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Franchising – all you need to know about the South African sector

By Zuko Komisa

Buying a franchise requires an understanding that the franchises are a business and every business is there to make a profit.  You just have to maneuver your way around that reality.

According to 2017 Franchise Association of South Africa (FASA) research, South Africa has 845 franchise systems which together contributed R587 billion or 13.3% to the country’s overall GDP.

That is a staggering amount, the largest part of which came from the fast food and restaurant sector. Franchising in South Africa covers just about every single sector including fast food and restaurants which contributed 25% to that R587bn.

With the right research on the kind of franchise you wish to acquire you, need to be cognisant of the systems that guide the business of your desired franchise.

All franchises have clear stipulations of their services, cost of products, look, feel and as well as a uniform look a feel for their various stores. You will be walking into a business that has a tick list of all specifications and rule book.

You will also be expected to pay a portion of your gross business income, service fees, and other expenses to get a license to use the parent company’s brand.

Franchising - all you need to know about the South African sector

Pros & Cons of acquiring a franchise

The advantages when it comes to acquiring a franchise include owning a replica of a business model that has a proven track record, and you can determine whether or not it’s what you wish to get into.

There are many ways to get this information including:

  • Doing research on how well it performs in certain areas.
  • Asking competing franchisees how their competitors are doing.
  • Financial records and markets on your desired franchise.

You also get extensive help from the franchisors, including training, equipment, finding the right location and general business needs.

There are a few disadvantages with acquiring a franchise:

  • If you like innovating and changing things to keep a business exciting you will have a problem with the fact that you will essentially be entering into a formal agreement with your franchisor.
  • You have to follow the agreement religiously without being creative.
  • You have to deal with strict rules and restrictions stipulated on the contract.
  • Your performance usually determines whether your contract will be renewed and franchisors have no obligation to renew your contract at the end of the agreement.

Gugulethu and Dumisani Bhengu from ABSA unpack franchise industry.

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