Michael Vacy-Lyle, CEO FNB Business
13 November 2018: The franchising sector has shown steady growth over the past four years, in a tough economy from contributing an estimated 9.7% to the country’s GDP in 2014 to its recent figure of more than 15%, according to the Franchising Association South Africa (“FASA”) 2018 survey. This trend is expected to continue.
The survey further highlights that 78% of franchisors are optimistic about future growth in their businesses. Around 30% of franchises are now owned by previously disadvantaged South Africans, with one in three franchises turning over more than R20m per annum. This together with the fact that on average a franchise employs 18 staff members (the sector employs more than 370 000 people), makes it clear that as a business model, franchising remains critical to the future of South Africa.
Given the FNB Franchise Leadership Summit theme this year – “the future of the franchising sector”- I thought it would be good to reflect on some of the key trends we are noticing in this very dynamic space…
- More Multi-Unit Owners, and franchisees owning multiple concepts
What happens once you have mastered the tried and true formula franchises have designed for their franchisees? If you’re like many franchise owners, you start opening another location. And then another. By recreating your success in multiple locations, you can quickly grow your revenues and increase your business’ sustainability.
Many franchisee owners are also opening other, non-competing franchise offerings as they grow their businesses in an effort to diversify earnings.
- Smaller, more cost-effective franchise models
Among the new frontiers in franchising is the food court losing its legacy as the preferred setting for food franchises, as service stations increase in popularity in the industry. Many brands – including Steers, Debonairs and Mugg & Bean On-the-Go outlets – are co-locating with major fuel retailers to create fully-integrated accessible centres. Looking at new, less expensive alternate locations beyond the shopping malls and strip malls to expand into stand-alone kiosks, food trucks, corporate catering, campuses, sporting events, craft markets, is a major trend.
- Niche markets
Consumers increasingly prefer local businesses over national brands. Some of the bigger brands are looking for creative ways to tackle this situation by tagging with local businesses and this trend is on the rise. Niche markets are gaining traction. Whether it’s in offering a unique ‘gourmet’ food experience, craft beer or whether it’s in the environmental space of energy saving technology or recycling, these are where many new opportunities are to be found. With the increase in social awareness, social responsibility is a part of any business, small or big. The current generation of consumer is challenging the role that business plays in society and franchises have wonderful platforms to play a positive role and in so doing win customers.
- Increased customization/ personalisation
In a world of increased consumer choice, it is no longer about what you have on the menu, it is now about how your product or service can be tailormade to what a customer really wants. The success of RocoMamas speaks to this – with 61 franchise outlets their business model clearly responds to the essence of this trend by allowing consumers to create their own burgers, and increasingly consumers want the ability to create their own dining experience.
- On-demand products/ services
Amazon is a great example of this – same day delivery is becoming the norm in the age of instant gratification – I want it now! Differentiation through delivery remains a big opportunity.
- The significance of online and social media
Social media is how your customers chose to interact with brands, whether to express anger, inquire or to show appreciation. It is no longer about the question of should a business use social media or not, it is now more about how a business uses social media. Today’s digital-savvy customers are highly choosy about online buying. Some key points to consider:
- You need A Responsive, Interactive and up to date Website;
- Customers should be able to view your website perfectly on any device;
- Data Analytics is Important – Like it or not, your data is what drives your business; and
- Seamless and Safe digital payments are critical.
There is no doubt that franchising not only offers viable business opportunities, but also ensures that franchisees are better equipped to weather the tough economic environment. We at FNB Business remain committed to helping grow this very important sector and are well positioned to provide solutions supporting franchising as it evolves with these themes.