The South African franchise industry has evolved to become a substantial contributor to the local economy. While current economic conditions remain fickle, the South African franchising sector remains optimistic for 2016.
Morné Cronjé, Head of FNB Franchising says, “In South Africa, the franchise industry has remained solid despite challenging economic conditions and the country remains attractive to local and international franchise brands. The South African franchising sector is made up of 88% home-grown concepts and there are more than 600 franchised systems operating withover 31 000 franchised businesses and employing just over 320 000 people countrywide.”
Cronjé says that as a result, it is critical that this integral part of our economy assists in achieving sustainable growth in employment, generating foreign direct investment opportunities, innovating and disrupting traditional business models and generating growth.
South Africa’s economic growth has been exceptionally weak in recent years and the weak growth environment is likely to persist, with economic growth expected to average at 1.2% this year. However, a lot of the weakness is concentrated in the mining sector and the supply chain linked to that. There are sectors that have the potential to grow.
According to the Franchise Association of South Africa (FASA), franchising is involved in up to 75 business sectors in countries like the USA, Canada and Australia; while here in South Africa franchising is found in only 17 business sectors, indicating significant future opportunity.
Cronjé says that in order to continue to do business in 2016, a rejuvenated business environment is key to ensuring the survival and growth of many franchises. “Currently franchise businesses, big and small face many challenges. We are seeing slower economic growth, increased unemployment, new regulations, imposed water restrictions and labour unrests – all these factors increase the cost of doing business and make it difficult to justify new investment opportunities.”
There is also evidence of increased pressure on the consumer and people will be more selective on how they spend their money.
“Consumer confidence is low. Consumers are mostly negative about South Africa’s economic outlook and as a result don’t see the present as an appropriate time to buy durables. In other words, consumers are adopting a defensive stance. This suggests weak growth in household spending, particularly on durable goods,” says Cronjé.
Franchises therefore need to continue to innovate and adapt to changing market conditions to ensure that they stay abreast of changing times. At the same time, businesses have become more risk averse but are willing to take calculated risks to grow and develop their businesses.
“An aggressive strategy that focuses on the franchises value adds, the customer’s needs and wants, innovative products and solutions needs to be looked at. In order to capitalise on new investment opportunities, franchisees and franchisors must continually invest in developing and assisting new talent in the market,” concludes Cronjé.