An Overview of the Franchising Industry
Franchising is a popular method of business expansion and acquisition. All franchising agreements will have two main parties: the franchisor and the franchisee. Simply put, franchising is the act of one party (the franchisor) licensing the rights to another party (the franchisee) to own and operate a business or brand.
Although franchises can be created in any sector, two industries dominate the franchising landscape in South Africa: the fast-food and restaurant industry (about 26% of the market) and the retail industry (about 18% of the market).
According to the International Trade Administration, South African franchises turnover approximately R730 billion per year ($49 billion). Additionally, South Africa ranks in the top five countries world-wide according to the country’s economic output as a GDP percentage (15.3% in 2017).
Find out more: Not sure which franchise you should invest in? Learn how to choose the right franchise.
Reasons Why Franchising May Be the Right Choice For You
Franchising provides unique business-related advantages to franchisees. From receiving training from franchisors, to tapping into an already existing customer base, South African franchisees are reaping the benefits of the franchise model.
Affordability
When it comes to the cost of purchasing a franchise, it is important to take into consideration what the expected annual profit from operating the business will be. Will the annual profits cover the cost of purchase, and will the business ultimately be profitable and viable?
Postnet, an established and well-known graphic design and printing business, offers franchisees the opportunity to own their own Postnet store from around R800,000. This amount includes the franchise fee. There are around 400 Postnet retail stores that are owned and managed by franchisees in South Africa, and according to research, these stores combined generate annual revenue of around R750 million.
Sense of ownership
By purchasing a franchise, not only do you gain the rights to the franchises’ brand name and existing customer base, but you also gain official rights to the ownership of your franchise business. Some franchisors offer their franchisees an extra sense of ownership by offering benefits.
Sandwich Baron allows their franchisees to sell special menu items of their choice. All franchisees will be required to have a standard Sandwich Baron menu, but individual franchise owners can choose to add seasonal menu items that are currently in demand, such as vegetarian options.
Scalability
Whilst some franchisees are looking to only manage one franchise store at a time, other franchisees prefer to scale their operations as time goes by through opening new stores in new locations, and perhaps even offering new products or services.
Wimpy allows franchisees to scale at their own pace and desirability. With one of the highest numbers of franchises in South Africa, Wimpy is continuously looking to grow their presence.
Security
Franchises offer franchisees a sense of security in terms of receiving stable revenue. Franchises already have existing processes and business plans in place that have proven to be successful. This means that a franchisee has a higher likelihood of succeeding with a franchise rather than starting their own new business.
Internationally renowned brand (for some franchises)
Franchises which operate globally and have a brand presence worldwide are more likely to attract consumers who are brand-conscious, as well as tourists visiting South Africa.
One of the most well-known brands in the world, McDonald’s, is (of course) popular in South Africa. McDonald’s also has franchise opportunities in over 100 other countries.
Work with a growing brand
Purchasing a franchise with a growing brand allows the franchisee to maximize their return-on-investment. Growing franchises may offer franchisees the opportunity to purchase a franchise at a relatively low price. This, coupled with the expected growth rate of the growing brand, should result in the value of the franchise reaching a much higher level over time.
Receive training
One of the greatest advantages of buying a franchise is that the franchisee will usually receive training in terms of how to run and manage the franchise efficiently and successfully.
The Fish & Chip Co, one of the fastest growing fast-food fish franchises in South Africa, not only provides training to their franchisees, but they make this training compulsory so that all franchisees are adequately equipped with the necessary skills to manage their franchises. This training includes a five-day program that covers a variety of different topics, such as managerial skills and day-to-day operations.
Talk to an expert when needed
Franchisees have access to industry experts when they require advice or guidance. These industry experts will usually either be the franchisor of the franchise, or externally hired consultants. The franchisee will be able to receive advice and guidance on a variety of different topics related to their franchise, including but not limited to marketing and finances.
Faster expansion
A franchise which provides a service or product which is currently in high demand will greatly increase the chances of faster expansion and growth for the business.
With the effects of Covid-19 still lingering within the South African business environment, it is no surprise that local entrepreneurs are seeking assistance when it comes to getting their businesses back on track.
Business Doctors is a small business consulting and coaching business that offers small South African businesses professional guidance and advice on how to scale and grow. Business Doctors also offers interested investors a franchise model opportunity of their business.
Less recruitment
Franchises often provide new franchisees with employees who will work at the new franchise, or they assist franchisees with the recruitment process. Therefore, instead of spending time and money on recruitment activities, the franchisee can focus these resources on other business-related functions.
Higher market penetration
Market penetration can be defined as the number of products and/or services that are purchased by consumers compared to the estimated total market availability of that product or service.
With more than 85 existing stores in South Arica and a strong well-known brand, Cash Converters provides their franchisees with a high market penetration. This high market penetration rate is also emphasized by the fact that there aren’t many secondhand and personal financing retail stores that are franchised in the South African market.
Start off with a helping hand
Whether it be financial, compliance or even marketing assistance, many South African franchisors lend a helping hand to new franchisees. Since franchisors have experience in running the same business model and brand as new franchisees, they will be able to provide different valuable tips and assistance where possible.
Guidance on finding a location
Location is key to any business. This is especially true for franchise businesses, which often operate in very competitive industries. The Bed Shop offers helpful assistance to their franchisees to search for and secure a store location that has footfall, and that fits the ambience of the brand.
More control
Franchising opportunities offer franchisees a sense of control over a business. For the most part, franchisees are free to control, manage, and run their franchise with a degree of autonomy. However, this is not to say that a franchisee can run the business as they wish.
The franchise agreement will outline the obligations and requirements of a franchisee.
Find out more: Need help pitching yourself to a franchisor? Learn how to stand out from other franchisees.
Franchising: Your Route to Business Ownership
South Africa’s business environment is conducive for franchise development and growth. Furthermore, South African consumers are accepting and indeed attracted to local franchises.
Although the food industry dominates the local franchise scene, there are great opportunities for investors and aspiring franchisees to purchase exciting franchises in a wide range of industries.
Franchising is a tried-and-proven business concept where all parties involved benefit. New franchise opportunities are constantly presenting themselves in the market, providing new product and service offerings to the public.
Interested investors or entrepreneurs who are looking for more support and guidance can contact our team at any point.