SOUTH AFRICA A SPRINGBOARD FOR FRANCHISES EXPANDING INTO AFRICA

  • November 25, 2014 2:32 pm
  • News

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As business interest in Africa continues to accelerate, there is a growing realisation by leading franchisors that their brands have to be in Africa, a factor that is leading both international and South African brands to steadily expand their operations into key regional markets.

Philip Myburgh, Head of Franchising, Rest of Africa at Standard Bank, says that South Africa has been the first entry point for most brands, but a combination of subdued economic growth and market saturation is leading franchisors to look for opportunities across the borders.

“Many franchises have found that their products are more appealing in South Africa because they cater to a broad range of household income groups. However, when moving across borders into sub-Saharan Africa, input costs are significantly higher which in turn makes the purchase price for consumers higher. This often impacts on the size of target market segments and reduces sales. Depending on the infrastructure available in some countries, costs can be further escalated by the need to supply outlets with generators to avoid power failures.”

“Shopping malls, traditionally a location point for many franchises, are not as common in the rest of Africa as they are in South Africa.”

“Add significant supply chain issues and the challenges involved with finding suitable outlet locations and the picture becomes more complicated. The price point at which a burger or similar product comes into the market in Africa becomes critical. Franchisors are left facing the challenge of removing cost from the product in order to gain market share.”

Local legislation can also come into play. In many countries, the importation of specific foodstuffs is prohibited in order to protect local producers. “As there are often limited suppliers of these foodstuffs available, the franchisor becomes a ‘price taker’ rather than a ‘price setter’. Maintaining quality, with products adhering to the franchisor’s internationally pre-set standards, also becomes a challenge,” says Mr Myburgh, adding that enforcing corporate standards according to branding and the ‘corporate look and feel’ of an outlet can also involve importing the materials needed for store construction.

Franchisors expanding into Africa need to consider skills availability and the establishment of training programmes for potential franchise holders.

Many of the bigger brands have opted, at a high cost, to train franchisees, managers and other key staff at their training academies in South Africa. Well trained managers and staff are key to creating and delivering a consistent customer experience.

Mr Myburgh says this is regarded as a necessity by franchisors whose ultimate aim is to guarantee the integrity and values attached to their brands. The positive result is that franchises are playing a major role in raising skills levels in the countries within which they operate. Many of these brand’s academies have accredited courses, where people return to their home countries with skills and help to grow the food sectors in their local markets.

“Despite these considerations, more and more quick service restaurant brands are entering Africa because that is where the opportunity is. They have to be in Africa as Africa is one of the final, untapped frontiers available for expansion; a place where the most significant rewards will be realised by those who break into the markets first.”

Brands with a long history in South Africa have significant advantages when it comes to taking household names into the continent. Some of these advantages are:

  • A better understanding of African markets, something still lacking in franchisors  operating out of North America and Europe.
  • Markets within the SADC group of nations have similar market conditions to South Africa, making establishment of operations considerably easier.
  • As expansion moves ‘northwards’ into the continent, the respect that South Africans have for the uniqueness of each market offers considerable advantages. This stands in strong contrast to Western international players who often tend to view Africa as a homogenous market.
  • Understanding that creating local partnerships involves more than just locating someone with the equity available to represent and market a brand in a region. The partner involved must understand how to work within a franchise model and adapt to prevailing local socio-economic circumstances.

“The concept of franchising is a fairly new concept in many African countries. There is no doubt that as the franchise models start maturing and understanding increases, the benefits available to franchises entering these markets will become apparent,” says Mr Myburgh.

Press release by Magna-Carta.

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