'SA franchises should flourish'

Johannesburg - The franchise sector is becoming increasingly attractive to people as larger corporate businesses slash their headcounts, but one franchising heavyweight cautions against hype.

The Franchising Association of South Africa (Fasa), is positive as its members have reported an uptick in interest in the franchise model in the last few months.

Kevin Hedderwick, the CEO of JSE-listed Famous Brands that represents a number of leading franchises including Wimpy and Steers.

Hedderwick told Fin24.com that while demand for franchises remained strong, the reality of economic conditions were starting to hit home for South Africans and the franchising sector in general.

Hedderwick said: "The last thing you want to be is middle-aged, retrenched and gambling your savings on a franchise."

He also pointed out that a number of the people who were now looking at franchises were in fact "very shrewd businessmen" who would not be caught out by hype and would want to be confident they would see returns on their investments.

According to the Standard Bank Franchise Factor 2008 survey, about 531 franchised systems operate in the local market with close to 30 000 franchised outlets serving the public in over 17 different business sectors and employing over half a million people.

Fasa chairperson Kobus Oosthuizen says the franchising industry, as the dominant business format in small- and medium-sized enterprise (SME) development, "is continuing to foster its importance in the sustainability and growth of the South African economy.

"Across the globe small business is recognised as the safety net of any economy, and the recent downfall of many massive conglomerates has once again proven that point."

Fasa executive director Vera Valasis says the SA economy is expected to contract in 2009 but due to the "strong and reliable track record of the franchise industry, backed up by the recent results of the Standard Bank Franchise Factor 2008, the franchise sector should fare better than other economic sectors".

Hedderwick cautioned that franchising would not be immune to the global downturn as consumers' disposable income came under pressure: "Just because you have a good franchise brand doesn't guarantee success."

Trends

According to Fasa and its members, consumer habit changes caused by the global economic downturn have boosted certain businesses in the franchise sector.

• Big brother's backing: One of the trends that Fasa has identified is that many independent operators are looking to convert to more established franchise brands. Franchisees prefer to go with the backing of a larger organisation as markets get tough.
• Repair before replace: Instead of opting for new products, consumers are looking to repair things like vehicles or houses. Corrie Taljaard, business development manager for the H-Q franchise, said: "There is definitely a move by the public to 'repairing before replacing' - something one always sees in a recession."

  This was backed up by Louis van Vuuren, director of Talisman Plant and Tool Hire, who said: "We're seeing families with a new baby on the way opting to add on to their homes rather than buying a new one. Others are riding the property slump by renovating and improving their homes ahead of the next property boom."

• Outsourcing: Franchises servicing the business-to-business sector are also reportedly seeing an increase in business levels.

  For instance, many firms are opting to outsource their information technology and printing requirements rather than invest in their own infrastructure. This was a trend identified by Fin24.com technology writer Simon Dingle in a recent article.

• Bigger ticket items: In the food sector an interesting trend has also developed despite the pressure on the consumer's wallet.

  Ocean Basket marketing manager Brendan McGhee reports a marked change in consumer behaviour: "We've noted frequency of visitors has declined, but ticket sales have grown significantly. So while people are cutting down on how often they eat out, when they do they are buying up and really making an event of it."

Franchising appears to be a popular topic with the Fin24.com My Business community. Give us your input on the findings of Fasa and its members, and let us know if your experiences are the same and whether the franchising model appeals to you.

- Fin24.com