In a country where the path to sustainable business ownership is notoriously difficult, franchising offers an opportunity to get a solid foothold in the South African market. But the barriers to entry remain high with initial costs proving to be too steep for many aspiring franchisees.
According to the fifth Franchising Association South Africa (Fasa) independent survey, undertaken among local franchisors, ownership by previously disadvantaged individuals (PDI) for 2017 was given at 17%, down from 18% in 2016.
Notably, 56% of the survey sample did not have any PDI ownership in their businesses at all.
Business ownership by women stood at an average of 25%. The sectors with the highest incidence of female business ownership are health, beauty and body care as well as childcare, education and training.
As a whole, the estimated turnover for the franchise market is R587 billion, which is equivalent to 13.3% of South Africa’s GDP. At 29%, the highest turnover generated is by the fast food and restaurants sector. The employee count was pegged at 343 319, with the retail sector being the biggest employer. Sixty-five percent of employees are black, 24% white, 6% coloured and 5% Indian. The number of black employees has increased by 8%.
The average amount of working capital required when buying a franchise is estimated to be R598 000. The amount required as working capital varies considerably depending on the franchise system.
High level of support for franchisees
As with many sectors, the main challenges facing franchisees were reported as ‘finding the right staff, being able to offer consistently good service, and the poor economy’. The secondary challenges were listed as growing the business with new customers, managing running costs and keeping prices competitive.
Encouragingly, the survey found that 73% of franchisees report a good relationship with their landlord, with 18% rating it as neutral. A good relationship and prompt attention to queries and fixing things earned the landlord a positive score, as does being supportive and helpful. Other reasons for giving the landlord a positive score related to ‘good maintenance of the property, the fact that there were no problems, availability and good communication’.
Training and education priorities appear to have changed in the last year, with more focus on local store marketing, setting recommended gearing, legal documentation and assistance in the compilation of business plans.
The area in which franchisees receive the least amount of support from the franchisor is in training at another franchisee’s outlet. Other than this aspect, most franchisees indicate that they receive a high level of support. Despite this, they would like additional support in terms of marketing, new product development and training overall.
Brought to you by Nedbank Franchising.