Supermarket Franchises in South Africa

• Running a supermarket is not necessarily an easy way to make money.
• For many, it makes sense to buy into a franchise that can handle logistics and supply chain issues.
• But leading supermarket franchises aren’t cheap – and the application process can be tough.
• Here’s how much it costs to open your own Spar, Pick n Pay, Food Lover’s Market, or OK supermarket in South Africa in 2021.

A lot of money moves through South African supermarkets each year. Although it might seem like opening a supermarket is a reasonably logical way to tap into this, it’s a complex business dependent on managing supply chains and logistics – both of which are difficult to establish as an independent retailer. Big retail brands also have a tight grip on the real estate side of their business – and getting into malls and shopping centres is often dependent on having the backing of a national brand.

In cases like these, it might make sense to look to the clout buying power and experience of a leading supermarket chain – and many in South Africa are still actively signing up new franchisees.

However, a new supermarket franchise isn’t cheap, and most leading brands either avoid franchising altogether, keep a large percentage of their stores in-house, or franchise under secondary brands.

Pick n Pay, for example, only franchises roughly half of stores in their various formats. Woolworths, Shoprite, and Checkers don’t franchise at all. Woolworths stopped franchising its stores in 2010 altogether, and the Shoprite Group franchises only a small section of its market share via its OK Franchise Division.

Despite this, if you’ve always dreamt of running a brand-name supermarket – and you have deep pockets and experience in the retail industry – it’s possible to buy your own Spar, Pick n Pay, Food Lover’s Market, or OK supermarket.

Here’s how much it costs to buy a brand name supermarket franchise in South Africa:

Spar

Spar is a widely recognisable international supermarket brand with strong South African roots. It has more than 1,000 stores in South Africa. These stores collectively see an annual turnover of some R80 billion and roughly 48 million customers per month.

Spar has four store formats that cater to neighbourhood, bulk, convenience and township shopping brands.

Although Spar head office enforces specific rules and regulations for stores and provides start-up and ongoing support to ensure consistency across stores, unlike some of their competitors, their model allows for some flexibility in stock and management.

There are three ways to own a Spar store – buy an existing store, convert your current supermarket into a Spar store, or build your own from scratch.

Currently, the cheapest ground-up Spar franchise available is KwikSpar, which starts at R5 million. A regular Spar store costs upwards of R8 million. And a SuperSpar will cost at least R10 million.

In each case, 40% of this investment must be available as unencumbered cash. Retailers also pay a “guild fee” of 1% of the store’s average monthly turnover.

Food Lover’s Market

Food Lover’s Market dates back to Cape Town in 1993, where it consisted of a single store in a discount outlet centre. It’s since expanded to include 130 stores throughout Africa, with distribution centres in each South African province.

The Food Lover’s Group, which includes several retail brands like Seattle Coffee, Food Lover’s Eateries, and two liquor store brands, is open to Food Lover’s Market applications from new franchisees who have the cash and requisite retail experience.

Initial franchise agreements are valid for ten years. Although stores are independently run, the group’s model ensures continuity among the different franchisee branches.

A new Food Lover’s Market franchise costs between R8 and R12 million to set up, with an owner contribution of 50%.

After that, franchisees must also pay a franchise fee of 2% and a marketing contribution of 0.5% of turnover.

OK Foods

OK Foods started as a small independent supermarket, and the brand has since incorporated several others to become one of the biggest supermarket franchises in South Africa.

The Shoprite Group owns OK Franchise Division – and although the group does not franchise its Shoprite and Checker’s brands, buying an OK store enables franchisees to tap into the supermarket group’s distribution and logistics networks.

It’s currently possible to buy an OK Foods, an OK Minimarket, or OK Express. The Shoprite Group does not publicly divulge the franchise fees associated with opening these store formats. Instead, they state that costs vary depending on the brand, store stock, and any leasehold improvements.

However, several existing stores fall under their franchise department that are currently for sale. These include a Welcome 711 in Vredenburg for R1.5 million, an OK Grocer in Swellendam for R2.85 million, and an Everyday in L’Agulhas for R2.5 million.

Pick n Pay

There are more than 1,500 Pick n Pay stores across its various formats in South Africa – roughly half are corporate and half franchises.

Franchisees also make up a sizeable chunk of the group’s annual earnings – in 2020, the company declared that it made roughly R400 million from franchise fees alone.

At the latest count, 761 Pick n Pay stores are franchisee-owned. These include the group’s Supermarkets, Market, Express, Clothing, and Liquor brands.

Although the total number of Pick n Pay Supermarket franchises was down in 2021 versus 2020, this category still makes up most of the franchised stores in the Pick n Pay network. Pick n Pay opened 43 new franchises in 2021 but also converted several franchise stores into company-owned.

Although Pick n Pay does not publicly disclose the cost of establishing a new franchise, reports online indicate that it is not cheap. Costs vary according to the size and nature of the store. According to reports, you can, however, expect to pay between R10 to R13 million for a new Pick n Pay store, with at least 10% of this required as an upfront fee.

Prospective Pick n Pay franchisees must meet strict criteria, including undergoing an intensive evaluation and completing a training process before taking over a new store. However, as with other leading supermarket franchises, this enables owners to tap into the parent company’s logistics, supply chains, and other technologies.

Source: Business Insider South Africa – www.businessinsider.co.za