Franchising – presently contributing nearly 10% to SA’s GDP – set to increase contribution into 2014

The growing franchise sector, which currently contributes nearly 10% to South Africa’s GDP, is defying sluggish economic conditions.

March 17, 2014

The growing franchise sector, which currently contributes nearly 10% to South Africa’s GDP, is defying sluggish economic conditions and will continue to provide sustainable business opportunities for entrepreneurs into 2014 and beyond, says Standard Bank.

“We are seeing that growing local opportunities, and international operators looking to South Africa to provide a springboard for their franchise operations into Africa, are pushing increased activity in the competitive franchising sector,” says Simone Cooper, Head of Franchising and Enterprise Development at Standard Bank, when referring to ‘Franchise Factor 2012®’ research conducted by Franchize Directions for Standard Bank.*

“Although there has been an increase in the number of international brands entering the South African market, locally-born franchises still dominate,” says Ms Cooper.

“More than 88% of franchise brands in South Africa have been developed here, the majority since 1992, with the remaining 12% being accounted for by international brands. These international brands are represented primarily by quick service restaurants.

“The presence of international brands has increased by about 3.4% in the last three years as franchisors have entered South Africa with the intention of using the country as a gateway to Africa,” says Ms Cooper.

Major franchising trends in South Africa

The research also identified the following major trends impacting on the sustainability and growth of franchising in South Africa:

  • Locally developed franchises creating organic business-growth opportunities in sectors that otherwise could have become saturated. A prime example of this is the expanding presence of franchise outlets geared to food, groceries and consumer services at fuel stations. Because of regulated fuel prices and a legislative framework that controls the proliferation of fuel outlets, growth opportunities are limited.  Operating an additional franchise at a fuel station creates an additional income stream for the fuel franchisee.
  • The ability of the sector to create employment opportunities. When last measured, at least 518,266 people were employed within franchised operations. This represented an increase of an estimated 53,066 jobs in just two years.
  • Expansion into rural areas, especially those where mining activity has increased and major infrastructure projects are the focus of local activity.  Standard Bank has seen automotive, food and other franchises springing up to service the needs of the growing populations in these developing outlying areas.
  • The development of a mini-mall concept of different stores owned by the same franchisor being housed under a single roof.  A prime example of this is a major supermarket brand opening up a building supplies store and a pharmacy within a single shopping complex.
  • With working consumers becoming more ‘time starved’, there is a trend towards outsourcing services that traditionally would have been performed by individuals within the home. For instance, from an education perspective, there has been definite growth in the number of franchises offering school learners extra lessons.
  • Women owning more than 33% of all franchised businesses operating within the education and training; health, beauty and body; and real estate sectors.

Looking into Africa

“The growth of franchises in Africa has been dramatic,” says Ms Cooper, pointing out that a short three years ago, 138 franchised systems were operating on the continent – a number that increased to 182 last year. Taking advantage of gaps in various markets has seen growth in sectors ranging from automotive services, business to business services, fast food to retail operations.

Although franchises are streaming into Africa, South Africa still leads the pack of the ‘top 10 franchise countries’ on the continent. Ranked in order of their franchise appeal these countries are:

  • South Africa;
  • Mauritius
  • Namibia
  • Botswana;
  • Kenya;
  • Zambia;
  • Tanzania;
  • Ghana;

“South African franchisors are very active with just over 32% having expanded operations into the continent. The range of franchises is very broad, being dependent on perceived consumer demand in various markets, and the growing strength of the middle class in select markets.

“The African Development Bank has estimated that 326 million people make up the middle class in Africa. The Bank estimates that African consumers will spend US$2.2 trillion on goods and services by 2030. Given that Africa is presently home to seven of the 10 fastest growing economies on the globe, continued expansion into Africa and further growth of this crucial consumer sector, can be anticipated.

“Looking forward, it can be said with confidence that franchising has a major role to play within the South African economy. The sector will continue to expand and offer significant employment prospects for thousands of South Africans. Africa, characterised by explosive growth of the middle class, will offer unrivalled future opportunities for local and internationally-based franchisors,” says Ms Cooper.