Over the last year, franchises in the services, building, office and home as well as business-to-business sectors have seen buoyant growth. Although commonly associated with the retail, restaurants and fast food sector, the overall sector (see figure 1) is receiving a lot of attention as it shows better long term performance.
Bendeta Gordon of Franchize Directions says that over the last couple of years the trend has been positive for franchises all-round. According to the Absa SME Index, franchises employ on average 17 people in one outlet – 36% more than the average employer. Gordon said that newer brands are struggling but older, more established brands are doing well.
Franchisors have been hesitant to expand but with more banks opening their doors to potential investors, franchising opportunities abound, says Gordon. Andre Rosslee, Absa’s retail and business bank general manager at the Absa SME index, concurs that there are numerous opportunities within the sector.
Figure 1: The different sectors within the franchise sector in South Africa
Data from Franchize Directions
Gordon adds that even though franchisors were hesitant to expand over the last two years, the fact that bank are more open-handed to potential franchisees, is encouraging the growth of more franchisors. She adds that there has also been a positive growth of multi-store ownership. For some franchises, such as KFC this is part of their growth strategy to bring down costs, but for other franchises this is driven by a motivation to expand.
Simone Cooper, Standard Bank’s head of franchising at this year’s My Business Expo, highlighted a number of reasons why franchises are successful, these include:
- The assistance that franchisees receive,
- A proven track record,
- Joint advertising and promotions,
- Bulk buying power,
- Access to expert services,
- Operational support from franchisors and other on-going support.
Beauty salon franchise Sorbet, for example, offers training, assistance with setting up and access to intellectual property developed by the franchisor to the franchisee. Due to the track records of most franchises, banks are less hesitant to offer funding, Cooper added.
Cooper advises that those interested in taking up such an enterprise, should compare different franchises within the same sector and assess the level of support offered, as well the financial support projected by a franchisor. Cooper cautioned however that in the first year profit projections may not meet up to expectations and that franchisees need to be prepared and learn how to manage their cash-flow. Identifying the right location as well potential competitors is also key.
Figure 2: A snapshot of some franchises that cost under R1m to set up.
|Franchise||Approximate cost of investment|
|2||Sweets From Heaven||R450 000|
|4||Yale Security Point||R450 000 – R 650 000|
|5||Verimark||R 400 000 – R 600 000|
|6||Sausage Saloon (Shop)||R475 000- R 555 000|
|7||Battery Centre||R500 000|
|8||Easy Life Kitchens||R 560 000|
|9||PostNet||R 575 000|
|10||Sandwich Baron||R 575 000|
|11||Dream Nails||R605 000|
|12||NWJ Jewellery||R 725 000|
|13||Boost Juice Bars||R550 000 – R 750 000|
|14||Barcelos||+/- R 750 000|
|15||DIY Depot||R 850 000|
|16||Talk Call Centre Solutions||R806 463|
|18||Jetline||R 879 902|
|19||Sorbet||R 950 000|
|20||Overland Liquors||R 300 000 – R1 million|
Data obtained from the Franchise Authority South Africa (FASA)
Disadvantages of being a franchisee
Despite all the positives, there are of course disadvantages. Cooper said that possibly rigid operational procedures, the high set-up costs and costs involved in maintaining the corporate identity are some of the drawbacks. She says that restaurants often change their store designs every five years – costs that are carried by a franchisee. Franchisees are also reliant on the franchisor for major business decisions and individuals are susceptible to the deterioration of a franchise brand.