Franchising In The Age Of COVID-19
With South Africa already facing a recession before COVID-19 hit, businesses have been feeling the pinch like never before – and even tried-and-tested franchises are no exception.
Business owners, franchised or not, have had to come up with creative ideas to remain sustainable. Some franchisors opted to lower franchisee fees during the lockdown, while others helped renegotiate leases with landlords.
Sean Stegmann, CEO of Cash Crusaders, says the second-hand goods chain rolled out digital sales channels during lockdown. “We’d been working on a digitisation strategy for some time now, which includes an e-commerce and WhatsApp commerce service. The pandemic forced us to roll this out sooner than planned, but it’s already working well.”
This is one of the reasons Stegmann believes franchises remain a safer business model and can contribute to rebuilding the economy. “By being part of a franchise network, you’re immediately afforded a plethora of insight, knowledge and advice, giving franchisees more stability than stand-alone entities. You immediately have brand presence and a footprint across a region or an entire country, and access to training and upskilling for employees, which could create much-needed jobs.”
As lockdown regulations were eased, the Franchise Association of South Africa called on the banking sector to support the franchising industry. Yet financing is hard to come by as financial institutions become more risk-averse in these trying times.
Anita du Toit, an independent franchise consultant, says though financing was previously more accessible to franchisees than independent entrepreneurs, banks are now taking a closer look at the industry in which a franchisee will operate. “Some industries are better positioned for the current conditions, such as hardware, automotive repairs, courier services, wellness and weight loss,” says Du Toit.
Though loan interest rates are linked to the lowered prime lending rate, banks assess applications individually. “Where franchisors offer additional support to survive these difficult times, such as extended terms for stock purchases, applicants could get a better rate,” explains Du Toit. “As always, applicants should start by applying to their main private bank, where their consumer profile might make it easier to secure financing.” Still, says Du Toit, franchisees remain better positioned to secure funds than independent loan applicants. “All the major commercial banks have divisions specialising in franchising, so that is an indicator of banks’ appetite for franchises, which are generally seen as more successful than start-ups.”
The age of e-commerce
Though South African e-commerce is in its infancy, market research company Euromonitor expects sales to double this year after a boost during lockdown. A survey conducted by Visa found that 64 per cent of South African shoppers bought groceries online for the first time during lockdown.
Local e-commerce franchises are still few, but this might soon change.
Anthony Phillips, CEO of Ready Made Stores, which sells ready-to-launch dropshipping stores, says the franchise has seen consistent growth in its 12 years of operation – with a large spike during lockdown. “We’ve had to hire more staff to cope with the influx. Investors are getting on board too: Lebo Gunguluza (Dragons’ Den SA) recently stepped in to run our partner franchise DropShipClub.”
Online trading offers many advantages, especially now, says Phillips. “Online businesses aren’t constrained by geography and could still sell during lockdown, including in overseas markets. Dropshipping, especially, is a low-risk option, as dropshippers don’t keep stock, instead relying on manufacturers to ship directly to buyers.”
Unfortunately, dubious online business offers abound. Phillips says those interested in becoming franchisees should be vigilant. “Look for franchises with longevity, a good reputation and the necessary systems and support.”