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Franchisors are Captaining the Economy

By: Jaqueline Martinez
Date: 2008/11/19

The results of the Standard Bank Franchise Factor Survey are in. We look at how if at all, global ups and downs have affected the allure of a franchise investment - and in which sectors entrepreneurs are spending their money.

Franchize Directions, with director Bendeta Gordon at the helm, has conducted The Standard Bank Franchise Factor Survey for the seventh time since its inception in 1994.

The Standard Bank Franchise Factor 2008 survey focuses on how the franchise sector has contributed to the economy in terms of franchised systems, GDP, business unit establishment, job creation and the identification of key franchise practices.

The survey, conducted every two years, looks at the status and growth of the franchise sector in South Africa, and measures its turnover over a two-year period. The latest survey compiled results from March 2007 to February 2008.

Of the 531 franchise systems in existence at 29 February 2008, 85% responded to the survey, reporting turnover of R256.46 billion (a 37% increase) and the creation of 67 000 new jobs.

The sustainability of the sector was staggeringly high, at a rate of 96%, and its contribution to the Gross Domestic Product totals 12.57 %.

Franchize Directions director Bendeta Gordon believes the survey has brought home that franchising is a terrific mechanism in the context of where we are currently at in the country, and of our socio-economic needs.

She says that despite many challenges facing the sector, such as limited support from financial and other government-funded support institutions, franchising remains highly sustainable and free-market capitalism is at its best.

“Franchisers should be viewed as the captains of the economy. Through their franchises, they facilitate the creation of businesses and the development of entrepreneurs who in turn create employment opportunities. Most importantly, they have proven that these mechanisms are sustainable.”

“Champions” in the survey were the building, office and home services sector, with 26 new franchises, followed closely by retail (22 new franchises) and automotive and restaurant franchise (14) and education and training (11 new franchises each).

Louis van Ravesteyn, the Head of Small and Medium Business, Branch and Business Banking Channels at Standard Bank, says the survey shows that the franchising sector is enjoying healthy and sustainable growth, in addition to playing a key role in addressing national challenges such as the growth of the SME market and Black Economic Empowerment.

Gordon believes that the franchising sector’s solid history of growth, innovation and sustainability provides a good outlook, and that the 2010 Fifa Soccer World Cup alone is one opportunity that will no doubt present some opportunity for this sector.

The current forecast for the sector is summarised as follows:

Good franchisers will:
· enhance structures
· focus on marketing effectively
· increase support to franchisees
· adapt menus, products and service offerings to meet customer needs
· innovate and adapt to changes continually

A greater number of franchisers may enter the sector to diversify risk, while many prospective franchisees will appear as the formal job market becomes tighter.

Looking ahead, Gordon says that franchising is built on solid foundations, and research has shown that, in tough economic times or recession, small businesses sustain themselves and play an even more critical role in the economy.

“Good growth can be expected as companies diversify their risk and become more innovative, which is common during downturns in the economy, and can be contrasted with not wanting to rock the boat and being more inclined to own outlets during more favourable or high-growth economic times. One can expect the bigger players to get bigger – as is already evident especially in the fast food market – while smaller ones without critical mass might struggle.”

The Standard bank Franchise Factor © Bendeta Gordon. 2008. Research conducted by Franchize Directions

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