SA franchising industry 'lagging behind'

"Some of the interesting statistics include that 37% of franchisees didn't deem financial training provided by franchisors as sufficient," said Riaan Fouche, head of franchising at FNB. "Also, 40% of franchisees thought that initial assistance provided by franchisors did not meet their expectations," he said. Around a third of franchisees were dubious about the ongoing support provided by franchisors.

Business Report
April 2, 2009

SA franchising industry 'lagging behind'

The franchising industry is "lagging behind" other countries, even though it is key to the small business sector, FNB [First National Bank of South Africa: ed.] said on Thursday as it published a survey entitled Franchise Think Tank 2009.

The survey found that the retail market share of the franchise sector hovered at around 12% of retail sales, "rather modest" if compared with the figure for the US, which stood at over 50%, or Australia at about 25%, FNB said.

"We can only conclude that we are somewhat lagging behind," FNB said.

"With millions of South Africans seeking employment, small business is positioned to be one of the ways to reduce unemployment in South Africa and both the private and public sector is looking to developing a culture of small business in the country.

"While franchising is seen as a key business driver in this sector, the industry is not without challenges," FNB said.

The survey, in which participants completed a questionnaire, found various problems in the sector.

"Some of the interesting statistics include that 37% of franchisees didn't deem financial training provided by franchisors as sufficient," said Riaan Fouche, head of franchising at FNB.

"Also, 40% of franchisees thought that initial assistance provided by franchisors did not meet their expectations," he said.

Around a third of franchisees were dubious about the ongoing support provided by franchisors.

On the other hand, 55% of franchisees polled agreed they would renew their franchise agreements and 35% wanted to establish further units of the same franchise.

"This is in line with the international phenomenon of multi-unit franchising, where one franchisee owns multiple units of the same or different non-competing franchises.

"From these statistics, one could surmise that franchisees are in general still satisfied with their franchise systems and even considering opening additional units," Fouche said.

However, franchisors could improve their support and this was increasingly important in the current economic situation where franchisor help could make a difference in a make-or-break scenario for a struggling franchisee, he said.

In terms of the economy, 42% of franchisees were planning to make significant changes to their businesses in 2009, which could point to their assessment of the impact of the economy on their businesses, he added.

"Franchisees also raised the impact of the economy as a burning issue of concern, together with inadequate training and lack of transparency on rebates."

Fouche said a critical issue in franchising was the high rentals paid to shopping centre landlords.

In many cases smaller stores were subsidising large anchor tenants as these anchors could negotiate extremely low rents due to their bargaining power.

However, Fouche said it was not all doom and gloom.

"If franchising can grow by 15% a year in terms of turnover and number of franchises, the sector could double within five years," he said.

Improved standards and an improved image were necessary for growth, he said.

http://www.busrep.co.za/index.php?from=rss_Business%20Report&fArticleId=4918776


Brought to you by WikidFranchise.org

Risks: Secret kickbacks and rebates, Who pays for the research?, Most lucrative form of commercial lending, franchising, Banks are industry cheerleaders, Banks as a statistical source, Franchise banker, No franchisor support, Lease margins are an important franchisor revenue source, Attempts to rehabilitate image, Why franchisors sublease to franchisees, Industry research lacks independent verification, South Africa, 20090402 SA franchising

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License