Franchise industry shows resilience

(Shutterstock)
(Shutterstock)

Johannesburg - Despite hard trading times over the past seven years, franchising has held its own, according to Vera Valasis, executive director of the Franchise Association of South Africa (Fasa).

The franchise sector contributes 12.5% to SA’s GDP.

According to Fasa's latest franchise survey South Africa has over 600 franchised systems, just over 39 000 franchise outlets and 17 franchise business sectors.  
According to the findings of the study, there are 39 119 stores located in South Africa, most of which are owned by the franchisee. The large majority of these business units are to be found in Gauteng, more than twice as many as in the Western Cape and three and a half times as many as are in KwaZulu-Natal.

According to the 2015 Franchise Directory, the largest franchise system is the Fast Foods and Restaurant category (24%). The Retailing (12%) and Building, Office, Home Services (11%) sectors are next biggest. Automotive Products and Services, Childcare, Education and Training and Business to Business occupy 24% of the franchise market (9%, 8% and 7% respectively). The other categories are 6% and smaller.

In 2014, the franchisors interviewed claimed that they had opened a total of 4 086 businesses, 40% of which were fast food and restaurants. An estimated 999 businesses were closed down. One in two franchisors estimate that it takes up to six months before a new franchisee breaks even and a further 26% mentioned that it could take up to a year.

The total number of employees in the franchise industry is estimated at 329 245, with 34% being employed in retailing, 27% in fast foods and restaurants, 12% in real estate and 10% in the automotive  sector.

Fifty percent of franchisors have business units/stores in shopping centres or malls and 38% have them situated in high streets.
The average amount of working capital required when buying a franchise is estimated to be R590 000. This amount rises well above the average for a retailing business (R1.1m), a fast food/restaurant (R807 000) and an automotive business (R731 000).

For the upfront franchise fee, the average amount is R209 000, with the amounts ranging from R426 000 for a personal services outlet to R74 000 for a childcare, education and training outlet.

The main challenges facing franchisors are related to finding the right person – in terms of finding the right franchisee with the right skills sets and finding the right staff. The other critical issue is managing cash flow and making a profit. Other lesser challenges include customer satisfaction, knowledge of the business and the logistics of starting a franchise.

 “With Government and particularly the Small Business Ministry putting their weight behind nurturing entrepreneurs, facilitating skills transfer and providing accessible funding specifically to franchise initiatives, we can look forward to even greater growth going forward,” said Fasa chair John Baladakis.

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