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Franchising still offers opportunity in tough economy

Training and support from franchisors can help committed entrepreneurs succeed.

The South African franchising sector continues to grow and attract new entrepreneurs despite the difficult economic environment in the country.

Salim Kadoo, provincial general manager for Tshwane and North West at Nedbank, says the franchising sector has been making an increasing contribution to South Africa’s GDP even as economic growth has slowed. “The South African market is quite tough at the moment. But the franchising sector has performed very well despite this – its contribution to GDP has increased by two percentage points over the last two years.”

According to a survey by the Franchise Association of South Africa (Fasa), the sector recorded turnover of some R721 billion in 2018, contributing 15.7% to GDP. Kadoo congratulated both franchisees and franchisors for this performance at Nedbank Business Banking’s annual Franchising and Retail Seminar in Midrand.

Linda Reid, head of commercial property at Lightstone, a leading provider of analysis and insights, pointed out that the service station sector plays a pivotal in the franchise sector and its growth. She says that although fuel remains the main source of revenue for service stations, the other services they offer play an important role in attracting customers.

Partnerships

Reid says service stations often choose to partner with well-known franchises to further strengthen their proposition to consumers and, according to research conducted by Lightstone, this can significantly drive up the conversion rate of a service station – that is the percentage of cars that enter the service station when passing it. Reid explains that while on average 4.9% of the cars that pass by BP service stations choose to enter, this number climbs to 8.1% for BP service stations that also have a PnP convenience store.

Successful franchisors speaking at the event noted that a strong focus on training, the ability to instil the brand culture of a franchise into each outlet, and the commitment of individual franchisees are some of the key factors contributing to their growth.

George Nicolopoulos, founder and managing executive of Salsa Mexican Grill, says the highly successful restaurant franchise is still receiving a lot of interest from potential franchisees. “We see each of our franchisees as helping to expand our brand, while adding their individuality to every Salsa restaurant.”

The first Salsa restaurant was an instant success when it opened in 2015. Nicolopoulos believes Salsa’s unique atmosphere and strong focus on customer service has helped it to keep attracting diners despite consumers being under increasing financial pressure. Salsa franchisees undergo intensive training within their restaurants and Nicolopoulos says the individual owners of each restaurant often play the biggest role in its success.

“At Salsa we firmly believe in the ‘OPC’ – owner-participation concept. We can clearly see the difference between owner-run stores and those that are not run by the owners themselves.”

Richard Mukheibir, CEO of Cash Converters Southern Africa, echoed this sentiment. He says that in addition to training, much of the initial support Cash Converters offers its franchisees is focused on reducing the administrative burden of running a business to allow owners to spend more time trading and being present in their stores.

Passion and professionalism

Mukheibir says picking the right franchisees has also been crucial to the company’s success and longevity. “When we look for new franchisees – and employees – we look for people with common values. Passion is important when working in the retail sector. Professionalism is also very important as we are in an industry that often seems ‘dodgy’.”

Mukheibir says the difficult economic environment in South Africa has affected interest in Cash Converters franchises. “We have found it tough to sell franchises in this environment and volumes have reduced. But people are also recognising that a business that provides people with cash has very good reason to exist in this environment.”

Nicole Bruwer Westvig, MD of Marcel’s Frozen Yoghurt, says the company has seen the impact of the country’s economic climate on consumption patterns – especially with regards to its growing range of packaged products. “We see that people are buying a large tub of frozen yoghurt to have as a dessert at home rather than going out.”

Bruwer Westvig says that although Marcel’s is placing a lot of focus on product diversification, its franchisees and retail outlets remain at the core of to the business. “It is very important to Marcel’s that each of our franchisees succeeds. Our retail outlets allow us to interact and engage with customers directly. They are the face of the brand.”

She says Marcel’s provides a lot of support to its franchisees but also requires them to be personally invested in the success of their businesses. We have never been an aggressive brand; our growth has been steady and consistent. We’ve been around for thirty years (est. 1989) and we remain the market leaders in this category. “It is extremely important to us that our franchise partners are as passionate about Marcel’s as we are. You need to be highly invested. It takes time and it takes effort to succeed in this sector.”

Brought to you by Nedbank Franchising.

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