The 2019 Franchise Survey showcased the sector’s importance to the country, Franchise Association of South Africa (FASA) said this week, warning nonetheless that if government did not act quickly to fix the fundamentals of the economy, the "subtle cracks" that the franchise survey hinted at could turn into wide chasms and the erosion of this industry.

The franchising industry generated turnover of about R734-billion in 2019, equivalent to 13.9% of South Africa’s gross domestic product.

This showed a robust and still growing sector, said FASA.

It noted, however, that the number of franchise systems had decreased from 865 to 813 over the year – a reflection of the hesitancy of entrepreneurs to start new franchise concepts in such a depressed economy.

FASA executive director Vera Valasis said the incidence of new franchise brands launching and then closing as they battled to operate in a highly disruptive environment was on the increase.

“It is sad to see viable concepts that would normally take off fail as they stand little chance in fighting against the barrage of bad news and trying conditions of doing business in South Africa.

“If the industry has grown as it has, it is because of the strength of the many ethical and sound franchise brands that rally to make the best of the current situation and find innovative ways to stay in business, support their franchisees and the thousands of staff they employ,” she commented.

FRANCHISORS AND FRANCHISEES PERFORMANCES

There was an increase in the number of franchise outlets – from 45 011 to 47 923 – during 2019, showing the strength and resilience of successful brands and their network of franchisees, many of whom own multiple stores.

The net number of stores opened in 2019 was 1 617.

Fifty-five per cent of franchisees had been in business for more than ten years and 77% for more than five years, which FASA said attested to the longevity and success of the franchise business format.

Ownership of more than one franchised business was at 78% (eight in ten) – with the majority owning the same brand of franchise.

Optimism about the success of their businesses continued to strengthen among franchisors (78% in 2017 to 81% in 2018 to 89% in 2019) with 78% of franchisees remaining optimistic about the future of their businesses and expecting to see growth in the coming year.

Franchisees were almost unanimous in their belief that their return on investment (RoI) was in line with what was promised by the franchisor and most were very or extremely satisfied with the RoI.

CHALLENGES

In past surveys, the main challenges that both franchisors and franchisees listed included finding the right franchisees and attracting staff with the necessary skills.

The past two surveys, however, showed greater concern about poor economic growth and high rentals.

This was perhaps the clearest indication that franchise companies were starting to feel the strains of rolling black-outs and an economic environment that was starting to make an impact on their ability to carry on as viable businesses, said FASA.