Despite South Africa’s economy expected to face significant pressure over the coming year, franchising is one sector that has consistently shown its resilience according to Absa.
Absa’s ‘s head of franchises, Dumisani Bhengu, said that the trend is expected to continue for franchisees and franchisors in 2017, as indicated by a recent Franchise Association of South Africa (FASA) sector survey.
“While there will undoubtedly be ‘winners and losers’ in the increasingly challenging competitive landscape, there are several sub-sectors of franchising that are projected to show substantial growth in 2017,” said Bhengu.
“My predictions are that the biggest trends of 2017 will take place in these areas: health, beauty and body culture; crowd-sourcing; restaurant and coffee shops; child-care and entertainment; and the used vehicle market and auto services sector.”
Below are Bhengu’s top five franchise industry trends in 2017 and why he expects them to do well.
Lipstick and luxury cosmetics
According to Bhengu, “the lipstick effect theory” is based on the notion that when facing an economic crisis, consumers will buy less costly luxury goods – meaning they will largely switch from the non-essential (nice-to-have) to the essential (must-haves).
However he noted that the the healthcare, beauty and body culture sector challenges this theory, as sales show continued growth even in times of economic down-turn.
“Research published in the Journal Personality and Social Psychology in 2012, for example, illustrated that L’Oréal saw its sales grow 5.3% in 2008 – and linked the growth to a pre-historic urge to preserve the species.”
“According to 2016 FASA research, the healthcare, beauty and body culture sector accounted for approximately 5% of the total franchise sector and this is predicted to increase going forward.”
“With the rapid and continuous advancements in technology, it is certain to open up opportunities for crowdsourcing in franchising,” said Bhengu.
“Crowdsourcing also has the potential to leverage the growth of the “multi-unit franchising” trend – when a franchisee owns many stores and runs them like a corporate business – which according to FASA continues to gain traction in the South African market.”
Restaurants and coffee shops
“Statistics South Africa recorded steady growth in the restaurant and coffee shop sector, which in 2016, according to FASA, made up the largest portion of the franchising sector at 20%. Income increased by 4.5% year-on-year in May and was up 4.7% from April,” noted Bhengu.
“Continued demand and the emergence of ever-greater numbers of competitors ensure that the sector will provide no shortage of opportunities for savvy entrepreneurs in 2017.”
Childcare and entertainment initiatives
Childcare currently makes up 10% of the franchising sector, reveals FASA, and entertainment is a critical component of childcare.
The rise of initiatives that incorporate both childcare and entertainment in safe and supervised environments has grown in recent years– and is set to continue to evolve in the next year. This is due to growing customer demand.
Used vehicle market and auto services sector
Based on statistics released by the National Association of Automobile Manufacturers in South Africa (NAAMSA) the new vehicle market throughout 2016 have corroborated the difficult operating conditions, characterised by double-digit or near-double-digit year-on-year declines.
“While this is negative for economic growth, it provides an opportunity for the auto services sector of the franchise industry,” said Bhengu.
“Statistics indicate that people are keeping their vehicles for longer and possibly outside of the motor plan contract requiring services from companies like Goldwagen, which bodes well for the franchise Industry.”