 business categories franchised compared with almost 100 in the USA, the potential for future growth is limitless.”

FASA, in planning its strategy for 2009, will be focusing on stimulating the emerging franchisor sector, with a view to establishing bona fide new franchise concepts that will ensure growth in the industry. Education and training remain a priority – both for those in the industry and for the public at large. To this end, seminars, workshops and training courses will be held throughout the country. Many will be linked to FASA’s key exhibition event, The International Franchise Expo. This takes place from the 2nd to the 4th of May 2009, and offers participants the opportunity to participate in FASA-accredited workshops covering topics such as “How To Evaluate A Franchise” and “Preparing A Business Plan”.

The Consumer Protection Bill (CPB) has also come into play. The Bill aims to safeguard consumers by promoting a fair, accessible and sustainable marketplace for consumer products and services. It is the tangible outcome of the Trade And Industry Department's intention to create and promote an economic environment that supports a culture of consumer rights and responsibilities. At this stage, the Bill requires only Presidential assent to become law.

While the Bill applies broadly and generally to all goods and services delivered or rendered in the ordinary course of business, it contains specific provisions for franchise agreements.

Despite predictions of a global recession, franchising is the one business sector that seems able to weather the storm of economic downturns and indeed been known to thrive when things slow down. When the market is down and there is insecurity in the job market, or when retrenchments or retirements happen, people are spurred into being entrepreneurial, fully aware that they have to consider alternative careers. Going into business for themselves suddenly becomes feasible, and it is here that franchising comes into its own. Franchising offers an attractive alternative to an insecure job, offering franchisees a degree of independence along with a support structure that includes training, national advertising, recognisable products, and manuals and guidelines that have proven their effectiveness.

According to Rod Young, a leading international franchise strategist, the 21st century will see the evolution of the franchised owner-operator as the most efficient last-mile-to-market business model yet developed. Says Young, “Whilst franchising in first world countries is surfing this wave and the need for motivated owner-operators grows, emerging economies in Asia, Eastern Europe, South America and Africa are seeing a growing middle class creating a boom in retail activity to service these emerging markets, and franchising is without a doubt the best way for rapid brand expansion.”

www.franchize.co.za

This article has been archived under BizOps Franchise News as well as in the general News section for your research purposes Click Here to Search Archives

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