Franchising in South Africa – Franchise facts and figures

Although modern-day franchising originated in the USA, the concept is well established in South Africa. The history of its local pioneers can be traced back to the mid-1960s when George Halamandaris established Steers and a number of other brands.

During the 1970s, other sectors entered the franchise arena and today, franchising is used as the preferred vehicle for expansion by companies active in fields as diverse as automotive products and services, food, entertainment and leisure activities, home maintenance and repairs, business services and retailing.

When one examines the South African franchise sector, two things stand out:

  • The fact that around 90% of South Africa’s franchise opportunities are based on locally developed concepts. This is in contrast to most countries outside the USA where foreign brands tend to dominate the market. This did not happen here because at the time when franchising took roots, trade sanctions prompted many of the international brands to adopt a wait-and-see attitude, giving South African firms time to develop.
  •  The high level of professionalism displayed by bona fide franchisors. This is based on the good work done by the Franchise Association of Southern Africa and its affiliated members who kept abreast of international developments and introduced them to local franchisors.

 

Seen from a prospective franchisee’s point of view, both these factors are extremely important:

 

  • The advantage of operating under a local brand is that the product has been designed from scratch with the local conditions in mind. For the same reason, local franchisors are best positioned to monitor changing consumer expectations on an ongoing basis and stay at the forefront of developments.
  •  It is clear that only a professionally managed operation can be relied upon to deliver on the implied promise of franchising.

 

A force to be reckoned with

In keeping with international trends, franchising has evolved from very modest beginnings to become a substantial contributor to South Africa’s economy. Growth has been impressive, with annual growth rates hovering consistently around the 25%+ mark. It is noteworthy that this growth was maintained throughout periods of near-recession. Needless to say, franchising’s growth outstripped inflation by a comfortable margin.

Today, about 400 bona fide franchisors, operating through around 25 000 franchisees, serve the local market.

The most recent survey, commissioned by NAMAC Trust (which is now an arm of SEDA) and carried out during 2004 reveals the following picture:

Franchise Census 2004

Industry sector Sales R million Percentage of total sales
Automotive products and services 7 302,07 5,65%
Building and home maintenance 5 906,48 4,57%
Business to business supplies 521,99 0,40%
Education and training 615,42 0,48%
Fast food / take-out 7 894,68 6,11%
Health and beauty services 2 591,41 2,00%
Other business sectors 6 820,76 5,28%
Real estate agencies 1 923,61 1,49%
Restaurants / sit-down 3 532,64 2,73%
Retail incl. convenience stores 39 514,65 30,56%
Video rental and entertainment 448,60 0,35%
Petrol supplies 52 219,44 40,40%

Using the above figures as base performance and adjusting them by 25% per annum suggests that by now, the combined sales of South Africa’s franchised networks have exceeded the R200billion per annum mark. This notwithstanding, potential for ample growth continues to exist. This is supported by the fact that while in the USA, about 50% of all retail transactions (including petrol supplies) are carried out through franchise networks, our franchise sector accounts for an estimated 12%.

Join this growing trend

Many well established South African companies, and a growing number of international brands, have elected to expand through franchising. Their number continues to grow almost daily – visit the whichfranchise opportunities section for an up-to-date list of opportunities on offer. It is safe to conclude that franchising has a sound future to look forward to. Becoming involved makes economic sense, and the best time to take this important step is now.