Johannesburg - The South African franchising industry is seen as a key business driver in both the public and private sector, but the industry is not without challenges and South Africa lags behind the rest of the world in the sector.
According to the FNB Franchise Think Tank 2009 - a research report that outlines the challenges and opportunities in the industry - the retail market share of the franchise sector continues to hover around 12% of retail sales, which is rather modest if compared with the figure for the US, which stands at over 50%, or Australia at about 25%.
"We can only conclude that we are somewhat lagging behind," the report said.
According to Riaan Fouche, head of franchising, FNB embarked on a research report in collaboration with consulting firm Franchising Plus, to understand the key issues in franchising in South Africa.
Prominent role-players in the franchise sector attended a workshop to discuss current burning issues such as the economic downturn, pending changes in legislation and high rentals.
This was an interactive event held towards the end of February 2009 and enabled representatives of leading franchisors, franchisees, government and service providers to discuss the current status of the sector, debate potential threats and available opportunities and develop ideas on how to make the best of the existing situation.
The results of this session together with results of a Franchisee Climate Survey were developed into a white paper covering the state of franchising in South Africa and potential solutions to the challenges faced by this sector.
Participants were asked to complete a questionnaire, and analysis of the responses provided fascinating insights into the current thinking of the sector, said Fouche.
"Some of the interesting statistics include that 37% of franchisees didn't deem financial training provided by franchisors as sufficient. Also, 40% of franchisees
thought that initial assistance provided by franchisors did not meet their expectations," he added.
Franchisees were also dubious about the ongoing support provided by franchisors, with 35% not perceiving the value of these visits.
On the other hand, 55% of franchisees polled agreed that they would renew their franchise agreements and 35% wanted to establish further units of the same franchise.
This is in line with the international phenomenon of multi-unit franchising, where one franchisee owns multiple units of the same or different non-competing franchises.
In terms of the economy, 42% of franchisees were planning to make significant changes to their businesses in 2009, which could point to their assessment of the impact of the economy on their businesses. Franchisees also raised the impact of the
economy as a burning issue of concern, together with inadequate training and lack of transparency on rebates.
One of the critical issues in franchising at present is the high rentals paid to shopping centre landlords.
The report said that despite a tough economy and some roadblocks preventing growth, it's not all doom and gloom. The white paper also illustrates some growth scenarios. If franchising can grow by 15% a year in terms of turnover and number of franchises, the sector could double within five years, it noted.
The ultimate objective of the FNB Franchise Think Tank is to develop task teams to address the various issues raised. By doing so, it is hoped to elevate the industry and to achieve real growth in franchising.
The plan is to make the Franchise Think Tank an annual event and to involve all stakeholders in planning for the future of franchising in South Africa, concluded Fouche.
- I-Net Bridge