Why franchises are doing so well in South Africa – despite the poor economy

Over the past four years the franchising sector has displayed resilience, consistently growing its contribution to the country’s GDP from 9.7% in 2014 to its present contribution of 13.3%.

This upward trend is most likely to continue despite the lackluster economy, according to the latest Franchise Association of South Africa (FASA) report.

The report found that the 13.3% growth in the sector is due to the fast foods and restaurant category, which accounted for 25% of the jump.

This was followed by the retail sector, and the building, office and home sector.

  • Fast Foods and Restaurant category (25%)
  • Retail (15%)
  • Building, Office, and Home Services (13%)
  • Childcare and Education (9%)
  • Training and Automotive Products and Services (9% )
  • Health, Beauty and Body Culture (8%)
  • Other categories (5%)

Morne Cronje, head of franchising at FNB Business, said that the growth in the franchising sector has a great deal to do with the provision of impeccable quality service.

“Business owners cannot control what happens in this economy,” he said. “However, the growth that has been experienced may speak to how well businesses have exploited the bits they can control – a good indicator of this is customer experience inside the business.

“This trait, in my view, is the chief foundation for succeeding in franchising.”

 

This was echoed by Gerry Thomas, MD of Krispy Kreme South Africa, who said that the familiarness and efficiency of franchises plays a big part in being successful in a poor economy.

“Consistency and value drives consumer purchase decisions in a tough economic climate with well-known franchises fulfilling these considerations,” said Thomas.

However, franchising is not fool-proof, and business owners still need to know what they are getting into, Cronje said.

“Franchising is still a business – even though there’s a 90% success rate, there is still a 10% chance of failure. As a result, aspiring franchisees and franchisors need to do their homework before venturing into franchising,” he said.

Brian Altriche, founder at RocoMamas, said that franchises are only as good as the operator and hence still fail if poorly managed.

However, due to the trust consumers put into a brand when spending money – more so during an economic downturn – the franchise model works by allowing peace of mind to the consumer of having a similar experience as they had at another location of that franchise, he said.

“It is the sharing of brand equity across a region and constant innovation that separates franchising from the average independent.”


Read: How much its costs to open a top franchise in SA – and how much you can earn

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