FNB Franchise
Think Tank
2009
Pioneering changes
in the franchise sector
of South Africa
Table of contents
Message from FNB
Authors’ backgrounds
Introduction
1
2
3
Section 1 – Assessing the status quo: Where is franchising at present?
The starting point
5
The current scene
6
International franchising
6
How does South Africa compare?
11
Roadblocks that hold franchising back
13
Why should we care?
23
What does the sector think?
24
Section 2 – Strategic outline: Where should franchising be?
Proposed course of action
28
Prerequisites for exponential growth
31
Section 3 – Tactics: How will we get there?
34
Figures
1
The way shopping centres determine rentals
19
3
FNB Franchising franchise climate survey 2009
26
Tables
1
Provisions of the Competition Act as they affect franchise agreements
17
2
The franchise sector’s projected combined sales
29
3
Projected number of franchisors
29
4
Projected number of franchised units
30
5
Projected number of jobs the franchise sector will create
30
6
A model for a more equal allocation of shopping centre rentals
40
Appendix
1
Franchising terms
45
2
Facsimile of the Franchisee Climate Survey form
48
3
References
50
Message from FNB
FNB Commercial is always looking for ways to help our clients to unlock the full
potential of their businesses. Our Franchise Desk is dedicated to creating solutions for
the franchise industry and our mission is to be the preferred financial service provider
in the franchise sector.
We decided to launch the FNB Franchise Think Tank 2009 in an effort to assist with the
unlocking of franchising’s potential for skills transfer, job creation and the expansion of
an economically sound middle class. Although franchising has shown some growth
over the past few years, we believe that we haven’t even scratched the surface yet.
We are prepared to do our bit to change that.
Let us first acknowledge that times are tough economically but merely sitting it out,
hoping that it will go away, is not the way to deal with the problem. Indications are that
up to now, South Africa was less affected than most other countries and we want to
keep it this way. We believe that franchising can make a meaningful contribution.
The FNB Franchise Think Tank 2009 was launched as a collaborative effort in the
sector joining franchisors, feedback from franchisees and other service providers in
finding ways to unlock franchising’s capacity to foster business development and all
that entails. This topic is of extreme importance to the future development of our
country, nurturing entrepreneurs and contributing to wealth creation for small business
owners.
This white paper is the results of our joint effort with the foremost stakeholders of
franchising. We were also fortunate to have input from industry experts on franchising
and the economy, making it possible to produce a result of high quality. To this end,
we wish to thank:
Stephen Walters – Fernridge Consulting
Eugene Honey – Bowman Gilfillan
Cees Bruggemans – FNB
Eric Parker – Franchising Plus
Kurt Illetschko – ManualMakers
We trust that this initiative will contribute to the growth and success of franchising in
South Africa.
Riaan Fouchè
Head: FNB Franchising
1
Authors’ backgrounds
FNB Franchising commissioned Franchising Plus CC to undertake some research into the
franchise relationship, assist with the presentation of the 2009 Think Tank event and compile
this paper. Its authors are Eric Parker and Kurt Illetschko.
Eric Parker’s involvement with franchising began in the 1980s when he held senior positions
with franchisors KFC and Interfare/Squires Holdings. After becoming a founder member of
Nando’s, he made the move into franchise consulting. Today, Eric is a senior partner at
Franchising Plus CC and highly sought after as a consultant, strategist, author and motivational
speaker. In an effort to put something back into the sector that defined his career, Eric has
served as a director and past chairman of FASA. In recognition of his achievements in
franchising, he was named Franchise Personality of the Year 1995 and awarded life
membership.
Kurt Illetschko entered the world of franchising in 1975 as a franchisee, subsequently became
a franchisor and eventually a franchise consultant. His involvement with FASA dates back to its
inception in 1979; he served on its Board of Directors for many years, including six as executive
director. He also wrote several books and numerous articles on franchising and small business
which were published in South Africa and internationally. In recognition of his achievements,
Kurt was named a life member of FASA in 2002. He remains an ardent supporter of ethical
franchising and South Africa’s most prolific writer on the topic.
2
Introduction
Although business format franchising has been with us for over four decades, progress
has been slow, leading us to believe that the concept has failed to live up to its true
potential. The hype that surrounds franchising may suggest that all is well and
franchising is South Africa’s leading business expansion tool, but such statements
don’t stand up to scrutiny.
Much has been made of the growth in the number of franchisors, which allegedly has
grown from 398 in 1998 to 531 in 2008.1 Unfortunately, franchisors are a moving target
because as new entrants join the fray, unsuccessful ones leave. This makes these
figures a little suspect and in any event, we believe that the acid test is market share.
According to press reports, it continues to hover around 12% of retail sales, rather
modest if compared with the figure for the US, which stands at over 50%, or Australia
(about 25%). We can only conclude that we are somewhat lagging behind.
This is puzzling because franchising, with its strong emphasis on branding, skills
transfer and initial and ongoing support, is ideally suited to address the needs of our
economy. We believe that the development of a strong franchising sector is key to
addressing South Africa’s two most pressing needs, namely the promotion of
entrepreneurship and job creation. It could also pave the way for sustainable BEE
initiatives which, up to now, have been slow to take hold in the SME sector.
For our readers’ convenience, we have divided this paper into three distinct yet closely
interrelated sections:
Section 1: Assessing the status quo – where is franchising now?
We provide a brief history of franchising and explain where the sector finds itself at
present. In the compilation of this section, we have drawn on three sources:
1.
Outcome of a Franchisee Climate Survey
FNB Franchising commissioned a Franchisee Climate Survey which was carried
out during February 2009. Participants were asked to complete a questionnaire
and analysis of the responses provided fascinating insights into the current
thinking of the sector. 2
2.
Feedback from the 2009 FNB Franchise Think Tank
This was an interactive event held towards the end of February 2009. It enabled
representatives of leading franchisors, franchisees, government and service
1
Taken from the 2000 Franchise Book of Southern Africa and the 2009 Franchise Directory respectively
2
The appendix contains a sample of the questionnaire used; the full results of the Franchisee Climate
Survey are available in electronic format from FNB Franchising.
3
providers to discuss the current status of the sector, debate potential threats and
available opportunities and develop ideas on how to make the best of the existing
situation.
3.
Input from experts
We were fortunate enough to receive input from recognised experts in this field
including attorney Eugene Honey of law firm Bowman Gilfillan and retail property
guru Stephen Walters of Fernridge Consulting. Contributors from the FNB Team
included chief economist Cees Bruggemans, head of the franchise division Riaan
Fouché and franchise specialist Anita Du Toit.
Our own experience in franchising includes practical exposure to the roles of
franchisee, franchisor, franchise consultant, writer and strategic advisor to local
and foreign companies.
Section 2: Strategic outline – where should franchising be?
In this section, we show where we believe the sector should (and could) be within the
next five years in terms of entrepreneurship creation, employment targets and wealth
creation. We also speculate what it could do for our country if we would join hands to
achieve the relatively modest targets we are setting.
Section 3: Tactics – how will we get there?
Section 3 explains the tactics we believe should be used to reach the targets set out in
Section 2. Once again, we are drawing heavily on feedback we received during the
2009 FNB Franchise Think Tank session.
We know that the implementation of the proposed strategy will be a mammoth
undertaking and the franchise sector will not be able to accomplish it in isolation. To
ensure the desired outcome and secure franchising its rightful place in the economy,
the commercial banks, several government departments, NGOs and academia will
have to do their part. We provide suggestions on how these sectors can be brought
together to ensure the best possible outcome.
4
Section 1
Assessing the status quo:
Where is franchising at present?
The starting point
There are close similarities in the way in which franchising developed in South Africa
and the rest of the world, with the US leading the way. Early franchisors were drawn
primarily from the ranks of fast-food operators. However, while US systems inspired
some South African entrepreneurs to expand via franchising, licensees of US-based
concepts were not the first to set up shop in South Africa.
The distinction of being South Africa’s longest established franchise operation belongs
to Steers, now part of Famous Brands Limited. The first Steers restaurant was
established by George Halamandaris in 1962, and franchising commenced in 1965.
Halamandaris must have been happy with the way this pioneering franchise venture
turned out for him because he launched several other brands, including Milky Lane,
Black Steer and Burger Ranch, in quick succession. He sold these brands eventually
and focused exclusively on the roll-out of Steers. 3
Franchising has come a long way since then and is no longer the domain of fast-food
operators. The 2009 Franchise Directory lists 14 major industry sectors ranging from
Automotive Products to Retailing; fast-food outlets and restaurants continue to have a
significant presence but the services sector is making strong inroads. The versatility of
franchising is further illustrated by the fact that the 14 major industry sectors could
reasonably be broken down into at least 30 sub-sectors. In the US, this number
exceeds 70.
The concept has made it possible for entrepreneurs to expand their businesses at a
much faster rate than would otherwise have been possible. It has also created a good
number of millionaires, individuals who chose a franchise over total independence and
achieved success by following the franchisor’s blueprint to the letter.
We have often heard it said that franchising is “entrepreneurship with a safety net” and
we agree. FASA’s official definition of franchising confirms this:
“The business format franchise relationship is characterised by a continuing business
relationship between the franchisor and the franchisee that extends beyond the implications
of the product or service and trademark. It encompasses the entire business process,
including marketing and advertising strategies, operating standards and procedures,
accounting practices, quality control and operational standards. Above all, close communications between franchisor and franchisee will be maintained on an ongoing basis.” 4
3
Taken from Franchising in South Africa – the Real Story
4
Taken from How to evaluate a franchise
5
The current scene
Everyone who is even vaguely familiar with the franchise sector will be aware of
statements appearing in the media along the lines of, “Franchising is alive and well,
and growing in leaps and bounds!” Sounds great but every time we heard it we had the
uneasy feeling that we have heard it many times before. While doing research for this
paper, we decided to check and a quick look through our archives confirmed our
suspicion. Statements about franchising’s advances have appeared with monotonous
regularity since the mid-1980s but reality does not bear this out.
Of course there was some progress and a number of franchised brands have evolved
into highly profitable and respected entities. It is our view, however, that when
compared with its inherent potential, the development of franchising to date has been
less than awe-inspiring. We wanted to outline how this could be changed; as point of
departure, we decided to assess the current situation in South Africa versus a number
of other countries.
International franchising 5
There can be no doubt that franchising has taken the world by storm. It is safe to say
that no other business model can match its success to date and although in some of
the countries where franchising has been established for a very long time, the most
popular sectors are beginning to show signs of saturation, franchising’s future remains
bright.
We know that examples have more impact than mere statements, so we looked at
developments in various countries, namely Australia, Canada, Germany, New Zealand,
UK and the USA. The information specific to each country is arranged in alphabetical
order. Please note, however, that South Africa will be discussed after the section on
international franchising, under a separate heading.
Australia
Given the similarities between the Australian and South African markets, we
considered the Australian experience to be of specific interest to the local franchise
sector. The information that follows was sourced primarily from a report compiled by
Fred Potgieter, Special Counsel at DLA Phillips Fox. It includes statistics originating
from a survey undertaken by Griffith University’s Asia Pacific Centre for Franchise
Excellence which was conducted in 2008.
In Australia today,
1 100 business format franchises are operational; an impressive 91% of these
systems are home-grown.
Systems growth between 2006 to 2008 amounted to 14.6%.
5
Taken from FNB Franchise Think Tank 2009 – Briefing paper for delegates
6
Franchisors operate through:
63,500 franchised units and a further 7,900 company-owned units
Fuel retailers and motor vehicle outlets add a further 10,500 units, bringing
the total to 81,900 units.
The latest available sales figures date back to 2007. In that year, total sales through
franchised outlets amounted to A$130 billion, broken down as follows:
Sales through franchised units totalled A$61 billion
Motor vehicle sales amounted to A$37 billion
Fuel retail sales added a further A$32 billion
Total sales account for about 25% of retail sales.
Most franchise systems are relatively small, with the median being 20 franchised
units and one company-owned unit per system.
Franchising in Australia shows definite signs of maturity. On average, franchisors
have been operating their systems for 15 years. Piloting was carried out for 4
years before franchising commenced.
An interesting trend is what the report calls part-time franchising. Increasingly,
franchisors accept franchisees who want to work less than 40 hours per week.
Others permit multi-unit ownership. These are measures designed to attract
individuals as franchisees who would otherwise be lost to the systems.
Master franchising is used by a quarter of systems; they cite the need for handson franchisee support throughout large territories as the main motivating factor.
Slightly more than 25% of franchise systems are active in international markets,
mostly in New Zealand, the UK and Canada. On average, they operated 20 units
domestically before venturing abroad. Master licence agreements are the
preferred vehicle for international expansion.
Australia’s franchisees are a stable lot, with only 7% of franchised units changing
hands during 2007.
The sector looks into the future with confidence. The somewhat fragile economic
outlook notwithstanding, Australia’s franchisors expect their networks to grow,
albeit at a slower pace.
The sector’s interests are represented by the Franchise Council of Australia
which has over 1,100 members.
7
Developments on the legal front
Franchising in Australia is regulated by the Franchising Code of Conduct which is a
mandatory industry code.
The Code is prescribed under section 51AD of the Trade Practices Act 1974; it
was last reviewed in 2006 und has been updated several times since. In
essence, the code defines what constitutes a franchise, stipulates stringent
disclosure requirements and prescribes the content of franchise agreements.
Further amendments which could impact heavily on the conduct of franchising
including foreign franchisors wishing to grant a master licence are currently under
discussion. One particularly controversial proposal is that if the franchise
agreement is not renewed at the end of the agreed term, franchisees should be
entitled to compensation.
The author of the report concludes, and we quote: “Franchising in Australia remains
healthy and destined to continue its growth despite the global financial and economic
crisis. Unfortunately, compliance costs and the risk of even inadvertent contraventions
of the Code and Act are high, necessitating the need for professional advice from an
experienced legal practitioner.”
Canada
The website of the Canadian Franchise Association provides the following information:
Franchising in Canada represents over C$100 billion in sales per annum; this is
equal to 40% of all retail sales or 10% of GDP.
A good mix of local and international brands is represented through 78 000
franchised units.
The sector employs over 1,000,000 people.
The Canadian Franchise Association has over 500 members and is growing at a
rate of 10% per annum.
Germany
The most recent statistics date back to 2007. During that year,
Over 900 franchise systems were in operation. These systems are a good mix of
home-grown and foreign concepts, many of the latter operating under master
licence arrangements.
The sector recorded 56,000 franchised units.
Franchisors and franchisees employed a combined total of 441,000 people.
Sales through franchised outlets totalled 41.54 billion Euros.
8
New Zealand
Although New Zealand’s population is a mere 4.2 million people, it is served by
about 350 franchise systems. This makes it the country with the highest
proportion of franchises per capita world-wide.
70% of the franchise systems are home-grown, with the balance imported from
various parts of the world. Not surprisingly, brands from the US and UK
dominate.
Franchising is a relatively late starter in this country, with most of the existing
systems having established themselves during the 1990s. Earlier arrivals were
McDonald’s and KFC, and over the past few years, the Subway brand has made
strong inroads.
While New Zealanders are born entrepreneurs and receptive to franchised
brands, they mix this with a dose of scepticism. This is the result of some early
franchise failures but things are now settling down and the future for franchising
looks bright.
Service franchises are seen as particularly attractive.
The Franchise Association of New Zealand has about 230 members, mostly
franchisors. Its members are required to abide by a Code of Conduct which sets
minimum standards and is heavily promoted.
About one quarter of New Zealand’s franchise systems have ventured into
foreign markets. One outstanding example of this is Fastway Couriers which has
evolved into the world’s largest courier franchise. Expansion into overseas
countries takes place largely through master franchise arrangements.
UK
Franchising in the UK:
Is populated by 809 brands, consisting of a mix of home-grown and imported
concepts.
45% of all franchisors are members of the British Franchise Association (BFA).
The franchise sector employs a total of 383,000 people.
Total sales during 2008 reached ₤12.4 billion and the average annual turnover of
a franchised unit is ₤360,000.
Franchisees borrow an average of ₤70,000 to fund their franchise.
The vast majority of franchisees, 91% to be exact, report that their operation is
profitable.
9
88% of franchisees report that they are satisfied with the way their franchisor
deals with them.6
When asked to describe their biggest problem, 65% of franchisors mentioned
franchisee recruitment. Of that number, 88% are now using the Internet to attract
prospects.
265 systems have an international presence, mostly under master licence
arrangements. The favourite destination is Europe, where 30% operate.
We all know that the UK has been affected by the current economic crisis to a much
greater extent than South Africa. It is refreshing to note that the BFA, instead of trying
to downplay this unpalatable reality, has come up with an innovative solution. They
contact companies that are announcing retrenchments and offer to speak to the
affected staff.
The impact of this initiative is twofold:
1.
Workers who want to use their retrenchment package to start their own
businesses gain a solid understanding of how franchising works, and what pitfalls
they need to look out for. The BFA has even undertaken to assist suitable
candidates in making the right decision, at no cost to them.
2.
Members of the BFA gain exposure to relatively large groups of individuals who
are forced by circumstances to make a decision about their future. Given the
prevailing circumstances, it is safe to assume that many will be reluctant to hunt
for another job, an endeavour that may prove futile. Those who have what it
takes to become franchisees will grasp the offer of “entrepreneurship with a
safety net” with both hands.
This is an outstanding example of working together for mutual benefit and in the true
spirit of franchising.
USA
If any country in the world was harder hit by the current economic crisis than the UK
then it must be the USA. This notwithstanding, the franchise sector remains upbeat and
why shouldn't it? Franchisors reason, with some justification, that precisely because
times are tough and people are losing their jobs through no fault of their own,
franchising offers excellent opportunities for a new career. They openly admit,
however, that raising finance has become something of a challenge.
The latest available statistics, although published during 2008, are based on figures
reflecting the situation as it was in 2005. They paint a picture of awesome
achievements:
6
This proves a point we have often made, namely that profitable franchisees are happy franchisees.
10
Sales through franchised outlets exceed $880 billion; if indirect economic activity
(supply of goods by non-franchised businesses to franchise chains) is taken into
account, this figure rises to $2.3 trillion.
The US-market is serviced through over 900,000 franchised outlets which hold
about 50% market share in the retail sector.
The franchise sector provides a total of 21 million direct and indirect jobs; total
salaries paid total $660.9 billion.
The membership of the International Franchise Association (IFA), the world’s
oldest and largest representative of the franchise sector, is made up of:
1,300 franchisor members
Over 10,000 franchisees
More than 500 suppliers to the franchise sector.
The IFA arranges local exhibitions and international trade missions. It also
operates a strong educational programme, a conciliation programme and various
initiatives designed to bring disadvantaged individuals into the economic
mainstream and help them to become successful. It even monitors legal
developments and makes certain that its members’ interests are represented at
legislative level when indicated.
Other observations
In the aftermath of the funding crisis, financiers have become jittery and turn
down deals that are perfectly sound. Forward-looking franchisors have
recognised this and offer deserving franchisees a lifeline in the form of an
interest-bearing loan. New prospects and existing franchisees that see viable
opportunities to operate additional units are offered reduced upfront fees.
In view of the relative saturation of the US market, US franchisors are
increasingly seeking expansion opportunities abroad. Having rolled out
operations in the UK and much of Europe, they are now targeting developing
countries, with China and India the flavour of the month.
Neither South Africa nor the African continent as a whole seem to feature highly
on US franchisors’ list of target markets. We can only assume that the relatively
low number of people with disposable income keeps them away at present but
believe that over time, this will change.
How does South Africa compare?
According to newspaper reports, the latest available figures, published during 2008,
paint the following picture:
531 systems, operating through about 28 000 units, operate in a variety of
11
business sectors ranging from automotive to retail. This is up from 358 systems
on record 10 years ago.
The fastest growing sectors are services with 26 new systems, followed by retail
with 22 new systems.
Lumped together, franchisors and their franchisees employ over 460,000 people,
up from 390,000 two years earlier. The largest employer within the sector is retail
with almost 120,000 employees, followed by food outlets (fast food operations
and restaurants combined).
The bulk of franchise systems active in South Africa are home-grown.
95 local franchisors operate a total of 387 units in other countries. Although some
franchisors have ventured as far afield as Australia, the UK and Europe, Namibia
(159 units) and Botswana (97 units) are the most popular destinations by far.
Average franchise fees are as follows:
Upfront fee
R106,000
Management services fee
5.82%
Contribution to the marketing fund
2.4%.
FASA
The Franchise Association of Southern Africa (FASA) continues to be seen as the sole
representative of ethical franchising. Its Code of Ethics and disclosure requirements
are widely seen to rank among the best world-wide. In this context, it is noteworthy that
FASA pioneered several initiatives designed to protect the interests of prospective and
established franchisees, being the first in Africa to formulate a Code of Ethics that was
binding on its members and the third country in the world to introduce formal disclosure
requirements.
FASA offers membership in three categories:
Franchisor member (also known as full membership)
Preliminary member (open to new franchisors)
Supplier/service provider member (open to advisors and suppliers to the
franchise sector).
Following several attempts on organising franchisees under the FASA
banner, the establishment of a loose association for franchisees, to be
known as the Franchisee 800 Club, is currently in the pipeline.
It is regrettable that over the past ten years, membership of FASA has
experienced negative growth. One can only assume that many of the self-styled
12
franchise networks consider FASA’s membership requirements as being too
onerous and prefer to do their own thing.
This would not be too bad if only prospective franchisees would accept FASA’s
advice to deal with accredited members only. Unfortunately, this is not the case
and people continue to invest in ill-conceived franchise schemes, often with
disastrous consequences.
FASA’s current membership is as follows:
About 140 franchisors 7
About 40 suppliers/service providers to the sector.
FASA’s activities include:
The operation of the International Franchise Expo. This is Africa’s exhibition
dedicated to franchising. It is an annual event that brings together
franchisors, prospective franchisees and advisors from South Africa and
various parts of Africa and the world.
The publication of the annual Franchise Directory which has become South
Africa’s leading reference work for those interested in franchising. This
publication is supported by an informative website and other expert
publications are also available from FASA.
The presentation of the FASA Awards for Excellence in Franchising,
established since 1990.
Roadblocks that hold franchising back
To be able to make meaningful recommendations regarding the advancement of
franchising in South Africa, we first needed to identify the roadblocks that hold
its development back. We have managed to identify 12. Our intention is not to
apportion blame but to highlight what the sector is up against and create a
platform for future action.
The economic downturn
Speaking at the FNB Think Tank 2009, FNB’s chief economist Cees Bruggemans
explained that while South Africa was relatively better off than many first world
countries, it would be unrealistic to expect that it would remain totally unaffected. As
part of the world economy, South Africa feels the impact of capital flight due to investor
nervousness, wildly fluctuating exchange rates and export markets drying up. Some of
the key points made are:
7
The membership figure for franchisors excludes firms that have been granted preliminary membership
and franchisees of FASA members who are informally linked to FASA.
13
Global economic forecasts haven’t caught up with reality yet. That doesn’t bode
well for dollar-based resources prices.
The inflation picture is not as rosy as previously envisaged.
The gaping current account deficit remains a cause for concern and renders the
Rand vulnerable.
Out of a total of 9 million formal employees, 3-4% are in grave danger of losing
their jobs while another 10-15% have reason to feel anxious about their
prospects for the immediate future.
During the recent past, steel output in South Africa was cut by 30% and car sales
are down by the same percentage.
The real estate sector lost 50% of its business.
Government is doing much to minimise the impact of the downturn, only perhaps a little
too late.
The poor image of franchising
While in other countries, successful entrepreneurs are highly regarded, with some
enjoying almost rock star status, entrepreneurship is far less popular in South Africa.8
Although the education system is now including entrepreneurship in its curricula, the
attraction of preparing for a career as an employee of a large corporation or
government appears to remain strong.
It is a sad reality that far too few young people consider entrepreneurship as a
desirable career choice; becoming a franchisee ranks even lower on their wish list.
Contrast this with the prevailing attitude in the US where a recent poll revealed the
degree of esteem owners of small businesses and entrepreneurs enjoy. In response to
the question, “Who will lead us to a better future?” those polled placed entrepreneurs at
the top of the list with 63%; science and technology leaders came a credible second
with 52% while government and large corporations trailed with 31% and 21%
respectively. Traditional media made up the rear with 13%.9
We don’t know of a similar study having ever been undertaken in South Africa but with
the battle cry “Government must provide” having now become our (unofficial) national
anthem, we have little doubt how this would work out.
Turning back to the US poll, we found the low ranking of the media particularly
interesting. It has long been our contention that they should accept part of the blame
for franchising’s poor image. They are quick to report on so-called “franchise failures”
without investigating the underlying circumstances first. More often than not, the
8
Taken from Global Entrepreneurship Monitor (GEM), South African Report
9
Taken from http://smallbiztrends.com
14
franchisee is presented as the victim and the franchisor as the villain.
While this may be justified in some cases, we have found that in the majority of
instances the franchisee should accept at least part of the blame. Interestingly enough,
the media rarely consider stories about the many millionaires drawn from all walks of
life that franchising has created as newsworthy. Even BEE initiatives that are realistic
and sustainable are usually ignored.
We placed “franchise failures” into inverted commas because we believe this term to
be a misnomer. After more than six decades of combined experience in franchising, we
have yet to come across an instance where the concept of franchising was to blame for
the failure of a network. In our view, franchising is a precision tool; in the hands of an
artisan, it will perform well. If used by a novice, the results may disappoint.
Every so-called franchise failure we have become aware of has as its root cause a
shocking disregard for even the most rudimentary tenets of franchising; more often
than not, both by the franchisor and by those who allowed themselves to be lured into
the network are to blame. Over the past five decades, a vast body of knowledge has
been accumulated that can be adapted to every concept’s needs. And there is no need
to call in overseas experts to gain access to this knowledge because it is on tap right
here in South Africa.
In our view, strict adherence to proven guidelines is vital. This is why we have a
problem with people who fail to understand the intricacies of the franchise concept yet
feel qualified to make irresponsible comments. We remember a well-meaning but illinformed individual who shall remain nameless giving a speech at the opening of a
major FASA function. Referring to the difference between a product franchise and a
business format franchise, he made the following remark:
“Let’s not worry about definitions and rules, let’s just get on with making money”.
Following such advice could get people into serious trouble. Chances are that once this
happens, they will be quick to blame franchising for their losses but this is neither
constructive nor fair. Better to play by the rules from the beginning and reap the
rewards that will almost certainly follow.
Inaccurate perceptions by overseas franchisors
Relatively few foreign concepts come to South Africa, be it under the mantle of direct
franchising or under a master licence agreement. In the past this was not surprising
because the trade sanctions imposed on South Africa during the 1980s kept many
brands away but this restriction no longer applies. The scarcity of foreign concepts is a
pity because foreign franchisors bring with them not only new ideas and valuable skills
but in some cases even significant direct foreign investment. McDonald’s is an
outstanding example of this responsible approach to international franchising.
We believe that foreign franchisors’ continued reluctance to set up shop in South Africa
is the result of a series of misconceptions. On the one end of the scale are those
franchisors who see Africa as “the lost continent”, beset by poverty, riddled by disease
and held to ransom by crime. They place South Africa and the entire continent of Africa
15
at the bottom of their list of expansion targets because they think that we have nothing
to offer.
On the other end of the spectrum are those blinded by population numbers. They
choose to ignore the fact that a substantial portion of the population lacks any
disposable income. This results in unprofessional foreign franchisors offering master
licences to individuals who are naive enough to pay a large licence fee based on a
head count, without regard to real purchasing power.
A deal is signed, money in the form of a hefty licence fee leaves the country, the
licensee receives some training overseas but from then onwards, its downhill all the
way. The hapless master licensee is expected to bear the costs for adapting the
product or service to local expectations, often without technical or financial help from
the franchisor. More often than not, the licensee runs out of operating capital, leading
to the demise of the brand before it had a realistic chance to make inroads into the
market.
Not surprisingly, such unfortunate experiences reinforce negative perceptions about
our country on the one hand and the concept of franchising on the other. This is
detrimental all-round because it fails to take into account Africa’s real potential and how
to convert it into a sustainable business arrangement. It also ignores South Africa’s
position as a thriving consumer market in its own right as well as being the gateway to
the rest of Africa. For all this to come to fruition, however, requires participants to take
a long-term view.
The South African Reserve Bank’s strict scrutiny of licence agreements and their
frequent refusal to sanction deals is another hindrance, although in some cases, this
can work out for the best. For reasons explained above, local investors should be
grateful to the Reserve Bank for not granting them permission to squander their money
(and our country’s scarce foreign exchange) on licence arrangements that fail to deliver
on their promise.
Lack of legal certainty
Not having specific franchise legislation in place can be problematic, simply because
existing legislation that wasn’t written to accommodate the franchise sector’s special
requirements could, albeit unwittingly, outlaw practices that are essential in the
operation of a franchise.
The Competition Act is a case in point. It outlaws several practices that are essential
to the operation of an effective franchise network. Table 1 provides details.
16
Table 1
Provisions of the Competition Act 89 of 1998, as amended,
as they affect franchise arrangements
Provision
Comment
Use of Resale
Price Maintenance
Franchisors are permitted to set recommended retail prices but may not take
action against franchisees who fail to take heed. This is bound to create confusion
among consumers who may be charged different prices for the same product in
different outlets of the same network. It also causes friction between members of
the network and renders the financial projections provided by the franchisor in
good faith meaningless.
The granting of
exclusive
territories
This prohibition makes it impossible for a franchisor to grant territorial protection.
It could even encourage rogue franchisees to engage in the practice of “cherry
picking” – serving the most profitable customers in adjoining territories without
providing the service and backup users of the brand have come to expect.
Exclusive dealing
It is common practice for franchise networks to compel franchisees to purchase
products from the franchisor or a supplier nominated by the franchisor. Some
franchisors feel that this is necessary to maintain product quality and with it the
standing of the brand. For others, it is the sole reason for the existence of the
franchised network (Example: manufacturer or importer of a product that is
distributed through franchised outlets.)
Tying of products
Some franchisors insist that franchisees purchase not only the network’s core
product(s) but also other items from the franchisor or a supplier nominated by the
franchisor. Alternatively, the franchisor insists that the franchisee stocks the entire
range even if there should be little demand for certain items.
Intellectual
property rights
The Competition Board acknowledges that the owner of IP should enjoy
protection but has problems with the owner threatening with the withholding of
supplies if, for example, a franchisee charges inflated prices.
The Competition Commission is at pains to point out that it recognises the potential of
franchising for the creation of small businesses, the inclusion of formerly
disadvantaged individuals into the economic mainstream and job creation. It maintains,
however, that while franchising is a successful, common and often efficient method of
distribution, it may be problematic from a common law perspective.
In an effort to create some certainty, the Commission has published a “Franchising
Notice” that outlines its views on franchising and attempts to soften the impact of the
competition legislation to a certain extent. The way we understand it, however, this
17
document does not create legal certainty and therefore fails to provide comfort to
prospective franchisors.10
This is of great concern to large companies who are understandably reluctant to enter
into legal agreements that have the potential to become problematic. This is a pity,
especially in the South African context. Sufficient evidence exists that loss-making
branches can be turned into profitable businesses if control is passed over to an
individual who owns the business and operates it hands-on. This is known as the
“owner-operator effect” and has been shown to create win/win situations all round.
Because of the current legal situation, this is not happening at the rate it should,
leaving closure of loss-making branches as the only viable alternative.
The Consumer Protection Bill (CPB) is another piece of legislation that has the potential
to impact severely upon franchise arrangements. It defines franchisees as consumers and
regulates the interaction between franchisors and franchisee to some extent.
Following the publication of a series of draft versions of the Bill, the Franchise
Association of Southern Africa has made several submissions aimed at avoiding
unintended outcomes once the bill is enacted. This notwithstanding, many questions
remain unanswered and franchisors have good reason to be concerned.
During the FNB Franchise Think Tank 2009, Eugene Honey, a director of law firm
Bowman Gilfillan, spoke extensively on this topic. Delegates were left in no doubt that
the bill will regulate franchise agreements, impact on supply chain arrangements and
govern the contractual interaction between franchisor and franchisee to a much larger
extent than has previously been the case. We have to accept that in some way, the
freedom to contract will be diminished.
To avoid falling foul of the provisions of the act, once promulgated, the onus will be on
franchisors to provide justification for certain restrictions placed on franchisees. They
need to demonstrate that these are essential for the effective operation of the network
and not against public interest. Although most of these requirements are eminently
reasonable, they have the capacity to turn negotiations with prospective franchisees
into a minefield. This may discourage companies from franchising their businesses. If
so, it would clearly be to the detriment of the economy. Ways around this problem must
be found, albeit without watering down the good intentions of the CPB.
Shopping centre rentals are too high
Most franchised businesses fall within the SME sector and many require good retail
space. Unfortunately, shopping centre owners expect them to pay significantly higher
rentals per square meter than large national chains.
We investigated the reasons for this and were appalled to find that the current system
of allocating rentals to retail space of identical value is heavily slanted in favour of the
large national chains. It is accepted practice for the owners of a shopping centre to
10
The application of certain provisions of the Competition Act 89 of 1998, as amended, to franchise
agreements
18
calculate how much rental income thy need to generate to become profitable. Instead
of working out a flat rental per square meter based on position they accept very low
rentals from the large chains and make up the resulting shortfall by inflating rentals
demanded of smaller tenants, as Figure 1 illustrates.
Figure 111
This practice impacts negatively on the commercial viability of setting up new small
businesses and therefore hinders expansion of this important sector, but there is more.
Over the past few years, we have observed a growing tendency among landlords to
demand outrageous increases in shop rentals when the lease agreement comes up for
renewal. Anecdotal evidence suggests that increases can be as high as 100%.
When faced with such exorbitant demands, a growing number of owners of small
businesses simply throw in the towel. These are people who have been operating fairly
successful businesses but realise that to pay the increased rentals would erode their
profitability to such an extent that it would no longer viable to carry on trading. After
doing their sums, they simply close their stores. This results in job losses and a decline
in economic activity (including the ability to pay taxes), two negatives South Africa can
11
Taken from a presentation by Stephen Walters of Fernridge Consulting
19
ill-afford.
Lack of professionalism among prospective franchisors
Many companies are attracted to franchising for the wrong reasons, with the
expectation of making easy money in the form of franchise fees topping the list. In this
context, we have identified the following problems:
A self-styled franchisor offers franchises before the concept has been properly
developed. Precisely because a franchise is seen as a blueprint to business
success, such a cavalier approach is totally unacceptable; some experts even
call it fraud, and we concur.
Lack of resources causes the self-styled franchisor to skimp on ongoing support.
Unless the franchisor has the funding needed to prepare a professional franchise
package and survive the initial period after the launch where outgoings are
certain to exceed incomings by a substantial margin, the franchise is doomed
from the start.
The size of the market and/or the trading potential of a specific site are
overestimated. As a result, they are overstated in discussions with potential
franchisees.
Poor judgement is applied in the selection of franchisees. Inexperienced
franchisors, especially those that are under-resourced, often consider an
applicant’s ability to support the necessary investment as the decisive factor for
admission to the network.
Insufficient initial and ongoing support offered to franchisees. This point is of
sufficient importance to bear repeating: Franchisors have a moral obligation to
offer their franchisees a level of support that helps them to become successful.
In combination, these factors have the capacity to destroy a promising brand.12
Lack of professionalism among established franchisors
Established franchisors are not immune to making mistakes either. In many instances,
they make some or even all the mistakes listed above and then go on to add a
multitude of cardinal sins of their own to the mix.
Lack of transparency. Many franchisors refuse to discuss their long-term
strategies and short-term tactics with their franchisees before they implement
them. They try to introduce new initiatives “by decree” and are surprised when
their franchisees, who have made substantial investments and see themselves
as partners in the business, are less than enthusiastic in their support.
12
The prerequisites for successful franchising are set out in Eric Parker’s 21 proven steps to franchise
success published in Franchising in South Africa – the real story.
20
Corporate greed. Cases are on record where double, even triple-dipping, has
occurred. For example, the franchisor may charge mark-ups on product supplies,
retain periodic rebates granted by suppliers and collect hefty franchise fees.
Reluctance to share the risk. Some unscrupulous franchisors are quite content to
collect upfront fees and ongoing fees from their franchisees but chose to ignore
the fact that these franchisees fail to make money. Eventually, the brand will
suffer but once this happens, these franchisors will walk away unscathed.
Unrealistic product promotions. The introduction of promotions that drive sales
but reduce franchisees’ trading margins below realistic levels is a closely related
issue. Especially during periods when the economy is in a downward cycle, some
franchisors try to maintain market share by cutting prices to the bone. This may
be necessary but there can be no doubt that it puts pressure on franchisees’
trading margins, resulting in bitterness among franchisees.
The “know-it-all” syndrome. Many franchisors are convinced that they know
everything there is to know about the business and refuse to ask for help when
they need it. They forget that as franchisors, they are no longer in the food
business or the real estate business or any other industry sector. They are in the
business of putting people into business and helping them to become successful.
Unwillingness to assist franchisees who wish to expand. During the early days of
franchising, it was a “sellers’ market” and franchisors could dictate the terms of
their franchise agreements.
One of the most onerous clauses introduced back then is the one that
prevents franchisees from operating more than one unit of the same
franchise as well as any unrelated businesses. It is also the most
destructive because it practically forces ambitious franchisees to leave the
network so that they can regain their freedom.
When times are good, we are the first to warn against offering “special
deals” to franchisees but we recognise that desperate times call for
appropriate responses; unfortunately, not many of our franchisors see it
that way.
Lack of sound judgement by prospective franchisees
Prospective franchisees are not without blame. After speaking to thousands of them,
and answering many questions from ex-franchisees who encountered problems, we
feel qualified to list some of the most common problems.
Prospective franchisees fail to assess their own skills, abilities, likes and dislikes
with some degree of realism.
Once in discussions with a franchisor, prospects tend to overstate their level of
business experience and the amount of capital they will be able to invest.
Unwillingness to follow a series of clearly defined steps before they pay over any
21
money or sign a franchise agreement is another reason for failures.13
Reluctance to “work the system” among established franchisees
Some franchisees expect the franchisor to do their job for them and become very
upset if this does not happen. After a stint as franchisee that ended in financial
distress, a failed entrepreneur told his ex-franchisor’s lawyer: “I quite enjoyed
being my own boss. What spoiled it for me was the fact that I was expected to be
my own employee.”14
A few years after joining a brand, some franchisees begin to think that they know
everything there is to know about the business. They ignore the Field Service
Consultant’s advice and start tinkering with the system. When the franchisor puts
a stop to this, as he is compelled to do, they cry “foul”.
Another common complaint made by franchisors is that some franchisees
habitually fail to submit returns on time, refuse to participate in promotions and
rarely if ever attend meetings or seminars that have been arranged for their
benefit.
Some franchisees are dishonest. For example, they may under-declare sales to
reduce fee payments but this is outright fraud.
Shortage of low cost of entry opportunities
Unlike other countries, for example the UK where so-called “one man and a van”
franchises are omnipresent, South Africa has very few low-cost-of-entry franchises.
This discourages many would-be entrepreneurs from becoming franchisees, simply
because they cannot support the relatively high initial investments available
opportunities demand.15
Banks’ reluctance to provide funding
Lack of access to funding is the most common roadblock mentioned by both aspiring
entrepreneurs who wish to invest in a franchise and established operators who wish to
expand their businesses. This is surprising because broad agreement exists that the
survival chances of a start-up under franchise are significantly greater than if the
operator is independent.
Lack of government support
No evidence exists that Government currently supports franchising. We are aware that
during the mid-1990s, a Ministerial Committee on Franchising was formed but following
13
How to evaluate a franchise offers copious checklists
14
Teach yourself franchising
15
The 2009 Franchise Directory lists very few low cost investment opportunities
22
the publication of a paper that made some meaningful suggestions16 the initiative was
allowed to fizzle out.
Another promising initiative was the commissioning of a manual that outlines
franchising best practices based on local and international findings.17 Although this
document was the result of an intensive consultative process and remains accessible
on SEDA’s website to this day, it is largely ignored.
Misleading advertising
The relative success of franchising and the hype that goes with it had the unintended
effect of attracting reckless and sometimes even fraudulent operators who were not
interested in building a solid franchise infrastructure but wanted to reap quick profits
from some underdeveloped or unworkable scheme, using the good name of franchising
as a cover.18
They place advertisements for “franchise opportunities” backed by wildly exaggerated
claims of potential and profitability, then sit back and wait for the gullible to invest.
Many continue to do so and when the bubble bursts, they blame franchising for their
misfortune.
Why should we care?
We have listed a variety of reasons why franchising has failed to develop to its full
potential but why should we care? In our view, the underutilisation of franchising should
be seen as a national concern because it translates into missed opportunities to:
Create new enterprises. Franchising is an ideal vehicle for start-ups because of
its significantly reduced failure rates. It is often described as entrepreneurship
with a safety net, and rightly so.
Accelerate the creation of employment opportunities. Almost every franchised
outlet employs staff. The number of employees a typical franchise will absorb can
vary from 2-3 in the instance of a small service franchise to 100 or more
employed by a Pick n Pay Family Store or a Dis-Chem Pharmacy.
Improve levels of statutory compliance. Experience has shown that on the whole,
formalised businesses tend to be more compliant when it comes to statutory
returns and payments, they understand the need to pay taxes and they tend to
create better working conditions for their staff.
Offer consumers certainty. To remain competitive, known brands are practically
16
17
18
National Strategy for the Development and Support of Franchising in South Africa
Best practice manual for franchising
How to franchise your business
23
forced to offer their customers a pleasant shopping experience, value for money
and fair product guarantees. As part of any such network, franchisees are
compelled to comply.
Encourage big players to enter this field. Franchising is an ideal vehicle for the
revitalisation of tired branch networks. Many large companies would like to avail
themselves of this but are concerned that the perceived complexities and legal
uncertainties that currently exist in franchising outweigh the franchise concept’s
proven advantages.
Create realistic and sustainable BEE schemes. Instead of closing a loss-making
branch, it can be offered to a deserving member of staff, possibly initially within
the framework of a joint venture. This would have to be structured in such a way
that the staffer will ultimately own the business outright but would continue to
operate it under franchise.
Strong anecdotal evidence exists that “placing the owner behind the counter” can
have a dramatically impact on the profitability of a store. Instead of being left with
the aftermath of a store closure, namely loss of footprint and market share for the
company, an empty shop for the landlord and perhaps 20-50 people joining the
unemployment queue, we end up with a thriving business.
What does the sector think?
The first FNB Franchisee Climate Survey was carried out during February 2009. A
questionnaire was sent out to a representative sample of franchisees, mostly drawn
from among FNB clients, and the recipients were asked to rate various aspects of their
experiences as franchisees on a scale from 1-5. A credible 20% of the target
population responded and the results make for interesting reading.19
Figure 2 provides summaries of some of the answers given by respondents.
Moreover, a wide cross section of franchisors and other franchise personalities were
actively involved in discussion groups during the FNB Franchise Think Tank 2009; they
also provided some feedback through targeted questionnaires.
Whilst quantitative surveys into franchising have been carried out for years, this is the
first time that a survey of this nature has been undertaken and we’d like to congratulate
FNB Franchising on this initiative.
19
A sample of the questionnaire is included in the Appendix and the full set of results of the Franchisee
Climate Survey is available in electronic format from FNB Franchising.
24
Figure 2
FNB Franchise Climate Survey 2009
1. The early days of being a franchisee
2. Ongoing operations
2. Ongoing operations - continued
3. Relationship with my bank
4. Background information
25
4. Background information - continued
5. Future outlook
26
Franchisees’ top ten concerns
The question “What burning issues would you like to see addressed (by your
franchisor)?” elicited some interesting answers from the participants in the Franchisee
Climate Survey. We have selected their top ten concerns and reproduce them below:
1.
Assistance with dealing with the impact of the current economic situation on the
business.
2.
More national marketing undertaken by the franchisor.
3.
More support from the franchisor.
4.
Access to information regarding planned expansion of the network.
5.
Shortening of the time it takes banks to approve loan applications.
6.
More and better ongoing training provided by the franchisor and/or the network’s
field service consultants.
7.
Management services fees (“royalties”) should be based on profitability rather
than sales.
8.
The duration of the franchise agreement and subsequent renewal periods; they
are considered to be too long.
9.
Periodic rebates granted by suppliers should be shared more equally.
10.
Territorial guarantees should be given.
Preliminary conclusions
Based on the results of this survey, it appears that overwhelming majority of
franchisees are reasonably happy with their lot. They expect their businesses to be
profitable during 2009 and, once their franchise agreements come up for renewal, they
plan to renew them.
This notwithstanding, we gained the impression that communication between
franchisors and franchisees is in need of improvement. We expected that and have
every intention to explore it further. Due to production deadlines, we were unfortunately
unable to complete this task in time for inclusion into this paper but plan to follow up on
this and publish the outcome in due course.
27
Section 2
Strategic outline:
Where should franchising be?
Based on the experience of other countries and taking the many advantages
franchising offers in the South African context, franchising’s market share should be far
greater than the 12% of retail sales (excluding petroleum sales) it currently commands.
We believe that it should have reached at least 25% by now and we are conservative
here because in several other countries, the figure is in the mid-20s and in the US it
has passed the 50% mark.
Proposed course of action
We believe that to achieve this requires a three-pronged approach as follows:
The setting of a clear strategic direction
The assembly of a team of suitable role players who are prepared to see this
project through
The development of suitable tactics plus a firm commitment from everyone
involved to adhere to agreed timelines for implementation.
Before we go into the detail of this, let’s do what good strategists do best – let’s dream
a little. Let’s ask:
What would happen if …? 20
Available evidence suggests that when it comes to either easing newcomers into
entrepreneurship or expanding an existing business into a multi-branch operation,
franchising has no equal. In the South African context, this is of particular importance
because government has identified job creation and the promotion of entrepreneurship
as issues of national priority. All the hype surrounding franchising in South Africa
notwithstanding, we believe that it has failed to reach its full potential.
In this chapter, we outline steps which we believe would result in franchising waking
from its slumber and making the contribution to the economy that we know it is capable
of. Our suggestions are in tune with government’s Asgisa programme and, if
implemented, will have a significant impact on entrepreneurship development and job
creation.
There is a strong affinity between franchising and Ubuntu, South Africa’s
quintessential spirit of togetherness: “We exist because other people exist!”
20
Adapted from chapter 8 of Franchising in South Africa – the real story
28
Projecting performance
Before we can make meaningful predictions, we need to make a few assumptions. Let
us accept that at present, 530 bona fide franchisors are active in South Africa, operate
through 28 000 outlets, which are mostly franchised, and achieve combined sales of
R147.35 billion. (These figures exclude petrol sales.)
Let us further assume that on average, each outlet employs 16 people and that over
the next five years, growth rates ranging from 5% to 25% will be achieved. These
assumptions are highly conservative because many franchises employ 35–50 people
per outlet, some significantly more. For example, Pick ’n Pay Family Supermarkets
have up to 100 employees per store. Turning to the sector’s growth rates, figures of
between 25 and 35% are often claimed while we look at a more conservative 5-25%.
The following tables show what the effect of this would be:
Table 2
2013
2012
2011
2010
2009
Projected growth rate
Base figure
(2008, excl.
petrol outlets)
The franchise sector’s projected combined sales expressed in R billion
If growth of 5% is achieved
147.35
154.72
162.46
170.58
179.11
188.07
If growth of 10% is achieved
147.35
162.09
178.30
196.13
215.74
237.30
If growth of 15% is achieved
147.35
169.45
194.87
224.10
257.72
296.38
If growth of 20% is achieved
147.35
176.82
212.18
254.62
305.54
366.65
If growth of 25% is achieved
147.35
184.19
230.24
287.80
359.75
449.69
Table 3
2013
2012
2011
20110
2009
Projected growth rate
Base figure
(2008, excl.
petrol outlets)
Projected number of franchisors (franchise systems)
If growth of 5% is achieved
530
556
584
613
644
676
If growth of 10% is achieved
530
583
641
705
776
853
If growth of 15% is achieved
530
609
701
806
927
1 066
If growth of 20% is achieved
530
636
763
916
1 099
1 319
If growth of 25% is achieved
530
662
828
1 035
1 294
1 617
29
Table 4
2013
2012
2011
2009
Base figure
(2008, excl.
petrol outlets)
Projected growth rate
2010
Projected number of franchised units
If growth of 5% is achieved
28 000
29 400
30 870
32 413
34 034
35 736
If growth of 10% is achieved
28 000
30 800
33 880
37 268
40 995
45 094
If growth of 15% is achieved
28 000
32 200
37 030
42 584
48 972
56 318
If growth of 20% is achieved
28 000
33 600
40 320
48 384
58 061
69 673
If growth of 25% is achieved
28 000
35 000
43 750
54 687
68 359
85 449
Table 5
2013
2012
2011
2010
2009
Base figure
(2008, excl.
petrol outlets)
If growth is
Projected number of jobs the franchise sector will create ( stated in 000)
5%
460
483
507
532
559
587
10%
460
506
556
612
673
741
15%
460
529
608
700
804
925
20%
460
552
662
795
954
1 144
25%
460
575
719
894
1 123
1 404
Note: all figures stated above have been rounded off.
What can we learn from this?
The above tables show that if the franchise sector can maintain an average growth rate
of a modest 15%, its contribution to the economy will double across the board within
five years. As far as sales figures are concerned, it is safe to assume that an increase
of 5% per annum will be achieved almost automatically – inflation will see to that. This
cannot be classified as growth.
However, to increase sales beyond the 5% level and to create the projected number of
franchisors, franchisees and employees will require a series of targeted interventions.
This raises the question, “Which measures will stimulate franchising’s growth and who
needs to accept responsibility for their implementation?”
It is clear that a project of this magnitude cannot be tackled successfully by any one
grouping. The franchise sector will have to come to the party in a big way, and
30
government will also have to assist. Let us be clear about one thing, though: we are not
calling for government hand-outs – merely for the creation of conditions that are
conducive to the growth of franchising.
Prerequisites for exponential growth
The merits of franchising are no longer in doubt. The foundations needed to ensure
exponential growth are in place, but to deliver on its promise the sector must attract
additional quality participants, preferably drawn from the corporate sector. At the same
time, care must be taken to ensure that the entry of new players does not create an
imbalance. As we grow existing systems and create new ones, we need to grow the
pool of prospective franchisees simultaneously, or problems of a different kind will
emerge.
To achieve our stated objectives, we believe that the following needs to happen.
Standards of franchising need to be improved
To accelerate growth of existing systems, franchisors need to improve operational
standards. Although several strong franchisors exist, they are outnumbered by weaker
systems. Many of the latter franchised their businesses prematurely and/or for the
wrong reasons. As a result, they as well as their hapless franchisees may plod along
but are unlikely to excel.
The criteria for professional franchising are well known and the required expertise is on
tap. Franchising’s Achilles heel is that no mechanism is in place that enforces
adherence to minimum standards. This allows anyone to masquerade as a franchisor,
to the detriment of an unsuspecting public and the sector as a whole.
To improve standards also requires strategic thinking and ambitious forward planning.
The Americans have created an acronym for that: “BHAG”; it stands for big, hairy,
audacious goals. Setting goals can be exciting, but the process becomes pointless
unless implementation follows. Because franchisors can rely on the support of their
franchisees whose livelihood is at stake, they are in a better position than “ordinary”
entrepreneurs to do just that.
We believe that once these issues have been addressed, the law of supply and
demand will take over. As soon as a reasonable number of strong franchisors are in
the market, the weaker players will find it increasingly difficult to attract franchisees and
will either be forced to improve their operations or disappear.
We need to create additional franchise systems
Franchising constitutes an ideal mechanism for business expansion. To protect the
interests of prospective franchisees, new franchisors should be obliged to demonstrate
a sound understanding of the concept and the necessary commitment to adhere to
defined minimum standards. Human nature being what it is, this is unlikely to happen
unless legislation makes it happen.
This may sound like we are calling for the creation of a “nanny state”, but this is not our
31
intention. We merely wish to draw attention to the fact that in the past, too many rogue
operators have separated the naïve and the gullible from their money. It is in the
interest of the franchise sector as well as the economy as a whole that they are
stopped.
In addition to stable small businesses being encouraged to expand through franchising,
the concept needs to be promoted heavily among the larger corporations, especially
those that currently operate through unwieldy branch networks. It should be relatively
easy to sell the idea to this segment of the market because not only can franchising be
highly profitable, it is also an ideal vehicle for the implementation of programmes aimed
at compliance with BEE targets. And, as mentioned before, it lends itself to the
rejuvenation of tired branch networks.
While on the face of it large corporations should be rushing into franchising, this is not
actually happening, for several reasons:
CEOs of large corporations do not know how franchising works and how the
concept can be adapted to the needs of various business sectors. They think that
franchising has something to do with selling burgers and fries, and fail to see the
benefits their companies could derive from adapting the concept to their needs.
Corporate legal advisors are concerned about the legal uncertainties surrounding
franchising. We have elaborated on this in section 1 of this paper.
Corporate financial managers tend to believe that franchising may not create
adequate returns. This requires a shift in mindset which will only come about
through education. For example:
CEOs of large companies need to realise that a return of, say, 5-6% of
sales (this being the typical fee level) generated by thriving franchisees is
better than having to fund losses suffered by poorly managed branches.
Closing under-performing branches would be an option, but this would
damage the brand and result in a loss of market share. It would also be bad
for the company’s image because job losses would be almost inevitable.
Franchising must shake off its image of being a vehicle for charitable acts.
Renewal fees are a case in point. While charging them is common practice in the
US, it is less popular in South Africa. If we want to attract the big players to the
sector, we may have to change this mindset. Franchising is, after all, a business
tool and its attractiveness will ultimately be measured by its profitability.
The pool of prospective franchisees needs to grow
At present, a shortage of suitable individuals who aspire to become franchisees exists.
We have elaborated on this earlier in this paper, let us just restate that in our opinion,
South Africans’ reluctance to recognise entrepreneurship as a desirable career option,
misconceptions about franchising and lack of access to funding prevent many
prospects from entering this field.
32
It is vital to ensure that as additional franchisors enter the field, the pool of prospective
franchisees must grow in tandem. Unless this is done, the resulting shortage of
prospects will trigger competition among franchisors for franchisees. This would almost
inevitably, and disastrously, lead to the acceptance of unsuitable candidates, followed
by a corresponding increase in failure rate.
Franchising’s image needs to be burnished
This would require a multi-faceted approach, for example:
The implementation of targeted awareness campaigns aimed at the various
sectors of society from school-going children to corporate CEOs. This could be
facilitated through the creation of suitable role models.
Interventions designed to convince established companies to consider
franchising as a means to resuscitate underperforming branches, expand their
footprint and meet their BEE obligations at the same time.
Similar interventions aimed at government’s procurement officers to convince
them of the many advantages they could gain by dealing with franchised national
chains, especially in the procurement of services.
Aggressive promotion of social franchising as a means for government as well as
large corporations to discharge their social obligations in a cost-effective manner.
Educational initiatives aimed at prospective franchisors, prospective franchisees,
professional service providers and their staff. In this context, the introduction of a
formal qualification for franchise practitioners would be desirable.
The creation of a quality certification system for franchised networks. For such a
system to be credible, it would require periodic audits to be carried out by
external auditors. Underperforming franchisors would have to be left in no doubt
that they will face suspension or even exclusion from the programme, resulting in
negative publicity for their brands.
Achieving and subsequently retaining this certification would confer 5-star status
upon well-developed networks, help them to attract franchisees of the highest
calibre and ensure that their existing franchisees are proud to be part of a
certified professional organisation.
33
Section 3
Tactics:
How will we get there?
Henry David Thoreau, the 19th century American essayist, wrote, “People seldom hit
what they do not aim at.” We agree and this is why implementation of the strategy for
the expansion of franchising which we have outlined in Section 2 of this paper requires
careful planning followed by swift implementation. For implementation to happen
requires the commitment of all stakeholders, so let us define who these stakeholders
are.
In our view, stakeholders include existing and prospective franchisors, existing and
prospective franchisees, landlords, banks, insurance companies, service providers to
the sector, NGOs, government and the media. 21
In section 2 of this paper, we have identified a number of obstacles to the accelerated
rollout of franchising. We will unpack them one by one and offer what we consider to be
viable solutions. These are not based on our own opinions alone but include input from
the various Think Tank groups where applicable.
The economic downturn
Let us tackle the most difficult topic first. That the economy is in bad shape is a given,
and at a macro level, there is not much we can do about that. At micro level, on the
other hand, it’s a different story. People have not stopped buying goods and services.
They continue to buy but are more selective in what they buy and how much they are
willing to pay for it.
This means that the pie that represents the total market has become smaller. It follows
that those companies that want to survive the downturn need to secure a larger slice of
it. In his presentation at the FNB Franchise Think Tank 2009, FNB’s chief economist
Cees Bruggemans gave us the following five positives:
1.
Inflation is heading downwards and interest rates are bound to follow.
2.
With the petrol price down, other prices can be expected to come down as well
and consumers’ defensive stance will soften. This will cause domestic demand to
hold up reasonably well during 2009.
3.
The freefall in commodity prices is temporary. While South Africans are looking at
a “lengthy interruption” of the business cycle rather than a full-blown recession,
other countries are not so lucky. In Eastern Europe, for example, people who
thought they were clever when they took out loans in Swiss Francs because
interest rates in Switzerland were low, found to their dismay that after their local
21
Taken from FNB Franchise Think Tank 2009 Briefing paper for delegates; this document is available in
electronic format from FNB Franchising.
34
currencies had depreciated sharply, they now owe up to three times as much as
they did before.
4.
The business cycle should be on the recovery track by 2010.
5.
Some companies thrive during the current economic downturn, especially those
that offer the right product at the right price and from the right location.
Based on the above, we can only conclude that those businesses that make the best of
the current period will lead their industry sectors when the next boom period comes.
The following are some of the measures forward-thinking companies will implement.
Consolidating the product range.
Hiring new talent (which is currently available in abundance but generally in short
supply).
Accepting that they can no longer rely on customer loyalty; customers will look for
the best available deal.
Promising and delivering excellent products at competitive prices and throw in
that little intangible in the form of outstanding service.
At least continuing but preferably stepping up marketing efforts, with emphasis
given to below-the-line initiatives. To cut the marketing budget during this period
would be unwise because it could put a company out of business before the
economy turns.
(These are generic guidelines; franchise-specific recommendations follow under the
relevant headings.)
The poor image of franchising
This aspect needs to be addressed with vigour and consistency. We believe that for the
sake of credibility, such a drive should be spearheaded by FASA. Some of the
initiatives we would advise them to implement are listed below.
Send out regular press releases explaining:
How franchising works and why it is the safest route to entrepreneurship;
The extent to which it can impact on the economic future of South Africa;
What prospective franchisees and franchisors need to know and how they
can access this know-how.
Why every franchisor and every dedicated service provider to the sector
should be a member of FASA.
Evaluate the possibility of entering into a marketing partnership with a credible
35
publication with the correct readership profile. This could create massive ongoing
publicity for franchising while the media partner would secure a strong platform
for advertising sales in this burgeoning niche market.
Arrange seminars and workshops on franchise-related topics aimed at
prospective franchisors and franchisees respectively.
Lobby government to:
Accept franchising as a viable building block for the advancement of
AsgiSA.22
Grant FASA statutory powers so that it can police the franchise sector more
effectively.
Remove some of the barriers to entry that currently prevent prospective
franchisors from making the transition into franchising. (We have identified
those under the heading “Legal issues”.)
Create formal educational initiatives leading to a formal qualification in
franchising that is recognised by SAQA.
Help franchisors to:
Learn from their overseas counterparts by arranging group trips to major
international franchise events.
Promote their franchises through low-cost road shows and similar events.
Export their franchises, either under master licence or through direct
franchising, by increasing interaction with sister franchise associations,
especially but not only in the rest of Africa.
Facilitate the entry of foreign franchisors into South Africa, for example by
offering professionally prepared information packs.
Revitalise the “Emerging franchisor” scheme.
Target suitable large corporations, for example retailers with existing branch
networks to encourage them to use franchising as an expansion mechanism and
become members of FASA.
Government’s role
We wish to emphasise that we are not calling for handouts by government; rather, we
22
The Accelerated and shared growth Initiative for South Africa (AsgiSA) is an initiative by the South
African government which is intended to cut unemployment figures by 50% by 2014.
36
see government’s role as that of an enabler. We are certain that once the relevant
government departments have gained an understanding of the power of franchising
and how it can help to further government’s economic objectives, the concept will be
granted priority status. We can only hope that this paper will make a small contribution
in furthering this objective.
The Think Tank Group dealing with government issues was given the following
problem statement:
“Government support is critical to stimulate the growth of small business in general and
franchising in particular. Such support may include tax incentives, education incentives
and business support services. We also need a better understanding of franchising at
government level and initiatives to encourage the importation of international franchise
systems. How can we develop a strong relationship between government and the
franchise sector?”
Another Think Tank Group attempted to tackle legal issues. This group was given the
following problem statement:
The legal environment, including the Competition Act and the Consumer Protection Bill,
presents many challenges to franchising. How can we address these issues and
protect the rights of franchisors and franchisees alike?
Seeing that both these topics involve government assistance, we have grouped the
resulting suggestions together.
The sector’s expectations: It emerged that some of the ways in which the franchise
sector sees government assist franchising are:
Creating an enabling environment
Outsourcing work to franchised networks (this would virtually guarantee uniform
service delivery throughout the country).
In our view, the following departments are especially well placed to facilitate the
growth of franchising:
Department of Trade and Industry (dti)
The dti could advance franchising by:
Creating the position of a Franchise Champion; this would be a ministerial
appointment, with the incumbent reporting directly to the Minister. On
assuming office, this Franchise Champion should appoint a Task Team
drawn from among stakeholders that would advise him or her regarding the
best way forward.
Creating franchise-specific legislation, adapting existing legislation to the
special requirements of franchising or at least creating certainty regarding
the application of existing legislation.
37
Lending support to entrepreneurship-related education and training
initiatives aimed at young learners and adult learners, with the focus on
franchising.
Increasing cooperation with the Franchise Association of South Africa
(FASA) and granting it the powers of a statutory body. This would enable
FASA to exercise control over unproven or outright fraudulent schemes that
currently operate outside its net.
Department of Finance
SARS could improve communication with the small business sector,
especially regarding available tax breaks for the establishment and
operation of small businesses and simplify access to training grants.
SARB could reduce current restrictions that apply to the payment of licence
fees by South Africans to overseas franchisors. This is not without
precedent. For example, the Indian Reserve Bank has introduced a blanket
permission to pay initial licence fees of up to $2 million and ongoing licence
fees of up to 5% of sales to foreign master franchisors. Applications for
permission to pay even higher fees are considered on merit.
Department of Education
Placing increased emphasis on education in entrepreneurship and
franchising throughout the entire school system.
Facilitation of business-related competitions for learners.
The promotion of suitable role models.
Department of Labour
Creating absolute clarity regarding the application of labour legislation; this
would include giving assurances that franchisees are and will continue to
be recognised as independent legal business entities.
Sponsorship of educational initiatives linked to entrepreneurship with a
focus on franchising, for example through the various SETAs under which
the franchise sector falls.
The property sector
The Think Tank Group dealing with this issue was given the following problem
statement:
Franchisees are struggling to survive the double impact of a deteriorating economy and
increasing rentals. Landlords seem either oblivious or indifferent about the current state
of affairs. How can we engage the property sector to alleviate this problem?
38
It is widely accepted that shopping centre rentals are becoming increasingly
unaffordable for small businesses. It will be in the interest of the property sector to find
creative ways of changing that. After all, given the amount of new retail space that will
come on stream during the balance of 2009, it will be only a matter of time until retail
space will remain vacant for extended periods. We base this observation on a report in
Business Times of March 8, 2009, which states that in addition to several major
revamps and enlargements of existing shopping centres, 243 000 square meter of
brand new space will be released in course of 2009.
We fully understand that shopping centre developments need to achieve a reasonable
return based on the underlying capital investment and taking ongoing operating costs
into account, and we have no problem with that. What we are calling for is a change in
the allocation of rentals to different classes of tenants.
At present, line stores are being charged up to ten times more than the anchors who
rely on their power to attract feet into the centre to virtually dictate rentals. The two
charts reproduced as Table 6 demonstrate the debilitating effect this practice has on
small stores’ rental costs. It also shows what a difference it would make to the viability
of small stores if only anchors and sub-anchors were charged R10 and R15 more per
square meter respectively than they pay at present.23
Table 6
A model for the more equitable allocation of shopping centre rentals
Hypothetical Scenario 1
Basic monthly
Small line
store
Sub Anchors
Anchors
Rental /m
R
572.00
R
245.00
R
191.00
R
143.00
R
80.00
R
54.00
Space
% of
Space
4,000.00
4%
7,000.00
7%
14,000.00
14%
10,000.00
10%
15,000.00
15%
50,000.00
50%
100,000.00
100%
Income
R
2,288,000.00
R
1,715,000.00
R
2,674,000.00
R
1,430,000.00
R
1,200,000.00
R
2,700,000.00
R
12,007,000.00
% of
Rental
Income
19%
14%
22%
12%
10%
22%
100%
Hypothetical Scenario 2 - If Anchors Pay R10/m² and Sub Anchors R15/m² more
Basic monthly
% of
% of
Rental /m
Space
Space
Income
Rental
23
These charts were produced by Stephen Walters of Fernridge Consulting
39
Income
Small line R
store 395.00
R
245.00
R
191.00
R
143.00
R
Sub Anchors 95.00
R
Anchors 64.00
R
4% 1,580,000.00
R
7% 1,715,000.00
R
14% 2,674,000.00
R
10% 1,430,000.00
R
15% 1,425,000.00
R
50% 3,200,000.00
4,000.00
7,000.00
14,000.00
10,000.00
15,000.00
50,000.00
100,000.00
Scenario 1
Scenario 2
If store is 80m²
If store is 80m²
100%
R
12,024,000.00
13%
14%
22%
12%
12%
27%
100%
The results
R 45,760.00 per month
R 31,600.00 per month, equal to a reduction of 30%
We further believe that shopping centre owners should work more closely with
franchisors and franchisees to arrange joint marketing schemes that would benefit the
centre and the outlet as well as if a franchisee experiences financial problems.
We recommend the formation of a working group drawn from the ranks of franchisors,
franchisees, major retailers and shopping centre administrators. This working group
could work towards improving the current situation by finding a formula for the more
equitable allocation of rentals and less punitive escalation clauses.
Should this conciliatory approach fail, franchisors and franchisees would be left with
only one remaining option, namely the formation of a pressure group that could
challenge the combined might of centre administrators, anchors and sub-anchors.
Prospective franchisors
We recommend that prospective franchisors:
Establish a pilot unit of their business and operate it until it demonstrates
profitability and sustainability.
Optimise the processes, systems and procedures needed to operate the
business successfully and document every step.
Inform themselves properly about the advantages and pitfalls of franchising
before embarking on this course of action.
Accept that to launch a franchise requires much thought, hard work, a substantial
investment and, above all, patience.
Seek professional assistance, especially but not only when it comes to the
creation of the operations manual, the franchise agreement and the disclosure
40
document.
Seek affiliation to FASA at the earliest possible point in time.
Follow the tried and tested guidelines for the ethical operation of a franchise.
Select franchisees based on their ability to make a success of the venture rather
than their ability to make the necessary investment. This involves scientific
testing and working in the store.
Consider at the outset how BEE obligations can be incorporated into the
franchise structure, even though during the initial 2-3 years after the launch of the
franchise, this issue may not be given priority status.
Established franchisors
The Think Tank Group representing franchisors was given the following problem
statement:
Franchisors are in a position to assist franchisees during the current economic situation
due to their experience. What should franchisors be doing to help franchisees through
this period? Examples include changing the format of conferences, establishing
financial support funds and establishing vehicles to assist previously disadvantaged
individuals to become franchisees.
The group recommended that franchisors should:
Be pro-active by familiarising themselves with the impact of legislation that affects
the franchisor/franchisee relationship and act accordingly.
Support FASA and attend functions arranged for the benefit of the franchise
sector.
Select new franchisees with care and only after they have shown that they
possess the necessary skills and aptitude to succeed.
Be transparent in their dealings with franchisees and share rebates etc. in an
equitable manner.
Work closely with franchisees and provide them with generous support.
Identify struggling franchisees and offer them intensive care at the earliest
possible point in time.
Share in the risk that is assumed by franchisees and their bankers by creating a
trust fund that can be used to secure loans to new or established franchisees,
especially but not only under BEE franchise arrangements. Franchisors would
allocate a percentage of their ongoing fee income towards building up the capital
in the fund and the franchisor and the bank would jointly decide who receives
backing. Once all loans granted under this scheme have been repaid, the capital
41
and interest earned would be returned to the franchisor. FNB Franchising has
declared its willingness to administer such a fund.
Assist franchisees who wish to establish additional units, perhaps by waiving the
upfront fee payment.
Forge close relationships with a bank that understands franchising and shows
commitment towards the sector.
Beware against complacency – call in external advisors to review operations and
make recommendations on how to revitalise them. And remember to update the
operations manual so that it reflects the current status of operations.
Assist franchisees in lease negotiations and other dealings with landlords.
Make annual conferences and other franchisee gatherings learning experiences
rather than mere entertainment events.
Create a positive atmosphere for cooperation with the Franchisee Council or
Marketing Council. Utilise their input to best effect.
Embrace BEE and create suitable opportunities for implementation.
Consider entering into joint ventures or tandem franchise arrangements
with deserving candidates, or to back a loan to the franchisee with a
guarantee offered by the trust fund described above.
If necessary, investigate the possibility of creating low cost of entry
franchise opportunities.
Keep up spending on national marketing.
The Consumer Protection Bill revisited
Given the importance of this Bill and the impact it will have on new and existing
franchise agreements, both prospective and existing franchisors need to familiarise
themselves with its requirements. This is the only way to ensure, as far as this is
possible, that they do not infringe against any of its provisions, even unwittingly. Some
of the issues requiring consideration are set out hereunder.
Good franchise practices are applied. The franchisor’s operation must conform
to accepted good franchise practice.
The network’s marketing material needs to be up to date and free of
ambiguous statements and/or statements that could be construed as being
misleading.
The network’s franchisee selection criteria must be reasonable and applied
equally to all prospects.
42
The disclosure document must be comprehensive and fully up to date.
The operations manual must fully reflect the way in which the business
works.
The franchise agreement must conform to all current requirements.
The franchisor should be able to demonstrate that the network’s franchisee
support infrastructure adds tangible value to franchisees’ businesses.
Tip: The best time to review these aspects and ensure that best practice
principles are applied throughout the organisation is now. To delay the inevitable
can only lead to even greater problems at a later stage.
Full initial disclosure: During negotiations with a prospective franchisee, full
disclosure must be made.
Care must be taken not to overstate the potential of the opportunity itself, or
the potential of the site from which the franchisee is expected to operate as
this could result in claims of misrepresentation.
Prospects must be encouraged to undertake their own investigation and
come to a conclusion regarding the feasibility of the opportunity based on
their own findings. It is advisable to insist that the prospect consults with his
or her own team of professional advisors.
Negotiations with prospective franchisees should be the preserve of senior
personnel.
Verbal representations should be avoided. A comprehensive record of
negotiations and their outcome should be kept.
Obligation to purchase goods or services: The franchisor must be able to
justify the placing of an obligation on franchisees to make purchases from the
franchisor, or from a supplier nominated by the franchisor. This requires some or
all of the following to be in place:
The product is directly and clearly linked to the brand; substitution would
downgrade the brand.
The price the franchisee is expected to pay is reasonable; there are no
excessive mark-ups by the franchisor and rebates the franchisor may
receive from suppliers are disclosed.
Consumers derive economic benefit and convenience from the
arrangement.
Franchisor/franchisee relations: the relationship with franchisees should be
based on trust and mutual concern for building the brand and operate viable
businesses.
43
Termination of contract: the franchisor should be able to show that termination
is the only remaining option.
The grounds for termination must be reasonable.
The offending franchisee should be given advance notice of the conduct
that may lead to termination and reasonable assistance over a reasonable
period to correct the issue.
Throughout this process, copious records should be kept and copies sent
to the franchisee.
Should termination become unavoidable, every effort should be made to
minimise the impact of this step on the welfare of the ex-franchisee.
Liability issues: Franchisors need to protect themselves and their franchisees
against potential liability claims.
Statements regarding product quality must be specific, measurable and
stand up to scrutiny.
Franchisors need to take out insurance cover against claims by consumers.
Franchisors should evaluate the level of business risk their franchisees are
exposed to and insist on franchisees taking out and subsequently
maintaining adequate insurance cover.
Prospective franchisees
Prospective franchisees should:
Familiarise themselves fully with the requirements for becoming a successful
franchisee before approaching companies offering opportunities.
Be honest about their skills, interests and the ability to support the necessary
investment. Over-gearing has caused the demise of many promising business
ventures.
Investigate an opportunity that interests them with care, insist on full disclosure
and, most importantly, speak to other franchisees within the network.
Seek advice from professionals, especially regarding the contents of the
disclosure document, the franchise agreement and the financial statement.
Be prepared to work in the business, even in a low-level job, so that they get a
feel for the demands it will place on them in future.
Once committed, show loyalty to the brand and work within the framework of the
franchise as set out in the franchise agreement and the operations manual.
44
Established franchisees
Established franchisees should:
Utilise the full range of support services the network offers.
See the role of the Field Service Consultant as that of a business advisor rather
than an inspector sent by Head Office to check up on operations.
Ask for help when help is needed.
Participate in marketing drives and similar initiatives spearheaded by the
franchisor to maximise business results.
Maintain adequate staffing levels to ensure customer service excellence in all
facets of operations.
Participate in workshops and other franchisee gatherings arranged by the
franchisor.
Take an active interest in the workings of the network’s Franchisee Council or
Marketing Committee.
Spend on local marketing!
The media
We are not calling for misleading reporting or the provision of free publicity. All we are
asking for is that the franchise sector receives the attention it deserves, especially in
the light of its potential to address several of our country’s economic ills. The media
can discharge this responsibility in a variety of ways, and without affecting the
commercial viability of their operations.
Publish bona fide success stories drawn from the franchise sector. This will
create realistic role models, especially for the vast pool of developing
entrepreneurs.
Promote selected franchise-related events, for example the FASA Awards for
Excellence in Franchising, which are presented annually.
Report on franchise failures in a responsible way, and not without seeking expert
commentary. In most instances, it will soon become clear that it is not the
concept of franchising that deserves to be blamed but its reckless or outright
fraudulent implementation.
Conclusion
The publication of this paper is not an end in itself but should be seen as the beginning
45
of an initiative that will help to grow franchising. We see this as a process, not an event,
with the next step being the assembly of an Action Group. Members of this group will
have the required standing within the sector and the necessary expertise to drive the
developments we have outlined above forward.
We know that professional implementation of the steps outlined above will require
some funding and we have therefore secured undertakings in principle from several
stakeholders who have indicated to us that they would be willing to contribute
financially provided that talk is followed by action.
If you have the interests of franchising at heart and are prepared to give of your time
and expertise to secure the success of this initiative contact FNB Franchising. We look
forward to working with you to pioneer changes in the franchise sector of South Africa.
The Team at FNB Franchising
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