Survey results released today show that the franchising sector has proven resilient despite the recent economic turmoil.

This is according to The Franchise Factor® 2012, a survey conducted by Franchize Directions which monitored the sector from for the period 1 March 2010 to February 29th 2012. The Franchise Factor® has tracked pertinent franchise information since 1994 and this research involved obtaining 423 primary responses from franchisors and this represents almost 75% of the identified franchisors.

According to the survey, the sector consists of 568 franchised systems and 30 483 business units, grew an estimated 53 066 new jobs, 2053 new businesses and contributed of R356.28-billion to the South African economy. The franchise sector also contributed 11.85% to GDP during the survey period.

Franchisors adopt cautious expansion plans

There was a slight decrease in the number of franchised systems since the survey was last conducted (2012: 568 and 2010: 576 franchised systems). This was a result of the “exiting” of 77 franchised systems, 69 new franchised systems were introduced. The sluggish economic conditions and limited access to finance prompted a cautious expansion plan for most franchisors.

“Franchisors who were not wholly committed to franchising and not convinced of its role in the long term strategy of their respective businesses, took responsible decisions to halt franchise operations”, said Lindy Barbour, Director of Franchize Directions.

Number of business units up

The movement in the number of business units from just over 29 000 to 30 500 is positive, together with the estimated turnover generated by franchisees, as both are key indicators of the stage of growth of franchisors. The franchise sector showed sound turnover resilience in the face of trying economic conditions.

International brands arrive on our shores

An upward trend was noted in the introduction of international master licenses into South Africa. The percentage of systems that were developed locally is 88%; while internationally developed concepts expanded in South Africa account for 12% of franchised systems. This has increased since the 2010 survey in which only 8.68% were international brands. The cost of master licenses, however, remains restrictive due to the exchange rate.

Women franchisees soar

The geographic representation of business units across the provinces remained consistent with the 2010 survey, as did the BEE representation in the region of 36% (inclusive of petroleum franchisees).

One result which recorded a significant shift is the increase in the number of women franchisees from just under 29% in the 2010 survey to almost 34% of franchisees in 2012. This is as a result of significant female ownership in the following service based business categories: Education and Training, Health, Beauty & Body Culture and Real Estate categories respectively.

Barbour notes that this may have been due to pressure for additional disposable income requirements which required that both spouses generate an income. Franchising offers a relatively low risk barrier to entry. The benefit of skills transfer and the ongoing support of the franchisor makes it far more attractive than pursuing an independent start-up.

What does it cost?

The average capital investment per business category is approximately R900 000 whereas in 2010 it was recorded as being above the one million Rand mark. More conservative funding has generally required a greater percentage unencumbered contribution by the franchisee.

Barbour says this has prompted franchisors to carefully scrutinise set up costs. As a result a number of brands introduced smaller “express” or entry-level franchise packages during the survey period.

Franchising offers employment opportunities

One area where the franchise sector continues to add value is in employment. The total estimated number of people directly employed in franchising (at 29 February 2012) was almost 520 000.

It is estimated that the franchise sector added more than 50 000 jobs to the economy over the two years of the survey period. Employment was created in the form of self-employed franchisees, franchisees then employ staff at each business unit and the franchisor also grows infrastructure as the franchised network grows.

REFERENCE: Franchize Directions

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