FASA-Franchise Association South Africa

January 2009


In this Issue


BEST WISHES FOR A SUCCESSFUL 2009!

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FINDING THE SILVER LINING TO OUR WOES

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INITIAL RETAIL RESULTS PROMISING…

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THE FUTURE FOR FRANCHISED SYSTEMS

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THREAT OF FOREIGN BRANDS ENTERING THE SA SCENE

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DOWNTURN A PROVEN CATALYST FOR FRANCHISE SALES

In this Issue





Vera Valasis and the team at FASA, together with Chairman Kobus Oosthuizen and the Executive of FASA, wishes all its members the very best for 2009! With what seems like the world crashing around us, South Africa is bracing itself for the ripple effect of the world recession. Whilst we know that franchising, in past recessions, has been able to weather the storm, we are acutely aware that the scenario is very different this time, with the financial lending scenario not as pliable as we would want it to be. But, whilst we all bemoaned the introduction of the Credit Act, it may well have been our salvation as our banks are in a sounder position and, although fewer in numbers, those entrepreneurs who are able to raise finance will, hopefully, make good franchisees.

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FINDING THE SILVER LINING TO OUR WOES

Finding the silver lining in the current economic turmoil is not easy and whilst the rest of the world reels under the weight of foreclosures and bailouts, South Africa waits with bated breath for the proverbial to hit the fan. Kobus Oosthuizen, FASA’s Chairman, in his foreword to the 2009 FASA Directory wonders if it’s not just going to be a matter of time before large scale job losses become a reality in our country. He asks, “If the world’s economic leaders were so naïve not to have been more proactive in countering the crisis rather than to declare one rescue package after the other, what makes us so protected?” A sobering thought but Kobus counteracts that by saying, “The franchising industry, as the dominant business format as far as SME development is concerned, is continuing to foster its importance in the sustainability and growth of the South African economy. Across the globe small business is recognized as the safety net of any economy and the recent downfall of many massive conglomerates has once again proven that point.”


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INITIAL RETAIL RESULTS PROMISING…

Those optimists who see the glass half full believe we need to stay positive and that with the fundamentals of the SA economy relatively sound, we should be reasonably protected from a total onslaught. Judging by some of the first retail results to come in, the prognosis doesn’t seem too bad:

  • Shoprite Checkers reported a 27% increase in first half-turnover, defying the consumer downturn.
  • Pick ‘n Pay, voted the world’s best retailer posted better results for Christmas 2008 over Christmas 2007.
  • Clothing retailer Foschini posted an 8,7% rise in third-quarter revenue.
  • Clothing retailer Truworths reported a 12 to 17% increase in first-half earnings per share with group retail sales in the 26 weeks to December 18 increased to R3.415 billion, up 9% compared to the 27-week period to December 30th 2007.
  • Fashion and homeware retailer Mr Price reported a 20,3% rise in its third-quarter sales.
FASA would like to put out a press statement out on how our members fared over the festive period and what their prognosis for the coming year will be. If you have some good results or some thoughts on how you plan to tackle the challenges ahead, please email Giuli Osso on giuli@gocomms.co.za or call her on 011 802 1611 or 083 377 6721. Giuli will put together a press release from FASA quoting as many of our members as possible and hopefully put out a positive overview of our sector.

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THE FUTURE FOR FRANCHISED SYSTEMS

Bendeta Gordon, Director of Franchize Directions who conducts the franchise industry’s key research, the Standard Bank Franchize Factor, has this to say about the future for franchised systems: “Woes in the global economy and resulting recessions will require new ways of structuring distribution channels and may also result in companies diversifying risk.”

The franchise mechanism and its inherent qualities represent many opportunities for multi-unit distribution networks.” In South Africa the shock reverberating through the world, although not affecting our economy to the same extent as other more developed nations, will also in Gordon’s opinion see new strategies for structuring distribution channels. This combined with BEE imperatives and opportunities to expand into Africa will facilitate increases in the number of franchised systems in the future.

According to Bendeta and with credit to the franchise sector, existing franchisors show tremendous maturity in the ability to manage franchisees and support them in their businesses. To this end, franchisors are becoming increasingly sophisticated with systems for franchisee recruitment and selection, trading performance reporting, knowledge transfer to franchisees and their staff with specific focus on business management. Financing institutions have also become increasingly attracted to funding franchisees which bodes well for the growth of franchising in South Africa, concludes Gordon.

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THREAT OF FOREIGN BRANDS ENTERING THE SA SCENE

In an interview with Chris Barron in the Sunday Times/Business Times, Nick Badminton, CEO of Pick ‘n Pay, who picked up the prestigious title of world’s best retailer raised an interesting point when he commented, “One wonders if the relatively good results SA retailers have enjoyed in the midst of such global gloom might beckon foreign retailers, and if so what kind of threat would this pose?”

According to Badminton, in a world full of turmoil, brands wanting to look at new horizons are analyzing where their next growth is going to come from. Many have made inroads into the East and are finding places like India very difficult and he believes that it is only a matter of time before they look at SA as a viable option.

FASA’s appeal to its members in these trying times is to not take the eye off the ball and rather than stagnating and retreating in these trying times, to be more aggressive and pro-active when it comes to supporting existing franchisees, retaining market share, upping marketing initiatives and above all, keep growing your franchise network.


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DOWNTURN A PROVEN CATALYST FOR FRANCHISE SALES

FASA’s 30 years as South Africa’s only franchise association has netted many lessons on how to withstand the economic downturn. Tracking the recessionary periods over the 15 years that the International Franchise Expo has been staged has shown that franchisors need to be consistent with their franchise offering, both in the good times and the bad. In addition to consolidating during these difficult times, franchisors must also prepare themselves for the upswing and remember, there are always people who in times of recession, are spurred on to become entrepreneurial due to retrenchments or retirement and are looking for opportunities to take control of their own futures by starting their own business.

For this very reason, you cannot miss being part of INTERNATIONAL FRANCHISE EXPO which takes place from the 2 – 4TH April 2009 at the Sandton Convention Centre. Stands are filling up fast so give Nishi Naicker or Shereen Davids at FASA a call NOW on 011 615 0359 or email: nishi.naicker@fasa.co.za or shereen.davids@fasa.co.za.


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