At the recent World Franchise Council meeting in London, of which the Franchise Association of South Africa (FASA) is a member, the focus was on sustaining the growth of franchising worldwide in continuing turbulent times through ethical franchise principles.
According to Vera Valasis, Executive Director of FASA, “at the meeting it was acknowledged that upholding ethical franchise principles through franchise association accreditation continues to be the key to the healthy growth of franchising globally. This is proving to be a challenge in South Africa as the legislative wheels grind slowly and although FASA was able to influence the inclusion of provisions for franchising in the Consumer Protection Act, there are very few checks and balances to ensure that franchisors are indeed adhering to the provisions of the Act.”
The appointment of an ombud, which was gazetted in 2016, has also yet to happen. FASA remains the only body that is ensuring that its accredited members, who voluntarily join the association, are adhering to the Code of Ethics as prescribed in the CPA and to international best practices.”
“What we are finding,” says Tony Da Fonseca, Chairman of FASA and CEO of the OBC Group, “are some franchise companies that join the association for a short period of time to gain the necessary credibility to launch their concept, then resign their membership but continue to use that accreditation to sell franchises. Although this practice hasn’t been prevalent, there is a risk to prospective franchisees that the company they choose may not be upholding the ethical standards as laid down by both FASA and the CPA.”
It is estimated that there are over 750 business systems in South Africa claiming to be franchises. A large number are not accredited members of FASA. The requirements of becoming an accredited member of FASA are stringent – this no doubt scares off the less scrupulous operators and those who do not have correct structures and support systems required of a top class franchise system.
The recent recession has taken its toll on franchising as consolidation has had to take place on all levels – from the operational to franchise sales. With loans hard to come by, it has become a buyer’s market for the investor with capital. Being in the driver’s seat and with so many options available, prospective franchisees cannot risk buying into a failing system and should ensure that they choose franchises that are prepared to align themselves to a bona fida association like FASA. The first question a prospective franchisee should ask is, ‘Is your franchise accredited by the Franchise Association of South Africa?’
Franchisees, before they sign on the dotted line, need to ensure that they have thoroughly investigated the franchisor, confirmed that they are FASA accredited members by checking on the FASA website; spoken to existing franchisees and above all, made sure that they fully understand the terms of their agreement and what they are committing to. It is the responsibility of the franchisor to supply a franchisee with a full turn-key operation, give extensive training on how to operate the business and above all give ongoing support and guidance to help the franchisee make a success of his/her business.
Choosing members of FASA gives prospective franchisees the peace of mind that those companies have, in becoming accredited members, agreed to manage their franchise companies not only in accordance with FASA’s Code of Ethics and strict membership criteria, but are kept up-to-date with all the necessary legislative changes.
Furthermore, and until such time as the franchise ombud is appointed, if things go wrong as they sometimes do, FASA offers free mediation and dispute resolution mechanisms to its members. Franchisors that are not members of FASA would be well advised to consider becoming accredited members and use the benefits and support of the association to get their houses in order to ensure their survival within the parameters of the Act.
Despite the on-going recession that is impacting heavily on small businesses, the franchise sector continues to be resilient and franchising globally has fared far better than independently owned businesses – largely due to the strong business format and support system inherent in franchising. Franchising has proved, time and again to be a much lower risk investment than starting a new business, with surveys showing that whereas 93% of new small businesses fail within two years of start-up, between 5 and 7% of franchised businesses fail. The business model of franchising is globally one of the soundest business methods and in South Africa has grown to over 700 franchise systems, with over 35 000 franchise outlets and employing over 300 000 people contributing 11.6% to South Africa’s GDP.
Vera Valasis, Executive Director of FASA believes that both the franchisors and franchisees have an obligation to make their partnership work. “The very nature of the successful business formula of franchising is one of interdependence – one of ‘if the franchisees are profitable, the franchisor will be too’.”
The Franchise Association of South Africa’s upcoming Absa Franchise Business Festival to be held from the 30th June to the 2nd July at the Kyalami Race Track Exhibition Centre, will showcase over 100 franchise and business opportunities and will also hold its annual Franchise Convention on the 29th June and the Awards for Excellence in Franchising on the 1st July.