The power of franchising lies in its longevity for the future

South Africa stands out as the only country in Africa that embraced the franchising model way back in the 1960’s and built it into the formidable business sector that has created close to 800 business brands operating through over 68 000 outlets.

No other industry, which spans around 14 different business sectors, has contributed so extensively and continuously over the past fifty years to the country’s GDP (at 15%) and brought together the winning elements of entrepreneurship, small business development and job creation.

There is no question that franchising fared far better than independent businesses during these tough times but even though the FASA Franchise Survey, sponsored by Absa, showed the resilience of the sector, it needs to regroup to ensure that franchising recovers and is poised for even greater growth in the future. Ever mindful of the enormous role that franchising plays in the South African economy and as the pandemic and recent events wreaked havoc in every sector, FASA takes on even more importance and urgency to try and assess the fall-out and thrash out what needs to be done to get South Africa’s franchising sector back on its feet.

The franchise sector has proved that it can adapt with franchisors taking pro-active steps to optimize their operating systems, adjusting their margins through careful cost controls and keeping labour and waste in check in order to survive. A strong franchisor management team at the helm of every franchise brand is hard at work evaluating and improving policies and practices for safe trading, revising contracts and business systems to incorporate any changes brought about by the pandemic and socio-political challenges.

If there is one business sector that knows how to balance the scales of supply and demand, be innovative enough to change course and use its collective power to weather the storm and grow, it’s franchising.

Franchisors continue to be optimistic as business growth continues to strengthen, and the expectation that turnover will grow in the next financial year is almost unanimous.

From these findings, it is evident that the franchisor delivered on the promised Return on Investment(ROI), resulting in nine in ten franchisees expressing good levels of satisfaction with the ROI. Real estate franchisees ((71%), building, office and home services franchisees (60%) and retail franchisees (52%) all indicated levels of extreme satisfaction that were above average.
The positive attitude expressed by franchisors is echoed by franchisees with 88% believing that the turnover in their businesses will grow in the following year.
The franchisees that were especially optimistic about future growth could be found in the following categories: automotive products and services (100%), building, office and home services (98%), business-to-business services (97%), childcare, education and training (94%) and real estate (100%).
Franchisees in dine-in restaurants (24%) and fast food and QSRs (26%) were less optimistic, believing that turnover would not change in the next financial year to a greater extent than franchisees in other categories.

What is ROI?

The ROI of a franchise is a yardstick for evaluating the efficiency of your investment in a franchise. It determines how your investment in a franchise performed. Typically, the Return on Investment(ROI) is your net profit from the franchise venture represented as a percentage of the actual investment you put into the business.

Calculating the return on investment (ROI) of a franchise is not as straightforward as it is for other investments like stocks, real estate, gold, oil or bonds. As opposed to these ‘passive’ investments, most franchisors expect franchisees be ‘active’ and hands-on in the business. In this respect, one should certainly expect a higher ROI to compensate your time.

When investigating a franchise opportunity, prospective franchisees need to factor in that most new businesses go through a start-up phase where they lose money for a while, then break even and ultimately become profitable. For a typical business, this takes two to three years. Absa, who sponsored FASA’s Franchise survey, have a specialist franchise team that have a good understanding of the industry from a franchisor, franchisee and banking perspective. They can provide the best access to financial solutions that will contribute to your business success.

Franchises also vary substantially in terms of their success potential, which is based on the brand and reputation of the franchisor, consumer support, location and quality of the operator/manager.