[WATCH] The Franchise Industry Has Evolved, And It Is Time For You To Become Part Of It
Want to know more about the franchise industry, finding a franchise opportunity, funding required or how franchises need to adapt or advance their model to deal with the fallout of Covid-19, then this article is for you.
Aired on CNBC Africa, Nedbank hosted a panel discussion on franchising, focusing on the evolving franchise industry. Led by Godfrey Mutizwa Chief Editor CNBC Africa, the panellists included industry experts such as Trudi van Niekerk, CEO of Nando’s International Franchising, Eric Parker, Consultant and Partner of Franchising Plus, Mark Harper and Sbonelo Mbatha, Co-founders of Petro Connect and Prithivan Pillay Head of Client Value Propositioning from Nedbank Business Banking.
Franchise stats and facts
- Franchising in South Africa has grown and evolved throughout the years with over 550 franchised brands and 30 000 outlets.
- Even though the top 8 perceived franchise opportunities are in fast food, there are numerous viable and successful opportunities available across various industries.
- Franchising is South Africa is behind the rest of the world,
- only 12% of retail sales go through a franchise mechanism whereas
- Australia accounts for 25%
- and America between 49-50%
Franchising has become an attractive option for so many people wanting to start and manage their own business without the risks of starting their own business. Franchising presents an opportunity to join a like-minded supportive community that stays in touch with the changing needs of the market.
Franchising has again and again proven itself as the best possible protection as a business model to any economic downturn. In the current Covid-19 pandemic, people are seeking employment opportunities and franchising offers the solution i.e. individuals need to buy employment.
While no opportunity in life is certain, franchising alleviates risks to some degree and offers the following advantages for franchisees:
- Buy-in to a proven business model
- Brand recognition
- Training, coaching and development
- Ongoing support
- Negotiation muscle e.g. suppliers, landlords, finance, etc.
- Marketing power
- Other franchisees’ experience
- Codes of conduct e.g. the operations and procedures manual
Selecting a franchise opportunity in the current economy
For those who purchase a great franchise, it will be life-changing. For those who purchase the wrong franchise, it will be life-destroying, therefore researching and selecting the right franchise opportunity is of the utmost importance.
Prospective franchisees should not only consider franchises that were successful before the Covid-19 pandemic as the business model may no longer be relevant, rather consider brands that have been agile and successfully adapted to the current environment and managed to evolve.
In the current environment it is advisable to consider:
- What measures have been put in place to assist franchisees
- Where franchisors see the challenges and opportunities arising from the pandemic
- What the franchisor’s views are on what changes have been implemented due to Covid-19
- What are new opportunities because of Covid-19, i.e. higher demand for food delivery
It is highly recommended that prospective franchisees contact existing franchisees and asks them relevant questions about the success of the opportunity, the franchisor, professionalism, and the support system provided for franchisees.
What to consider when embarking on a franchising journey
- Not everyone will make a good franchisee – some people are too entrepreneurial. Newer franchises might have opportunities for more entrepreneurial-minded individuals than older/more established franchise systems.
- Educate yourself about franchising and the industry/sector you want to operate in – gain knowledge and insights before you commit to the opportunity.
- When selecting a franchise opportunity, it is critical for the brand to fit your personal criteria and it is even more important to determine how your personality will fit in with the franchise brand. Take the self-test to find out if you’d be a suitable franchisee.
- Skin in the game is critical and to understand the need for proper funding – it is not only enough to meet the bank’s criteria but to have funds to rely on in the event of adverse market developments
- The partnership between .the franchisor and franchisee – choose the right partner.
- The prospective franchisee preferably requires a background and knowledge about running a business
- Start seeking opportunities within your budget. There are always opportunities to grow and acquire additional or other opportunities at a later stage with time, experience, and capital.
- Choose a franchise sector that you are interested in, would enjoy, and have the necessary skills set for.
- Just because a brand calls themselves a franchise does not mean they have everything in place and offer the things they need to, to be an ethical and compliant franchisor.
- Running any business is hard work, you will need to be committed and put in the hours of work to make a success of any venture.
- From a number perspective, understand what capital is required for the opportunity initially and on an ongoing basis.
The capital required for a franchise opportunity
It is important to understand the amount of capital required to invest in a franchise opportunity. The barrier to entry for franchising might be perceived as high due to the 50% own capital contribution required. However, the own contribution is critical for the business to survive in the current environment and to ensure that they meet their ongoing obligations and to repay the outstanding bank loan.
Financial institutions have different sustainable funding models to ensure transformation within South Africa.
There are franchise opportunities available to suit various prospective franchisee budgets and capital available. Prospective franchisees need to find a franchise system that they can afford – fighting the system will only set their business up for failure. Franchisors want franchisees to succeed and they need to set them up for success, therefore franchisees cannot compromise on the own capital requirement as it will result in the franchise failing.