The growing franchise sector, which currently contributes nearly 10% to South Africa’s GDP, is defying sluggish economic conditions and will continue to provide sustainable business opportunities for entrepreneurs into 2014 and beyond, says Standard Bank.
“We are seeing that growing local opportunities, and international operators looking to South Africa to provide a springboard for their franchise operations into Africa, are pushing increased activity in the competitive franchising sector,” said Standard Bank’s Simone Cooper.
“Although there has been an increase in the number of international brands entering the South African market, locally-born franchises still dominate,” said Cooper.
“More than 88% of franchise brands in South Africa have been developed here, the majority since 1992, with the remaining 12% being accounted for by international brands. These international brands are represented primarily by quick service restaurants.
“The presence of international brands has increased by about 3.4% in the last three years as franchisors have entered South Africa with the intention of using the country as a gateway to Africa,” Cooper said.
Major franchising trends in South Africa
Research commissioned by Standard Bank also identified the following major trends in South Africa:
- Locally developed franchises creating organic business-growth opportunities in sectors that otherwise could have become saturated.
- The ability of the sector to create employment opportunities. When last measured, at least 518,266 people were employed within franchised operations. This represented an increase of an estimated 53,066 jobs in just two years.
- Expansion into rural areas, especially those where mining activity has increased and major infrastructure projects are the focus of local activity.
- The development of a mini-mall concept of different stores owned by the same franchisor being housed under a single roof.
- With working consumers becoming more ‘time starved’, there is a trend towards outsourcing services that traditionally would have been performed by individuals within the home.
- Women owning more than 33% of all franchised businesses operating within the education and training; health, beauty and body; and real estate sectors.
Looking into Africa
“The growth of franchises in Africa has been dramatic,” said Cooper, pointing out that a short three years ago, 138 franchised systems were operating on the continent – a number that increased to 182 last year.
Taking advantage of gaps in various markets has seen growth in sectors ranging from automotive services, business to business services, fast food to retail operations.
Although franchises are moving into Africa, South Africa still leads the pack of the ‘top 10 franchise countries’ on the continent. Ranked in order of their franchise appeal these countries are:
- South Africa;
Cooper said that South African franchisors are very active with just over 32% having expanded operations into the continent.
Standard Bank noted that the African Development Bank has estimated that 326 million people make up the middle class in Africa. The Bank estimates that African consumers will spend US$2.2 trillion on goods and services by 2030.
“The sector will continue to expand and offer significant employment prospects for thousands of South Africans. Africa, characterised by explosive growth of the middle class, will offer unrivaled future opportunities for local and internationally-based franchisors,” said Cooper.