The Franchising Landscape
Since 1979, when well-known brands such as Wimpy and Steers began pioneering franchise development, South Africans have enjoyed over half a century of working with a franchise system that has extensive information, favourable law, transparent sales, and many other attractive qualities that make starting a business in the country not only relatively risk-free, but lucrative too.
Should You Buy a Franchise?
There is plenty of variety if you are wanting to find a franchise to invest in. Some of the benefits of purchasing a franchise include:
- You don’t have to get the business up and running. When you buy a franchise, you are essentially buying a turnkey business that can start generating a profit from day one.
- You’re buying into a well-known brand. You pay a royalty in the form of licensing fees to the franchisor which is used to cement the brand’s reputation through marketing campaigns with national reach.
- It’s easier to secure a bank loan. Franchise owners are less likely to default on their loans and so bankers look more favourably on financial lending to a business owner wanting to buy into a franchise than they would an unknown start-up.
- There’s a proven system in place. Everything that works has been distilled into an operations manual that clearly articulates what to do in any given business situation.
- You’re on your own, but you’re never alone. There’s plenty of training and support for when you get started, and the franchisor remains in communication with you as your business journey unfolds.
Due consideration then needs to be given to which franchises work best in the local South African environment.
Find out more: Need help pitching yourself to a franchisor? Learn how to stand out from other franchisees.
What Makes a Successful Franchise System?
As you start scouting for the right franchise to form an association with, consider these 10 elements that make up a good franchise system:
- The system is clearly defined. All the information you need for success is detailed in a comprehensive business format.
- The service or product already exists. You are following a system that will create the right conditions for you to then create the same successful product or service, repeatedly.
- A history of success. A successful franchisor should be able to point to other franchisees that have enjoyed success through their mutual association.
- Clear financial records. The potential franchisor should be able to show financial statements that clearly reflect the business potential. Likewise, if you’re wanting to explore how to franchise your small business, solid financial statements are a must.
- Licensed trademark. You will be paying royalties to license the appropriate branding and marketing. If you are buying a franchise with an international opportunity, you must ascertain what trademark protection the franchisor has sought through the law.
- A reputable brand. The company’s reputation in the public arena can affect the franchise owner. For example, the recent public backlash against Shell Oil and their plans for seismic blasting along the Wild Coast would have, by association, adversely affected Shell garage franchise owners.
- Appropriate market penetration. Starbucks is, strictly speaking, a licensor and is a relatively new entry into the South African coffee franchise market. They first found success through ‘cluster marketing’ (opening several stores in one area). If you are living in a small ‘dorpie’ with no good coffee, there might be room for you to grow the brand and own a few franchises before market saturation is reached.
- Size is crucial. If the franchise is well-established, there will undoubtedly be massive cost savings that will get passed onto you on account of their bulk buying.
- Wider range. Especially in the restaurant industry, there exists a greater opportunity to have more items on the menu than if you were starting a restaurant on your own and trying to source a wide range of ingredients that could be regularly supplied to you.
- Location, location, location. Often a franchise opportunity will present itself in a pre-existing location that has been carefully vetted by the franchisor with all the relevant information on footfall and the likelihood of it becoming a successful business at their disposal.
The power of the franchise model to generate sales for you in Mzansi is not in dispute, so let’s turn our attention to the type of industry that you may want to consider.
Choosing a Franchise that Suits You
Explore the market and understand the demand and competition of a particular franchise
Now is the time - before you get swept up in the business’s day-to-day - to take a measured, objective approach. First, research the competition and understand the demand that exists in any potential industry before rushing in and wasting your time and money. Understanding the market from a macro perspective (for example, war in Ukraine affecting the oil price) can also inform your choice of industry.
A franchises’ potential and brand reputation
Where is the franchise in terms of its lifecycle? Is it a fashionable brand that is just gaining industry traction? Or is susceptible to the court of public opinion, as highlighted earlier with Shell?
From Steinhoff to the Guptas, South Africa has had its fair share of business scandals in recent times and a franchises’ financial backers should be investigated before you go into business with a brand that carries any palpable risk of losing its good reputation.
What type of industry do you want to consider?
Traditionally, fast food restaurants have served as the blueprint for a successful franchise business in South Africa.
Since the pandemic and strict lockdown levels took their toll on local South African restaurants, one might consider online options and service industry-related franchise opportunities instead, including mobile dog grooming units and domestic cleaning agencies.
Calculating the franchise fee and checking your budget
If you’re searching for ideas and industries to explore, there are various types of franchises available in a wide variety of industries that can spark the imagination for your next big business move.
Once you’ve got a potential franchise in mind, establish your budget by calculating how much cash liquidity you have, how much you can borrow from the bank, and what you’ll still need to afford the upfront franchise fee.
Training and support
Who is the team likely to run your franchise? If you’re taking over existing staff, do you have the personal skill set to manage things from an HR perspective?
Owning a franchise – even a turnkey business – requires a lot of time spent at the business ensuring that things are done according to the franchise format or business model that you’ve signed up for. You’ll need to lead by example as you manage your team by putting in the required hours to ensure that the franchise is a success.
If you are wondering how to franchise your small business, the same attention to detail (and then articulating those details) applies. The right training and support need to be given to allow the franchisee the best chance at success. The way that the business operates – its trade secrets – need to be dispensed with in a disclosure agreement.
Sorbet would be a good example of a South African beauty salon franchise that emphasizes its “critical care” approach and the way that it trains its nail technicians to offer the best treatment.
Conversations with current franchisees
You should feel empowered to strike up conversations with current franchisees and understand some of the potential pitfalls when buying into a franchise, or considering starting one of your own.
Understand the franchise network
Franchising can create jobs, foster entrepreneurship, provide education, and create a valuable transfer of skills.
There is a well-established franchise network in South Africa that is spearheaded by the Franchise Association of South Africa, with a specific focus on transformation that lobbies for ethical franchising across all business sectors in the country.
Understand the franchise agreement
As you near the end of your search for the perfect franchise, you must scrutinise the franchise agreement. In this light, the disclosure agreement is your ally as the Consumer Protection Act of 2008 legally compels the franchisor to disclose all information about their network, their finances, their background, as well as the management service or royalty fees.
This separates the hype and allure of the franchise from its daily operations, painting a clear picture of what you are getting yourself into. Is there a history of litigation? If so, steer clear! How are disputes resolved, and what are the reasons that a franchisor can give to terminate your agreement?
While this may sound overwhelming, it is part and parcel of performing due diligence before buying into the right franchise for the right reasons – giving you the best shot at lasting success.
Find out more: Want to know more about the franchise agreement? Read our guide to find out what it is and why it’s important.
Some Top-performing Franchises in South Africa
These are a few successful businesses that deserve special mention when it comes to evaluating the best franchises to own in South Africa:
The number one ranking brand in Africa for the past three years running (2019 to 2021) according to the Loeries. You know that you’re getting great viral marketing value for your licensing fee. Their ad agency, Joe Public United, is creating memorable adverts that live long in the consumer’s mind, reminiscent of Nando’s in their heyday.
The brand that made franchising what it is today globally requires a hefty buy-in of around R7.5 million in non-borrowed personal resources – proof that proven profitability comes with a price tag!
For between R200,000 and R600,000, you can own a King Pie kiosk in a shopping centre or an express unit in an outside area such as a taxi rank. Trailers, tuk-tuks, bicycles, and other more cost-effective mobile units are also available.
With nearly 3,000 service stations across Southern Africa, Engen is one of the fastest-growing service stations with convenience partners that include Woolworths, Wimpy, Steers, and Debonairs.
Finding the Perfect Franchise
Once you’ve defined your personal goals and cross-referenced them with the research you’ve found online and the anecdotal evidence you’ve acquired from chatting to people in the franchise network, it’s time to explore the right franchise opportunity for you.
BusinessesForSale.com is with you on this journey of discovery as you learn all you need to know about the ins and outs of franchising in South Africa.
If you have a franchise question, please don’t hesitate to get in touch with us.