Franchising Looks to Further Growth in 2018

Tony Da Fonseca, MD of the OBC Group who is in his second year as Chairman of the Franchise Association of South Africa (FASA),  takes a look at the future of franchising in an ever-changing world.

“Over the past few decades, business format franchising has become the most successful business model the world has ever known. Seeing that in this fast-moving world of ours, change is seen as the only constant, it is appropriate to ask whether franchising can maintain its momentum. My answer is a resounding “yes” and here is why.”

Taking stock

Survey results released by FASA in 2017 show that the sector’s performance remains on an upward trend. During the period under review, the sector consisted of 845 franchisors and over 40,000 franchisees. It employed about 343,000 people and generated sales of R587 billion. This equals 13.3% of the country’s GDP; up from the 9.7% recorded in 2014. The survey also confirmed the stability of the sector, with some brands operating for over 50 years.

Problems do exist

Although the franchise sector outperforms the overall economy, problems crop up from time to time. Paradoxically, these usually arise as a result of franchising’s success record on the one hand and the role players’ unwillingness to do their homework on the other.

Experts compare the franchise relationship to a marriage and I agree. Now, we all know that to make a marriage work, the partners must share similar values, have clearly defined goals and be prepared to contribute equally towards reaching them. Willingness to compromise occasionally is another essential requirement.

A franchise relationship is no different. The franchisor is responsible for the development of a workable blueprint for the franchise. This includes the need to prove the viability of the business. Problems arise when one or the other of the following scenarios unfolds.

  • An impatient entrepreneur offers franchises before the foundations for sound franchising have been established.
  • An over-eager investor joins a franchise without doing the necessary homework first.

Shared responsibility

The mere fact that you invest in a franchise does not guarantee business success. Neither does membership of FASA. However, dealing with a member of FASA offers substantial comfort to investors.

Before being admitted as members of FASA, franchisors must complete a detailed application form. An investigation into the applicant’s track record and financial stability as well as an examination of the franchise documentation follows. On admission, members become bound by FASA’s Code of Ethics which further protects the interests of franchisees.

However, dealing with a member of FASA does not remove the need for a careful examination of the opportunity. Because investing in a franchise is a significant long-term commitment, prospective franchisees need to examine all relevant aspects, including their own attitude, aptitude and willingness to work extremely hard before they sign a franchise agreement or make payments.

We at FASA are working on various exciting initiatives designed to assist newcomers to the sector as well as existing members. At the same time, we aim to grow membership numbers but will never place quantity over quality. During 2017, we were forced to ask several members to either comply with the Code or resign. In our relentless drive for constant improvement, we intend to apply even stricter standards during 2018.

FASA offers “How to…” guides for prospective franchisors and franchisees. Moreover, our free newsletter informs about franchising and provides details of forthcoming events and workshops. To find out more go to www.fasa.co.za.

There is no doubt in my mind that franchising can look forward to a bright future and I invite you to join us on the exciting journey that lies ahead.

 

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