Franchise sector resilient despite SA economy

Cape Town - Despite the downturn in the SA economy, the local franchise industry continues to grow - although not at the same pace seen in previous years.

This became clear from the 4th independent survey on the contribution of the industry, which was done for the Franchise Association of SA (Fasa) and sponsored by Sanlam. The findings of the survey were discussed at an information session in Cape Town on Wednesday.

Most franchisors (92%) are optimistic about future growth in their businesses - consistent with findings from previous years. Four out of five franchisors have been in business for more than six years and 54% have been in business for more than ten years. According to Fasa this shows the sustainability of these businesses.

At the same time the number of businesses classifying themselves as in the "turbulent" phase of operations, has doubled.

According to Kobus Engelbrecht, marketing head of Sanlam Business Market, it is encouraging to see that many franchisors have an eye to securing the future. One in three respondents indicated that they are protecting the future of their franchises by incorporating financial planning and 70% have made provision in case of ill health or frailty.

What is of concern, in his view, though, is that the survey found a marked decrease in addressing staff benefits.

The Fasa 2016 Franchise Survey confirmed the tenacity of the sector despite current economic conditions. Franchise systems increased by 132 757 - a growth of 21%. Franchise outlets grew 13% from 31 050 to 35 111 and total turnover increased by 6% to R493bn.

The increase in the number of franchise systems and outlets could be attributed to the number of new and international brands establishing themselves in SA over the past two years, according to Fasa chair Naas du Preez of Oasis Water.

The slow-down in growth in turnover also reflects in the finding that it now takes a bit longer for a business to break even. The potential for growth, however, remains strong and franchisors remain very optimistic.

One in four franchisors estimate it takes up to six months before a new franchisee breaks even and a further 47% said it could take up to a year.

The survey shows the franchise sector's ability to identify challenges and adapt to changes. This year's survey shows the poor economy, cash restraints and competitiveness as the greatest concerns for franchisors. One in two franchisors said they plan to expand outside SA, mostly to neighbouring countries.

At the same time they identified the importance of having the right franchisees and staff in place to retain and capture customers.

The largest franchise system in SA is the fast food and restaurant category (27%), followed by the retail sector (15%), building, office and home services (12%) and childcare, education and training (11%).

About 57% of franchisors have business units or stores in shopping centres and 54% have them in high streets. A quarter of franchises are operated from a home base and only 17% are in industrial areas.

The survey respondents indicated that the average amount of working capital required when buying a franchise is about R634 000.