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 Franchising shines in tough times


 The resilience and vitality of the franchising industry in South Africa is more apparent than ever. In a year of low overall economic growth, the franchising sector's share of the country's gross domestic product (GDP) has grown by no less than 6% from R465bn to R493bn, says Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS).

Quoting figures from a recent study by the Franchising Association of South Africa (FASA), Lang says franchising is still growing on all fronts: The number of franchise outlets has increased from 31 050 to 35 111, and the number of franchise groups has grown from 625 to 757 in the same year. The sector now employs 329 000 people.

What accounts for franchising's apparent ability to shrug off the economic malaise? For Lang, it is firstly a matter of the strengths of franchising coming into their own when times are tough. The group strength of branding that franchising offers takes a lot of the pain out of convincing customers to buy from an outlet. So where an independent business has to double down on marketing to draw in reluctant customers, franchised outlets have the added advantage of brand strength and market acceptance.

Similarly, the core advantage of franchising – the fact that it has been a proven business model – gives it a relative advantage over independent businesses which are still finding their feet through trial and error. In a struggling economy, that advantage becomes more intense.

A third reason for franchising's growth, says Lang, is the continued entry into South Africa of overseas franchise systems looking for global expansion.

He points out, however, that franchising is not entirely immune to the struggles of the economy. Although its contribution to GDP grew by 6% last year, that growth is slower than what was experienced in previous years.

Lang believes that franchising's growth will continue, especially in three industries that are ripe for expansion.

Fast foods, the old staple of franchising, will see strong growth because of lifestyle changes. The emerging generation of customers are less set up for home cooking and more pressured for time. As for the increased health consciousness that might put them off the traditional idea of fast foods, the industry is producing answers. Not only are entire franchise systems being set up around the idea of healthy eating, but healthy options are being added to traditional fast-food menus.

The automotive service industry is another that is likely to see high franchise growth, says Lang. Because of the tough economic conditions, car owners are holding on to their vehicles for longer, boosting the demand for spares and mechanical services, and driving the growth of franchise systems in the industry.

Franchises providing child entertainment and education is likely to continue their strong growth of the last few years. Safety concerns prompt emerging middle class families in the cities to keep their children off the streets, and various child entertainment and exercise franchises provide a convenient and safe way to play and let out some bottled-up energy, from art classes to indoor jungle gyms and even trampoline parks.

Educational aspirations are driving a strong demand for courses to top up the school curriculum, especially English and maths classes that are available from a growing number of franchise systems. The same demand could also see the growth of franchised schools and crèches over the next few years, says Lang. Traditionally, private schools have been aimed at the affluent section of society. Increasingly, private school concepts are catering for the demand for quality education for middle and lower-middle class families as well.

In the foreseeable future, the dominant trend for franchise outlets across all industries will be a continued and even more intense search for efficiencies, at least for as long as bottom lines remain under pressure.

“How can we do things better, more cost effectively and quicker, without sacrificing quality?” is the main question that will and should exercise the minds of South African franchisees and franchisors over the next few years, says Lang.

This is likely to drive the uptake of new technology by franchised systems. The rise of social media will almost certainly see an increase in its use by franchisees as a marketing platform.

Finally, a trend that is likely to continue in the near future is the spilling over of the local franchise industry into neighbouring countries as franchisors seek new markets to expand into, and entrepreneurs to the north seek to capitalise on franchising's remarkable ability to grow in tough markets.




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