At this stage, 12% of retail sales in the country are derived from franchised firms, but this will increase dramatically as the industry continues to grow further. However, without suitable planning, the risk is that foreign franchised businesses will flood the South African market – an attractive location for overseas firms to expand into.
This is why, according to Riaan Fouche, head of franchising at First National Bank (FNB), the local industry must focus on two ways of driving the industry into the new era. “Education about franchising is crucial for us to bring in a new generation of franchisors and we must look to our previously disadvantaged communities for this,” says Fouche.
“The other focus area is to promote innovation in new services and concepts to take account of the diversity within South Africa.”
The Franchising Association of Southern Africa (FASA), the industry body, has already begun acting on these focus areas. It recently announced a public-private partnership to provide mentorship and support for potential franchisors.
In addition to targeting previously disadvantaged sectors of the population, industry experts hope to get more established corporate businesses to enter the franchise field. According to Parker, many large corporates in South Africa are sceptical of franchising their businesses because they fear losing control.
“They also see the Competition Act, which has created some challenges for the local franchise industry, as a reason not to go the franchise route,” he adds.
One corporate that has bucked the trend by going the franchise route – and done so successfully – is Pick ‘n Pay. Today, there are more franchised stores than corporate ones and the franchise operation represents a substantial part of the company’s profits.
In order to limit the risk of losing control, Pick ‘n Pay applies a very careful selection process for its franchisees. In addition, training and mentorship via the Pick ‘n Pay Franchise Academy creates opportunities for members of disadvantaged communities to become successful business owners.
If corporates in the retail sector were to adopt the franchise concept, the number of their stores throughout the country is likely to increase rapidly. Bearing in mind that a retail store employs anything from 35 to 100 people, the impact in terms of job creation is significant.
“This is why the development of the franchise industry in South Africa along the right path is so important,” Fouche explains. “We can meet a number of needs within the country through franchising – creating jobs, spreading wealth more widely among the population, providing opportunities for entrepreneurs, and so on.”
