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Franchising in a Good Position to Weather Economic Storm

By: Giuli Osso
Date: 2009/02/20

There are now some 531 franchised systems operating in the local market with close to 30 000 franchised outlets serving the public in over 17 different business sectors and employing over half a million people.

Says Bendeta Gordon, Director of Franchize Directions: “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%. 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.”

Most of FASA’s franchisor members surveyed on how they are finding the economic slowdown acknowledge tough trading conditions but they all seem to be weathering the storm, some better than others. Says Kobus Oosthuizen, FASA’s Chairman, “The franchising industry, as the dominant business format as far as SME development is concerned, is continuing to foster its importance in the sustainability and growth of the South African economy. Across the globe small business is recognized as the safety net of any economy and the recent downfall of many massive conglomerates has once again proven that point.” FASA’s Executive Director, Vera Valasis, backs up that theory. “The economy is expected to contract this year but due to the strong and reliable track record of the franchise industry, backed up by the recent results of the Standard Bank Franchise Factor 2008, the franchise sector should fare better than other economic sectors.”

Some of the feedback from FASA’s members include:

- Those in sectors like automotive products and services and building, office and home services are finding that their services are in demand in this economic downturn. Says Corrie Taljaard, Business Development Manager for H-Q; “There is definitely a move by the public to ‘repairing before replacing’ – something one always sees in a recession.” Shannon Drake of Midas Motor Parts Centre reports that they have seen an increase in conversion enquiries, ‘from independent operators who feel that they stand a better chance of surviving the downturn if they convert their stores to a well-known brand.” This is backed up by other franchises such as On-Tap who have also seen an increase in franchise conversion enquiries.

- Franchise systems in the building, office and home services sector report that, despite the slowdown in the building sector, they’re seeing customers opting to renovate rather than upgrade. Says Louis Van Vuuren, Director of Talisman Plant and Tool Hire, “We’re seeing families with a new baby on the way opting to add on to their homes rather than buying a new home. Others are riding the property slump by renovating and improving their homes ahead of the next property boom.”

- Franchises in the business-to-business sector are also benefitting as companies downsize and opt to out-source services – from printing to personnel to financial and IT services.

- Food franchises report tight trading conditions but believe that their strong branding is standing them in good stead as cash-strapped consumers will gravitate to well-known brands who offer value-for-money and good service. Brendan McGhee, Marketing Manager for Ocean Basket, whose group has for the past year been preparing for the downturn with more aggressive marketing and better deals, reports a marked change in consumer behavior. “We’ve noted frequency of visitors has declined but ticket sales have grown significantly. So whilst people are cutting down on how often they eat out, when they do they are ‘buying up’ and really making an event of it. As franchise companies, we are better able to package great meal offerings with our supplier partners and retain our client base.”

Downturn a proven catalyst for franchise sales

FASA’s 30 years as South Africa’s only franchise association and its 15 years showcasing franchising opportunities at its International Franchise Expo has netted many lessons on how to withstand the economic downturn. Franchisors need to be consistent with their franchise offering, both in the good times and the bad. In addition to consolidating during these difficult times, franchisors need to prepare themselves for the upswing and remember, there are always people who in times of recession, are spurred on to become entrepreneurial due to retrenchments or retirement and are looking for opportunities to take control of their own futures by starting their own business.

Says Vera Valasis, Executive Director of FASA; “Despite the 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.”

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