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Johannesburg - The franchising sector is seeing a growing trend for franchisees owning more than one store in a region, but this presents challenges for all parties, say industry experts.
"Multi-unit franchising is one of the hottest trends in the sector at the moment," said Elana Korar of consulting firm Franchize Directions.
Korar and a number of leading franchise players were speaking at a presentation in Sandton on Thursday.
With economic conditions deteriorating across the globe, franchisees and franchisors have to carefully manage their relationships. Weaker franchisees are feeling the pinch, while strong multi-owner operations are enjoying increased pull within the franchisor/franchisee relationship.
Clint Hanley, who handles franchising activities for cellular operator Vodacom, said: "The playing fields have changed completely."
Vodacom operates 179 Vodashops nationally, and about 30% of the stores are run by franchisees who own more than one operation.
BSc success stories
Hanley believes that while the multi-owner model does present some benefits - including economies of scale - there are challenges prospective owners need to be aware of.
One of the areas Hanley identified was the case of "the tail wagging the dog" - when franchisees begin dictating terms to the head office. "You start to see apathy creeping in and a loss of focus from franchisees," said Hanley.
John Baladakis, an owner of multiple Pick n Pay franchises in South Africa, said: "When the franchisor walks into a single store owner's shop he is the boss; when he walks into a store where the owner operates multiple franchises he is a partner."
Baladakis described the ideal multi-franchise owner as somebody who is entrepreneurial, energetic, hungry and "bored" with the idea of managing a single operation. "They're the people who have earned a BSc - behind shop counter - degree and are always coming up with ways for franchisors to do it better."
Gerald Brown, who is both a franchisor and franchisee of Captain DeRego's, said: "There are limitations to the way you can grow your business as a single-unit franchise." Brown said his operation has been successful because he is able to "duplicate the same system".
"The benefits significantly outweigh the risks," said Alastair Gledhill of Yum Restaurants International, which represents fast food brands like KFC and Pizza Hut in South Africa. Gledhill pointed to procurement and supply chain operation benefits to those with proven success as multiple franchise owners. He also said: "You become a more attractive tenant to landlords and are more attractive to quality staff."
Hands-on
One of the emerging trends franchise operators are noticing is that tougher economic conditions force franchisees to return to a more hands-on approach.
During boom times, owners often delegated management tasks. Those owners are now becoming aware of problems within their franchise which were not obvious when business was flying.
Baladakis said: "You have to be hands-on when operating your franchise."
He said that he and his management team visit each of his franchises daily to ensure that standards are maintained.
Hanley added that managers in good times often found themselves sitting on prime sites but had lost the "aggressive streak" which had made them effective investors in the franchise model in the first place.
- Fin24.com
