The franchise sector faced trying times in 2019, and with Covid-19 resulting in a 21-day lockdown, small business and franchise owners and their workforces are now experiencing the devastating economic impact of the crisis.
According to a survey by the Franchise Association of South Africa (Fasa), the sector saw an estimated R734 billion in turnover in 2019, equivalent to 13.9% of the country’s GDP, through its over 800 franchise systems, close to 48 000 franchised outlets, and workforce of close to half a million people.
This year, the outlook appears dim for the sector, which consists mostly of restaurants, even though the industry understands the necessity for the measures taken.
Fasa chair Akhona Qengqe says the drastic measures taken to flatten the Covid-19 curve were needed.
“While the shutdown measures seem drastic, they are also very necessary to contain the spread of the virus and to flatten the curve of new infections.”
She says it is unfortunate that most of the franchise businesses in South Africa fall within the small, medium and micro-sized enterprises (SMME) category and, as a result, stand to feel the most impact from the standstill in economic activity. “This category is also responsible for job creation in a country that grapples with high unemployment,” adds Qengqe.
Assistance is needed
Fasa executive director Vera Valasis says it is important that assistance is given to franchisees, so they in turn can keep employees on the payroll and ride the storm in order to grow when the pandemic passes.
“Having a franchisor who franchisees can rely on becomes even more critical during these times of unprecedented urgency and crisis, as has been noticed during the last few days,” says Valasis.
She adds that government’s interventions to financially assist SMMEs whose business operations have been negatively impacted by Covid-19 may be just the lifeline the businesses need to make it through this period.
“Thankfully most franchisors have taken strong leadership steps and have kept their franchise system informed as and when developments and information is published by the government about the lockdown regulations, financial aid and other funds that can be accessed for financial assistance,” says Valasis.
She adds that many franchises have suspended royalty payments until the situation improves – among them those in the fast food, automotive after-market, DIY and business-to-business sectors.
“The list grows daily and we are delighted that so many franchisors are so responsive and stepping up so quickly to help their franchisees,” Valasis says.
“Once the lockdown is [over] things may become less frenetic for businesses outside of the designated essential services, and now may be the best time for franchisors and franchisees to take stock of their businesses,” Valasis says.
Franchises that provided relief
While Fasa did not provide details of franchisors that have put Covid-19 relief measures in place for their franchisees, Moneyweb reported last week that Spur is currently not charging its 600-plus franchises across South Africa any franchise fees, due to the impact of the pandemic on business.
Famous Brands, which houses the Steers, Debonairs and Fishaways brands, declined to disclose whether or not it will be charging franchise fees during this period, citing confidentiality concerns and the company being in a closed period.
“We have never discussed individual franchisee terms or trading arrangements publicly and don’t plan to do so now,” it told Moneyweb.
Valasis says many business owners instinctively know which areas of their business they need to focus on, or that they need to look for solutions to problems, but probably just haven’t had the time to sit down and formulate a new strategy or look for expert input and advice.
“This is the time to reset the button, address these concerns and look at the opportunities for the future,” Valasis says.
She adds that while there are so many uncertainties about possible job losses, the survival of businesses, the duration of the lockdown, the impact of an economy on its knees, and many other issues,
“…there is no doubt that the franchise industry will survive this crisis and will have learnt from it as well.”
“Trading conditions as we know them will change, perhaps unrecognisably, but never underestimate a tough and resilient franchise industry,” Valasis says.