South Africa is facing a deepening crisis impacting all areas of the economy due to load shedding, which has a snowball effect on everything from food security to logistics to service delivery, with very little done by the government to mitigate this.
This was according to almost all of the respondents in the Franchise Association of South Africa’s (Fasa's) eighth independent survey.
Fasa CEO Fred Makgato said the only way to avoid an impending disaster in South Africa was for the government to deal with load shedding and to recognise that it was businesses, both large and small especially, that were keeping the economy going.
“On the back of such a strong survey of the franchising sector, that is prepared to safeguard its position as a significant contributor to the country’s economy and is willing to play its part to keep the wheels of business and entrepreneurship turning, we call on the government to now do their part in rectifying the debilitating state of the country for the sake of the economy, its citizens and the future of South Africa," Makgato said.
The survey was conducted to assess the contribution by the franchise sector to the South African economy in terms of GDP, business establishment, creation of employment and the identification of key franchise practices.
It was deemed a valuable tool for the sector to measure its performance, acknowledge its strengths and plans for the future.
This year’s survey came after a four year hiatus.
Margaret Constantaras of Research EQ included a caveat on the difference between the compositions of the franchisor sample from 2019 to the current 2023 one.
“In 2019, 167 franchisors participated in interviews, predominantly consisting of small to medium franchises. In 2023, the number of participating franchisors increased to 304, and the sample included 15% large franchises with 200+ outlets and a further 22% of medium franchises with 51 to 200 outlets. As a result, the findings in 2023 may differ in some areas from those in the previous four years.”
Fasa chairperson Maria D’Amico, an attorney specialising in the franchising space, believed that where, in 2019, there was a reluctance from franchisors to participate in the survey due to the economic challenges they were facing, this year, after the upheavals of the Covid-19 restrictions, the riots, floods and increased load shedding, brands were keen to be part of the analysis that could give them perspective of the past and strategies for mitigation for the future.
“We appreciate the eagerness and transparency of franchisors that opened up about their challenges but ultimately, as the survey results show, it has proved unequivocally that the franchise sector, through its business system of duplication and support, has all the makings to withstand even the most trying of times.”
Optimism about business growth continued to strengthen, and the expectation that turnover would grow in the next financial year was almost unanimous (from 81% in 2018, to 89% in 2019 to 98% in 2023).
However, despite the optimistic outlook, the number of franchisors that embarked on rebranding/revamping/upgrading continued to decline.
The survey showed that businesses during this period were more likely to be at the Ambitious stage (expanding, taking a risk:19-31%), with perceptions of stability dropping significantly (establishing and maintaining: 35-21%).
It seemed that businesses were more likely to be in the Turbulent stage (3%-12%) and less likely to be in the Take-off stage (selling and doing).
The costs involved in operating a franchise system were perceived to be the main challenge facing interviewed franchisors (60%).
Breaking down this response, it was noted that inflation was the major aspect, (32%), followed by high/expensive rentals (20%), and the slow economy (13%).
The next most frequently mentioned challenge related to the franchisees; finding the right franchisees with sufficient capital (15%), with sufficient experience (12%) and not operating to standards (12%).
Load shedding/rolling blackouts and staff/employees posed the next challenges (42% each). Load shedding/rolling blackouts were considered to have an impact on profitability (26%), and productivity (20%), while aspects related to staff/employees were training (21%), staff turnover and attracting the right staff (12% each) and having to retrench staff (5%).
The 5th most frequently mentioned challenge was marketing (36%, i.e. marketing the franchise (25%) and the products/services offered (12%).
The research found that the size of the franchise system played an important role in the measures employed to offset the disruptions that occurred between 2020 and 2022.
The large franchise systems focused on offering support to their franchisees (22%) and investing in renewable energy (20%).
The medium franchise systems were more likely to install a generator (27%) and to implement digital marketing (24%).
Retailers, in particular, recognised the need to be innovative and agile to grow. These strategy measures included: digital marketing (22%), long-term planning (21%), innovation (19%), the installation of generators (18%), offering support to the franchisees (18%) and diversification (15%).
What the survey once again established was that franchising offered proven models, brand recognition and a lower-risk investment.