Franchising shows resilience, holds key to growth

By Morne Cronje

 Despite the difficult economic conditions of the past few years, the overall performance of South Africa’s franchising industry has held fairly steady, with the average annual growth of around five to seven percent. While this is not a particularly stellar performance, the sector has demonstrated that it is fairly robust and can hold its own as a contributor to the country’s economy, regardless of the financial backdrop against which it is required to operate.

That said, franchising in South Africa is still not fully realising its true growth potential and it wouldn’t take much to effectively double the sector’s growth figures and, consequently, its contribution to the nation’s economic and social development.

Essential to the achievement of this increase in the level of growth, however, is the buy-in and cooperation of all franchising industry stakeholders from the franchisees and franchisors themselves to financial and funding institutions as well as local and national government.

As a first step, it is vital that all those involved in the industry recognise the potential it holds to contribute to the economic and social transformation of the country. Currently, the franchising industry employs close to 500 000 people across the country and given the potential inherent in franchise operations for relatively fast start-up, this figure could easily be twice as much. But that is going to require cooperation between the public and private sector and a willingness by both parties to invest in promoting the growth of franchising.

For instance, if even a small portion of country’s R9-billion employment fund was earmarked by government for use as incentives for employment creation, specifically within franchise operations, the industry could realise its potential to be a highly significant contributor to the achievement of the national government’s long-term, sustainable job creation targets.

Of course, raising the growth of franchising in SA will take more than buy in from government. There are a number of other fundamental hurdles that need to be addressed, the most pressing of which is the recognition by all parties that they have a role to play in achieving such growth.

In many ways, the industry finds itself at something of a crossroads. Stakeholders – whether they are banks, franchisors or franchisees – can choose to remain in their comfort zones and continue doing business as usual, or they can elect to leverage the successes they have achieved thus far to drive future industry growth for the benefit of all parties.

For any franchising stakeholder that is genuinely concerned about securing the sustainability and growth of the sector, there can be only one path to take and that is to commit to building the industry for the future. However, this in itself is something of a challenge given the difficulties facing new entrants to the market due, in large part, to the rapidly changing franchising landscape in the country.

The simple truth is that, in the medium term, the franchising sector in South Africa will likely be dominated by a handful of large franchise groups. While this is not necessarily a bad thing, assuming a monopoly position can be avoided, it has the potential to make it very difficult for smaller players, who are not associated with these large groups, to set up business and succeed in the franchising space.

On the other hand, if this situation materialises, it will bring a number of positive impacts to bear on the industry, not least of which will be easier access to funding for new franchisees who are associated with these established brands, as well as greater chance of success thanks to the marketing and operational support of an established and experienced franchisor brand.

In addition, the growth in dominance by a few larger groups could actually deliver benefits to the consumer as smaller franchisees are forced to become more innovative in their business and pricing models, branch out into underserviced areas

of the country, and collaborate in cross-functional franchise offerings that bring greater product diversity.

Regardless of how the industry develops over the next decade, though, the one sure thing is that its continued growth is going to require a genuine commitment by all stakeholders to greater collaboration. This is the only way to achieve real transformation in the industry, find creative ways of easing entry to market, give new franchising entrants the best possible chance at success, and raise the profile of franchising as a real enabler of economic success and growth.

Morne Cronje is the Head of Franchising at First National Bank

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