Sign In

Franchise Industry Overview in South Africa: A Closer Look at Growth, Employment, and Ownership Diversity

News, Articles, Success Stories and Advice on Franchising
Franchise Industry Overview in South Africa: A Closer Look at Growth, Employment, and Ownership Diversity

Franchise Industry Overview in South Africa: A Closer Look at Growth, Employment, and Ownership Diversity

The franchise industry in South Africa has proven to be a stable and robust segment of the business market, contributing significantly to the country’s economy. Studies commissioned by the Franchise Association of South Africa (FASA), ABSA and Research EQ provide valuable insights into the franchise sector’s contribution to GDP, buisness establishment, job creation, and key indutry practices. The most recent survey in 2023 reveals compelling trends and data that shed light on the industry’s health and potential areas for growth. It is important to note that the previous survey was done in 2019.

Business Longevity

A noteworthy aspect of the franchise sector is its stability, as evidenced by the longevity of businesses. Impressively, 77% of franchisors and 53% of franchisees have been in business for over a decade. The average number of years in business stands at 21 for franchisors and 12 for franchisees.

Sectoral Breakdown

According to the FASA 2023 database, there are 727 franchise systems in South Africa, representing a decrease in franchisees since 2019, this could be attributed to the disruptions over the past few years.

Franchise Industry Overview

The largest sector within the franchise industry is fast foods and Quick Service Restaurants (QSR), comprising 19% of the market. Other significant sectors include retail and direct marketing (17%), building, office, and home services (12%), and automotive products and services (10%).

Franchise Industry Overview

Property Ownership and Rental Trends

Approximately one in three franchisees (36%) own the property on which their business is situated, rising to 46% among very large franchisees. Annual rent escalations average 7.9%, with very large franchisees experiencing higher escalations of 11%, and 30% facing increases of over 15%.

Break-Even Expectations

Franchisors’ expectations of breaking even within the first year grew significantly from 76% in 2019 to 89% in 2023. This optimism is mirrored among franchisees, with 89% breaking even within the first year in 2023, up from 69% in 2019. Most franchisees own more than one outlet of the same brand, and 44% also own an outlet of a different brand.

Expansion Beyond Borders

Two in five franchisors are operating in other African countries, primarily in neighbouring nations such as Botswana, Lesotho, and Namibia.

One in five franchisors has expanded to countries outside Africa, with notable destinations being the United States, the United Kingdom, Mauritius, and Europe.

Ownership Diversity

The South African franchise industry is witnessing positive shifts in ownership diversity. The average percentage of ownership by previously disadvantaged groups has risen from 20% in 2019 to an impressive 48% in 2023.

Franchise Industry Overview

Black ownership has nearly doubled, increasing from 11% to 21%, and similar positive trends are observed for coloured and Indian ownership. Conversely, white franchisors have decreased from 80% to 52%.

Among franchisees,

  • 48% are white,
  • 32% black,
  • 10% indian,
  • and 9% coloured,
  • with women’s ownership remaining at 30%.

 Franchising’s Contribution to the Economy

In 2023, the estimated turnover of the franchise industry reached R999 billion, a 36% increase from 2019. While this substantial figure reflects the industry’s growth, it does not include revenues from listed companies operating in the franchise market.

Franchise Industry Overview

Nonetheless, this turnover is equivalent to 15% of the total South African GDP of R6,660 billion in 2022.

Franchise Industry Overview

Employment Impact

The franchise sector plays a significant role in employment, accounting for an estimated 4.7% of total employment in South Africa, translating to approximately 471,233 employees.

In each franchised outlet, there are 24 staff members, with black employees forming the largest proportion at 60%.

Diversified Franchise Outlets

  • A majority of franchisees own multiple outlets within the same brand, with 44% also diversifying their portfolio by owning an outlet from a different brand.
  • However, the willingness of franchisees to purchase another store within the same network has shown a notable decrease, dropping from 76% in the previous survey to 61%. This decline is attributed to a significant rise in franchisees expressing ambivalence towards acquiring another store within the same network.
  • This shift in sentiment suggests a cautious “wait and see” approach, possibly reflecting a hesitancy to commit funds to the acquisition of additional outlets.

Key Practices and Future Outlook

  • From the survey, it’s evident that franchisors are delivering on promised returns on investment (ROI), resulting in high levels of franchisee satisfaction.
  • Disclosures during the negotiation process varied across sectors, with building, office and home services franchisees leading in receiving disclosure documents at the time of negotiation.
  • The relationship between franchisees and landlords remains stable, with good property maintenance being a key factor.
  • Franchisees are generally satisfied with the communication and training provided by franchisors.
  • Additionally, there’s optimism about the future, with 88% of franchisees expecting growth in the coming year.

In Conclusion

The South African franchise industry is not only a resilient and stable market but also one that fosters diversity and contributes significantly to the country’s economic landscape. As the industry continues to evolve, these findings provide valuable insights for both existing and potential stakeholders, shaping the path for continued success in the years ahead.

Read More on FASA website:

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *