POSITIVE OUTLOOKThe automotive franchising industry, having weathered the recession and the volatile economic climate, has growth potential
Photo by: Duane Daws
While food franchises comprise about 30% of the total franchise landscape, many other franchise categories are well represented, including retail, business-to-business services and automotive franchises, says South African banking firm First National Bank (FNB) Business Banking franchising head Morne Cronje.
He says there is also a growing need to understand the automotive franchise sector and that franchisors should not discount the impact of the recession on the automotive industry.
“The recession has contributed to the emergence and increase of car maintenance-type franchisors who focus on ‘out-of-war-ranty’ vehicles,” adds Cronje, pointing out that there has also been considerable demand for after-market value adds such as designer wheels, leather interiors, window tinting or protective film, windscreen repair or replace-ment and wheel rim repair services.
He points out that the rising inflationary pressures in South Africa will limit growth in real disposable income, which, together with generally anticipated rising new vehicle prices, owing to the weaker exchange rate and the impending increase in vehicle carbon dioxide emissions tax, could result in further moderating sales for the rest of the year.
“The automotive franchising industry has growth potential, owing to the strong demand for vehicles from South Africans. Having weathered the recession and the volatile economic climate, the car industry in South Africa and globally is still doing well,” he points out.
Moreover, he says automotive franchises have traditionally been focused more on trade-name franchising and less on business-format franchising, which involves the fran-chisor giving the franchisee a proven business model and structure.
“Entrepreneurs interested in this category should find out what level of ongoing sup-port the franchisor will provide. In FNB’s experience, many franchises in this category are looking to enhance their systems to pro- vide more franchisee support and to stan-dardise the customer experience of products and services,” explains Cronje.
He stresses that convenience is becoming a key driver in consumer behaviour and that automotive services will have to adapt.
“Franchises that focus on the convenience factor stand to dominate the market, with consumers being able to access products and services at convenient times and locations. Vehicle dealers are implementing appointment systems, where vehicles are serviced within an hour, while you wait,” advances Cronje.
Meanwhile, he notes that consumers are looking for customisation.
“The days of the one-size-fits-all approach are over, as female consumers are becoming more empowered and they are increasingly making decisions on which vehicle to buy, compared with the decisions of many years ago,” elaborates Cronje.
He says automotive service providers need to become more consumer friendly, which entails becoming more sensitive regarding the requirements of female consumers.
However, franchises do fail, with failure attributed to the franchise concept, site and operator, notes Cronje.
He says the franchise concept and brand must be developed by the franchisor through ongoing training and support.
“The franchisor should use professional assistance to develop a concept and docu-mentation to ensure that the franchise strat-egy is sound and sustainable for the franchisee and the franchisor,” he asserts.
Cronje emphasises that site selection, accessibility and visibility is critical, even for automotive brands, as consumers are looking for convenience and will, therefore, look for service providers where they expect to find them.
Further, he says the owner should be actively involved in the store and ensure that finances are managed efficiently, as being overgeared (having too little equity in the business) or overspending on luxury items, such as fancy cars, often leads to the downfall of franchisees.
“It is important to manage cash flow well and to engage with your bank before any prob- lems become insurmountable,” states Cronje.
He says South Africa’s automotive industry production, largely as a result of higher new vehicle exports, should register strong growth in 2013, owing to the continued strong demand for vehicles.
He adds that factors that continue to support domestic sales include the low interest rate environment, replacement demand, the highly competitive trading environment with attractive incentives, low debt-servicing costs and high-technology new-model intro-ductions, as well as above-average demand by car rental companies.
However, there are consumers who are prolonging the replacement of their vehicles, owing to economic factors,” says Cronje.
Consumers are looking for value and this drives them to franchised motor-service concepts, he highlights, as they still have recourse to a brand name or to the franschise for battery reconditioning and similar services.
“As the number of vehicles on South Africa’s roads increases, so does the need for specialised products and services relevant to the security, cosmetic care and maintenance of vehicles,” concludes Cronje.