South African franchise market

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Franchising is alive and well in South Africa. With over 550 franchised brands and close to 30 000 franchised outlets in SA, it is a very developed market. While food franchises still make up about 30% of the total franchise landscape, many other

About 40% of franchises are located in the province of Gauteng, as this is the economic powerhouse of the country. As a developing country, there are massive disparities in income levels of the close to 48 million citizens. However, South Africa is also seen as the most developed African country and as a springboard for further development into Africa. Recently, Wal-Mart announced the acquisition of Massmart, one of South Africa’s major retailers. Barclays acquired Absa bank, one of the four main commercial banks, a few years ago. The entry of these international players indicates the potential and strength of the South African market.  franchise categories are well represented including retail, business to business services and automotive franchises.

While there are no specific laws governing franchising in South Africa, some of the commercial laws are applicable to franchises. A new Consumer Protection Act will come into force at the end of March 2011. This act classifies franchisees as consumers and therefore franchisees will have certain rights as consumers. The main aim of the act is to prevent unethical practises by franchisors. Some of the main clauses impacting on franchising include that franchisors are obliged to provide a disclosure document (similar to UFOC) and that franchisees have the right to cancel the agreement within 10 days of signing it. Other commercial laws applicable to franchising include the Competition Act and the Companies Act. The aim of the Competition Act is to ensure a competitive environment. The Companies Act governs the legal forms that companies may take and elements related to corporate governance. A good franchise attorney will be able to advise international entrants on the impact of these laws on their franchise.

The Franchise Association of South Africa (FASA) has about 110 franchisor members and acts as a representative body for the industry. As such, it has made representations to government on new legislation to ensure that the franchise sector has the scope to grow. It also hosts a franchise expo once a year to give franchisors the opportunity to market their franchises, this is normally held in May in Sandton, Johannesburg. Reputable service providers, including attorneys, banks and consultants, are also members of FASA.