The Franchise Association of South Africa (FASA)’s fourth independent survey, sponsored by Sanlam, undertaken among franchisors in order to assess the contribution by the franchise sector to the South African economy in terms of GDP, shows a business sector that continues to grow despite challenging economic conditions.

With an increase of 132 franchise systems from 625 to 757 (21% growth), an increase of franchise outlets from 31 050 to 35 111 (13% growth) and with turnover increasing by 6% from R465, 27 to R493, 19 billion rand, the survey reflects both the successes and challenges facing this vibrant sector, according to FASA’s Chairman, Naas du Preez of Oasis Water.

“Despite the downturn in the economy, the franchise industry continues to grow – although not quite at the same pace seen in previous years. The marked increase (21%) in the number of franchise systems and outlets (13%) could well be attributed to the inordinate number of new and international brands that have established themselves in South Africa over the past two years.  This has not come with a concomitant increase in turnover (6%) however, which could be attributed to the lack of growth in the South African economy.”

The slow-down in turnover is supported by the fact that it appears to be taking a little longer for a business to break even, but the potential for growth remains strong with franchisors exhibiting an extremely high level of optimism and many are intending to expand their franchise system. “What is without question says Du Preez, is the tenacity of the sector, which refuses to remain static and shows great entrepreneurial spirit, contributing a healthy 11.6% to the country’s GDP.”

According to Vera Valasis, Executive Director of FASA, the survey, once again, has shown that franchising is one of the soundest business formats, structured to withstand economic challenges. “Despite the hard trading times over the past seven years, franchising has held its own year-on-year in every respect – from showing long-term sustainability to showing a high level of optimism for the future.”

What the franchise survey clearly shows is the franchise sector’s ability to identify the challenges and adapt to those changes. In this year’s survey, the poor economy, cash restraints and competitiveness were of greater concern to those surveyed. But, at the same time, they identified the importance of having the right franchisees and staff in place to retain and capture customers.

Sanlam, who sponsor the FASA Franchise Surveys, is able to track, through the survey, whether franchisors are incorporating financial planning as part of the franchise implementation process.  According to Kobus Engelbrecht, Marketing Head, Sanlam Business Market, “it is encouraging to see that many franchisors have an eye to securing the future with one in three protecting the future of their franchises by incorporating financial planning and 70% having made provisions in case of ill health or frailty.  What is of concern, however, is that the survey noted a marked decrease in addressing staff benefits.”

GROWTH & CONTRIBUTION OF THE SECTOR

• South Africa has over 757 franchised systems, just over 35 111 franchise outlets and 17 franchise business sectors. In 2016, there were a claimed 35 111 stores, most of which are owned by the franchisees (90%). This is an increase of 6% in the number of stores since 2014.

• According to the 2016 Franchise Directory, the largest franchise system is the Fast Foods and Restaurant category (27%). The Retail sector at 15% is the next biggest.   Building, Office, Home Services (12%) and Childcare, Education and Training (11%) follow. Business to Business Services, Automotive Products and Services occupy 15% of the franchise market (8% and 7% respectively).  The other categories are 5% and smaller.

• The estimated turnover for the franchise market is R493,19 billion, which is 11,6% of the South African GDP. This includes the fast food and restaurant turnover but excludes that of the petroleum sector, where the turnover is pinned at R19,44 billion for the convenience stores and R200,72 billion for the forecourts.

Source: Franchise Association of South Africa fasa@fasa.co.za.