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Franchising looks to the future – post Covid-19

Franchising looks to the future – post Covid-19

Franchising has at its heart the spirit of entrepreneurship but amidst the Covid-19 pandemic that has resulted in immeasurable destruction of small businesses, the question remains whether the entrepreneurial flame can be re-ignited for future growth.

The Franchise Association of South Africa (FASA) has supported Business 4 South Africa (B4SA) in calling for urgent action to turn the economy around.  It joined other business organisations in putting forward B4SA’s economic blueprint that should go some way to mitigating the devastating fall-out due to the pandemic by implementing far-reaching economic reforms that will drive growth and employment and restore consumer and business confidence.

The franchise sector, which in South Africa is represented in around 14 different business sectors, represents the highest and most diverse range of entrepreneurial endeavours and is the most suited to lead the post-Covid recovery.  FASA’s 2019 survey showed a sector that contributed R734 billion (almost 13,9%) to the country’s GDP through its over 800 franchise systems, its 48 000 outlets employing close to a million people.

Tapping into the wave of innovation that change will no doubt bring about – from on-line trading, mobilising creative and innovative responses, seeing the gaps in the market; re-designing and re-engineering for the future - is what entrepreneurs all over the world will be focused on.  And where there are entrepreneurs... there are franchisors and franchisees!

Despite the doom and gloom of our current health and economic situation, Vera Valasis, Executive Director of FASA, in her dealings with members of the association has come to this conclusion: “I wager that the franchise industry will make a faster and better recovery post-Covid than most other business categories.”

“Listening to franchisors and how they have quickly jumped in to assist their franchisees during the COVID-19 crisis, made me think again about the reasons for the success of franchising in general,” says Valasis.

  • Individual business owners simply do not have the network expertise that they can tap into like a franchised system.  Nor do they have, for example, the marketing expertise, a wider business view and how others have tackled problems and found solutions;
  • The ability to quickly augment their business model; understand consumer behaviour, identify problems and recognise how to solve them. 
  • Franchisors tap into technology and use the information that they glean from their systems about customer trends, growth spots, declining products and services, the possible reasons for the change in consumer behaviour and how to quickly adapt products and services to the ever changing needs of clients and customers - crucial for the survival of businesses today.
  • Even if individual or family owned business owners do belong to small business networks or other industry bodies, these organisations - although they offer help and assistance - will never have the intimate knowledge and understanding of their business model like a franchisor and fellow franchisees would have. 
  • In addition, franchisors and franchisees not only have access to the business minds within their own brand, but also across similar business categories in the franchise business sector as well as the broader franchise industry.
  • Franchises in general therefore are much more nimble, adaptable and quick to market with clever and real solutions than individual or free standing business owners.

“This should instil confidence in the business sector for development funders, banks, landlords and other stakeholders”, says Vera Valasis, “but unfortunately no meaningful offers have been forthcoming from the banking sector, for example.  Now more than ever before, there is a huge responsibility on the banking fraternity to acknowledge the unique benefits of franchising as well as the sector's successful track record and the fact that they have benefitted from this sector for over fifty years. They should step up to the plate now with funding solutions that are less risk averse with simple application processes that can stimulate growth for franchisors by way of rapid distribution growth which in turn would create jobs and stimulate disposable income; which in turn will stimulate the growth of further franchise brand growth as the industry depends largely on consumerism.”

Franchises taking the lead to recovery and revival

With seemingly no end to the ravages of the corona virus, businesses across the globe are fighting for their survival and are shifting operations to accommodate an unknown landscape.  They say ‘necessity is the mother of invention’, and Coronavirus has undoubtedly forced many businesses around the world to rethink their strategies going forward and change the way they operate and interact with consumers.

For franchise brands in particular, success will require franchisors to support franchisees and customers by pivoting their business models to better suit the changing marketplace. Already many of FASA’s members are re-strategizing and re-shaping their business formats to incorporate smaller stores, ‘dark kitchens’ and on-line trading.

FASA canvassed several member companies on their survival strategies and more importantly on their plans to move ahead post-Covid to growing their franchise network and their brand.

According to Natasha Bohmer of Car Service City, despite the group suffering losses under lockdown with business unlikely to return to normal this year, “we will have to find ways to work within our “new normal”.  Despite the hardships felt by all, we have not lost one franchisee due to the pandemic, and we are assisting the franchisees with ways to keep their overheads as low as possible and to negotiate better rentals with their landlords and service providers until the economy has gained some traction again.”

On what the future holds, Natasha Bohmer had this to say: “As a franchise group we  feel positive with regards to the selling of new franchises, as many people have received their retrenchment packages and are looking for new opportunities to work for themselves.”

Richard Mukheibir of Cash Converters believes their business model, which is made up of three distinct revenue streams has never been as well-positioned to recover post-Covid.  “Second-hand goods will become an increasingly valued commodity – we have yet to see the impact of production slowdowns from key markets resulting in shortages of consumer goods; the devaluation of the Rand means good quality second-hand items will have more value than before and be ever more desirable; people will be conscious of where and how they spend their money so our retail offer is valuable. We are also launching our on-line strategy in the near future which will allow our customers to buy and sell remotely, from our website.”

Money lending will be in demand – the pawn broking side of Cash Converters is ideal for customers who need easy access to cash without going through piles of paperwork, long lead times and possible rejections from the banks or other financial institutions. The demand for cash will increase into the future as the consequences of Covid begin to bite into the economy and Cash Converters have implemented a facility that allows their franchisees to borrow wholesale cash from head office, automatically and on a loan by loan basis, so as to help them fund the expected growth of our loans books.

Cash Converters is ideally positioned to take advantage of future growth in expanding its pool of franchisees as the proven business model that will be even more in demand post-Covid. As retrenchments increase amongst mid to senior managers - inevitable as businesses cut costs and as digital adoption drives efficiencies in the work place - more people will be looking for alternate business opportunities. “Being your own boss, within the safety net of a global business with a proven business model has never been more desirable” concludes Mukheibir.

OBC Better Butchery, which made a name for itself as a chicken and meat retailer located in township communities and transport nodes before growing into an award winning franchise operation, was fortunate to be able to trade unhindered during lockdown.  According to Group MD Tony da Fonseca, "we feel blessed that we could trade during the lockdown, and are doing our utmost to protect both staff and customers in all our stores.”

With 25 new stores opening their doors in the year ahead even if the Covid 19 lockdown slows the process temporarily, Tony da Fonseca believes that if business stands together and franchisors support their franchisees, the economy can recover. “Market demand will always be there. In our case, our growth hasn’t even begun yet... we have prospective franchisees waiting in the wings to take up our business opportunities.  South Africa has huge empowerment potential and if every entrepreneur sees the positive difference that he or she can make by mentoring or employing one person – who in turn will support several more people – we can not only recover from this pandemic but secure our future.”

Franchise group Real Foods is leading the way in post-Covid recovery by diversifying its business, growing its footprint abroad and showing the world that entrepreneurship is alive and well! The company – which lists Kauai, Nü Health Food Café, Highveld Honey and other food brands in its portfolio – is growing its footprint abroad and has launched two new brands and acquired a food manufacturing business. Locally, Real Foods launched Free Bird, a free-range crispy chicken burger concept. Free Bird is initially trading as a virtual brand in dark kitchens around Cape Town, Sandton and Pretoria available via UberEats and Mr D with plans for physical retail locations over the coming months. “It’s been a challenging few months, but we have reacted quickly and in step with government’s guidelines, to find new routes to market to serve our customers, and have launched exciting new products and brands that have been well received. The various teams have also continued to work throughout lockdown on building a pipeline of projects that will be rolling out in the second half of the year,” says CEO, Dean Kowarski.