From negotiating rental relief with landlords and royalty fees with franchisors to asking for relaxed loan repayments with banks, franchise operators continue their battle to survive the Covid-19 lockdown as trade restarts under Level 3 for some franchise sectors but crippling restrictions remain for other sectors, industry association the Franchise Association of South Africa (Fasa) says.

It noted that in the midst of all this disruption, there has been a surprise announcement by the Department of Trade, Industry and Competition (DTIC), calling for comments on the discussion document relating to the publication of Fasa’s Industry Code to be submitted to the department via email to SSasayi@thedtic.gov.za before July 15.

Welcoming the move after years of lobbying, Fasa executive director Vera Valasis has called on all stakeholders in the franchise industry to take the time to read the proposed Franchise Code and respond with their comments and concerns.

“Especially in these trying times, the stability, protection and recovery of the franchise industry will be crucial to the survival of our sector and its future growth,” Valasis says.

Fasa notes that it has for years been calling for the sector to be regulated and has worked to develop an alternative dispute resolution process forming part of the Industry Code that Fasa has used as a guide to ethical business practices since its inception 40 years ago.

The draft code was accepted by the Consumer Protection Commission and was subsequently published for comment in the Government Gazette.

According to Eugene Honey of Adams & Adams, Fasa’s legal adviser and heading the team responsible for lobbying government, the Consumer Protection Commission subsequently indicated that they were happy with the draft Code document, but indicated that they would prefer for Fasa’s Code of Ethics and Business Practice Guidelines to, in some way, also be incorporated into the code.

“One of the main objectives of Fasa is to develop and support ethical franchising.  As a result, Fasa were only too happy to oblige. What followed was a process of updating, developing and refining the new code by adding to what was essentially a robust mediation process, additional provisions aimed at imposing on franchisees and franchisors a code of conduct aimed at regulating behaviour within the franchise industry and providing for certain matters not dealt with by the CPA,” Honey says.

NAVIGATING THE PANDEMIC

Franchising is often seen as a safe business model, as operators buy into an established brand with support from franchisors. About 26% of franchise operators, which make up the largest portion of the industry, are in fast foods and restaurants, followed by direct marketing at 18%.

Leisure and entertainment, construction, personal services and telecommunications make the smallest segment at 5% and lower, according to research by Fasa.

“The longer the lockdown measures are applied across the board, the deeper the loss will be. With 80% of respondents to a survey conducted by the association believing that they will not be able to continue to maintain their business beyond July, unless they can be allowed to trade normally, the future of the franchise sector, which contributes almost 14% to the country’s gross domestic profit, is in the balance.

“Some sectors have weathered the Covid-19 storm much better than others, but more importantly, it seems business owners who managed to reopen their doors at the first opportunity stand a better chance at long-term survival, even while trading with only limited lines or products and a limited staff complement,” says Valasis.

Valasis adds that it is important that assistance is given to franchisees so that they in turn can keep employees on the payroll and ride the storm in order to grow when the pandemic passes.

“Having a franchisor who franchisees can rely on becomes even more critical during these times of crisis. Thankfully most franchisors have taken strong leadership steps and have kept their franchised systems informed as and when developments and information is published by the government about the lock-down regulations, financial aid and other funds that can be accessed for financial assistance. They are also the ones that will institute whatever measures are necessary to ensure the safety of their staff and customers.”

Whilst most franchise sectors can now open for business under Level 3 – from retail to auto services; from building, office and home services to business-to-business – other sectors such as childcare, education and training grapple with how to boost their online services whilst planning to return to physical teaching with social distancing, Fasa notes.

RESTAURANT INDUSTRY  

While fast food outlets have stepped up their delivery services and can now offer on-site take-out, many are still not generating large enough turnovers to cover costs. Sit-down restaurants remain the hardest hit as they remain closed under Level 3.

Government’s judgment that restaurants have the highest potential for the risk of transmission is misplaced, argue lobby groups, especially when compared to allowing groups to gather for other reasons – such as for church services under Level 3, Fasa indicates.

According to Valasis, who participates in a weekly Zoom exchange with her counterparts at the World Franchise Association, restaurant protocols and best practices are being implemented very successfully internationally and would also locally, including physical distancing, masks and screening.

“There is the very real risk that large casual dining restaurants may disappear as many owners, if they survive the crisis, would go forward on a much smaller and nimbler basis which is easier to scale down and control according to demand and developing trends.

"Decisions are also being made about running a so-called ‘dark kitchen’ operation permanently which would seem to be more profitable with less frustration, difficulties and possibly less costs.”

HAIR, BEAUTY & BODY CULTURE

The continued closure of the beauty, hair and body culture industry is having a devastating impact on the industry, the salon owners, their employees and dependants, says Sorbet Group CE-designate Linda Sinclair.

In their appeal proposal to government, their initial estimate shows that as much as 40% of salons could face closure if not allowed to open under Level 3 and any further extension beyond this date could see the entire industry face potential bankruptcy.

The formal hair and beauty industry prides itself in already applying strict hygiene standards and would be in a position to support the social distancing requirements for trade by managing and restricting the number of customers that are in store at any given time, Fasa says.

With so many trained technicians and therapists in the health and grooming sector laid off, many have resorted to offering their services to their regular clients privately (and against the Covid-19 guidelines) to perform procedures and provide services – in many instances earning more than just the commission or basic salary/commission they were used to.

This would mean that established salon owners would have to re-train new technicians when they do reopen – another cost that the industry can ill afford.