Looking Forward, Looking Back

Back in 1962, George Halamandaris set up a steakhouse in Johannesburg. Three years later, he sold the first franchise – and 50 years after that, it had expanded into a franchising empire, one of several widely popular brands operating under the Famous Brands umbrella.

Working alongside Halamandaris was Allen Ambor, another godfather of the South African franchising industry, whose brainchild Spur also went on to become one of several well-known brands within a flourishing group.

The success of these early franchises points to the fact that South Africa is a market that has embraced franchising.

More than that, we have had the innovation and entrepreneurial flair to develop several brands and new business models that have gained traction the world over.

The only way is up

Indeed, according to franchise expert Kurt Illetschko, the industry is currently thriving.  In a report titled ‘The status of franchising in South Africa’, released in December 2015, he noted that there are presently around 700 franchised systems in operation, owned by  about 40 000 franchisees.

The industry provides employment for a total of 329 000 individuals. Illetschko further  revealed that, in 2014, franchises recorded sales of R465.27-billion, thereby contributing 12.5%  to the country’s GDP.

So the industry is sizeable; more importantly, it’s stable, too. Illetschko references research undertaken by The Franchise Association of South Africa (FASA), where 75% of respondents said that they had been in business for longer than six years; 61% had been in business for longer than 10 years. And three-quarters of respondents said that they had managed to break even after their first year of operation.

Based on this success, 37% of franchisors  have already laid down roots beyond South Africa’s borders, while one in two franchisors that have not yet expanded internationally has plans to do so – most likely to the United Kingdom, United Arab Emirates, Mauritius, Australia or New Zealand, as well as neighbouring African states. Interesting, too, is the spread of franchises across business sectors. According to Illetschko, franchisors are active in 17 business sectors; the most prominent of which are fast food and restaurants (where 24% of franchises are active), retail (12%) and office and home services (11%).

Halamandaris could not possibly have known that the industry would grow to this extent when he planted its first seeds all those years ago.

Back then, the franchise systems he introduced were basic, to say the least – the sophisticated checks and balances ensuring that the interests of franchisor and franchisee alike had yet to be devised. As Illetschko writes, “Anyone who could fog up a mirror and make the necessary investment was accepted as a franchisee. There was no master plan for the development of the brand, either.”

Back in time

Spur took a little longer to join the franchising scene, opening its first franchised branch in 1971. These local pioneers were later joined  by international brands Wimpy (a UK concern that has since been acquired by Famous Brands) and KFC.

By 1978, franchises had made their mark in areas other than fast-food outlets and restaurants. More international players had entered the market, including the likes of Putt-Putt, Manpower (a personnel specialist), Holiday Inn and Pizza Inn.

The industry was becoming well populated by local concerns, too. Besides the frontrunners, there was Minit Print (printing specialists that came on board in 1971); Captain DoRegos; Juicy Lucy; Yankee Kitchens; Econo-Wash laundries; Mike’s Kitchen; Hillrand Brokers; Video Rent; Swiss Miss retailers; Exhaust Shoppe; and The Purple Cow ice-cream shop. While some of these names remain familiar, others have since fallen away, and others have adopted a new format.

However, by the time the 1980s rolled around, there was a hiatus in the entrance of international players; the reason, of course, being sanctions. Far from working to the industry’s detriment, this meant that South African operators were encouraged to flex their creativity and develop their own concepts. Nando’s is a case in point. It wasn’t only founder Robbie Brozin’s now famous peri-peri recipes that were considered revolutionary, but also the franchise model, which saw Nando’s retain a controlling stake in the franchise – which, itself, was granted to a registered company operating as a joint venture.

Another spur to the industry’s growth at this time, writes Illetschko, was the acquisition of going concerns as international companies moved to cut ties with South Africa. Significant numbers of local entrepreneurs saw the opportunity – and grabbed it.

As a result, a number of industry sectors  were well represented by franchisors by 1990. Illetschko lists these as automotive; building-repair services; business-to-business services; childcare; education and training; entertainment; fast-food outlets and restaurants; health and beauty; personal services; and real-estate services.

Conclusion

The passage of time has proved the robustness of both the industry and its players – and, Illetschko is convinced, there is room for still more growth and expansion. He argues that the model is particularly well suited to the South African context, which cries out for participation from entrepreneurs.

There remain, however, several challenges, which he has identified as a shortage of qualified prospects, access to suitable sites and access to funding. These obstacles could possibly be addressed with greater industry regulation, as well as the introduction of new formats, such as social and micro franchising.

These measures would assure the further evolution of the industry, and secure an even brighter future.

The Spur story

Allen Ambor’s Golden Spur opened its doors in Newlands, Cape Town, in 1967. The steakhouse’s popularity encouraged the entrepreneur to start an additional branch in Sea Point. Then, in 1971, he sold his first franchise to an operator in Bellville.

“There’s no doubt that Allen was one of the food franchise pioneers in South Africa,” says current CEO Pierre van Tonder.

He notes that the earliest Spur franchisees were not subject to the rigours that face today’s applications – but the franchisor did not have as many responsibilities, either.

“Back then, your purchase of a franchise basically entitled you to training and recipes,” Van Tonder says. “Today, franchisees purchase a sophisticated package, which is regulated by the Consumer Protection Act and overseen by the Franchise Association of South Africa. We require that all would-be franchisees undergo a thorough process, which minimises their risk and ours, while our duty includes complete disclosure. We provide guidelines on everything – from setting up a business plan to the amount that franchisees can borrow from the bank – with the idea being that the more information they have, the more successful they will be. And we really do aim to set them up for success.”

Success is something the group knows a lot about: from its single entity, it has developed into a group of 575 stores, including 283 Spur Steak Ranch outlets in South Africa. Spur International, meanwhile, operates in 13 African countries, as well as Mauritius, Australia and soon New Zealand, Oman and Saudi Arabia.

The group now also encompasses a number of other brands, such as Grill and Go, Panarottis, John Dory’s, Captain DoRegos, Hussar Grill, Casa Bella and RocoMamas.

Spur founder, Allen Ambor

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