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Making The Match

The franchise business model offers opportunities for franchisors and franchisees alike – if the match is right. Tamara Oberholster looks at what makes a good match, and what opportunities are available in the South African market.
Image: Taste Holdings Image: Taste Holdings

Ask any South African to name examples of franchises, and the first to come to mind are generally fast-food businesses. But successful franchising takes place in many other environments, too. In fact, the petrochemical industry is still one of the biggest franchise players. “However, franchising is much broader than fast food and petrochemicals today,” says Harry Welby-Cooke, business coach and co-master franchisor for ActionCOACH in Southern Africa. “The industry continues to expand at above inflation-related growth, with many new industries going the franchising route.”

Service-related franchises have shown good growth in both the business-to-business service sector and business-to-consumer space. Here, things such as business coaching, business broking, automotive care or repair, a variety of pet-related services, childcare and education-related franchises are all experiencing good growth. Another growth area across sectors has been in the specialisation space, or where a niche concept has arisen in a traditional area.

“In the restaurant and fast-food space, things like Dunkin’ Donuts, Krispy Kreme, Starbucks and even tashas are all niche brands in their sectors,” Welby-Cooke says. “South African growth is also being fuelled by international brands entering the market.”

Carlo Gonzaga, CEO of Taste Holdings, says that franchising growth is also being driven in part by the way consumers are adapting to and adopting technology at a rapid rate. Taste Holdings opened the first Starbucks in the country earlier this year. Other brands in the stable are Domino’s Pizza, Maxi’s, Scooters Pizza, St Elmo’s, The Fish & Chips Co. and Zebro’s Chicken.

“With the advent of social media, consumers are connected to brands at the click of a button,” he says. “Social media, combined with technology, is driving businesses to be more responsive and connected to their customers. It’s a mutually beneficial relationship really. Customers are connected to businesses, and businesses have access to insights. They can now extract details like shopping frequency and product preference. These insights can guide campaigns and product development.”

Gonzaga believes that the desire for convenience increases demand for technology-driven businesses, which will assuage this demand. “We have seen this in our Domino’s Pizza business; customers love convenience and our online-ordering app speaks to that,” he says.

Sean Stegmann, CEO of Cash Crusaders, believes that with the high rate of unemployment in South Africa, franchising is a key driver of job creation and wealth.

“With the pedestrian economic growth, there should be greater emphasis on franchising and how this could realise meaningful growth for the economy,” he opines. “In America, some 50 years back, they were in a similar position after the war and they drove franchising to stimulate growth and employment. Today, more than 50% of US businesses are franchise concepts. In South Africa, this is about 12%.”

Cash Crusaders is a home-grown success story. The privately owned franchise concept now boasts 195 stores and has an annual turnover of more than  R1.4-billion. Stegmann believes its success is due to its three “profit centres”.

“Cash Crusaders is a recession-proof business that incorporates the buying and selling of second-hand goods, the selling of new house-brand goods, and a 30-day secured-loans offering,” he explains.

He adds that franchising allows one to grow one’s business footprint and scale more rapidly. “Owner operators with a financial vested interest work harder to make the business succeed than merely putting a manager in,” he says.

While a good franchisor/franchisee relationship can be a win-win situation, it’s important (as with any business) to go about it properly to increase the chances of long-term success.

How to evaluate an opportunity

Gonzaga says both franchisor and franchisee need to ask certain questions when investigating a potential partnership. “For the franchisor, it’s about making sure that you deal with individuals who are motivated, committed, and who are looking for an opportunity to grow,” he says. “Prospective franchisees also need to be prepared. Do your homework and know the business that you are about to operate. Engage with the franchisor – talk about your fears, your strengths and weaknesses, so that you are met with the assistance that you require.”

Stegmann adds that a good match rests on a shared understanding of the culture and honour of the brand, as well as the franchisee having an entrepreneurial mind-set, but being willing to work within the confines of the system.

“Invest in a franchise concept with a proven track record,” he advises. “Look at their prospectus and budgets carefully, and ask how many new stores in their group match up to the average budget/projection of income/profit. If they are not members of The Franchise Association of South Africa, I would ask why not. You should ask for references and then still phone/contact other franchisees who have not been given as references, to ask about the culture and success of the brand.

“While no franchise concept will be without the odd grumble, there should not be mass unhappiness among franchisees. A good question to ask is, ‘How many existing franchisees have invested in an additional store?’ Franchisees who invest in additional stores show faith in the concept and believe they can make additional profits instead of investing their money elsewhere.”

Welby-Cooke notes that investigating a  franchise opportunity should follow the same processes of looking into any potential  business opportunity.

The key, he believes, is to shop for verifiable value. “In my opinion, a good franchise offers turnkey systems for sales, training, marketing, accounting  and ordering,” he says. “A great franchise will also provide key performance indicators, metrics, and progress checklists, so that goals and roles are  clearly articulated and easily tracked.”

The “right” franchise is a quality franchise that is also a good match for your personality, goals, dreams and vision. “Buying a franchise is an investment with both financial and personal implications and repercussions,” says Welby-Cooke. “This means it’s critical that your decision is based on both short-term plans and long-range objectives.”

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