Franchises across all sectors dig deep to survive
One has to ask how businesses, entrepreneurs and investors in South Africa have any confidence in a future when confronted with constant rolling blackouts, another looming fourth wave of coronavirus infections with little to no support from the government.
Well, If you are a franchise in any of the fourteen business sectors, you pick yourself up, dust yourself off and dig deep to survive.
That was the overwhelming sentiment following the Franchise Association of South Africa’s key franchise conference in August that took a hard look at how Covid-19 affected the franchise sector and outlined steps to not only regain lost ground but proposed forward-thinking plans to revive and re-energize the sector through entrepreneurial initiatives.
FASA’s 2019 survey of the franchise sector showed an industry that, although taking strain from the pre-2019 sluggish economy, was holding its own thanks to its business structure of support and innovation. The pandemic of the past twenty months delivered an added blow to the sector as a whole and to specific sectors like the restaurant and retailing sectors.
But it was the July rioting and looting that delivered yet another debilitating blow. Retailers, supermarkets and food stores bore the brunt of the onslaught with damage running into the millions of rands. “Government was quick to invite associations and big business to the table promising relief and compensation,” says Freddy Makgato, CEO of FASA, “but other than SASRIA paying out those who were sufficiently insured, we have yet to see any significant steps taken to assist businesses who have had to rebuild and restart from scratch with no assistance and the added burden of rising premiums and an uncertain future – for themselves and their staff.”
With stricter Covid-19 regulations expected during the festive season, the impact on franchise businesses that usually thrive during the festive season, like those in the hospitality sector, retailing and in services like beauty and health, will be worse off. Any further stricter lockdown regulations will ring the final knell bell for many small businesses.
“A complete nightmare!” is how Wendy Alberts, CEO of the Restaurant Association (RASA) reacted to the latest round of extreme load shedding to hit the restaurant industry, reaching Level 4 at its worst earlier this month and with no end in sight. “This is another devastating blow to hit the industry as without generators, restaurants remain unable to generate an income during the hours of load shedding and end up with expensive wastages. But it is also not as simple as flipping a switch to diesel or petrol power – those that have generators often lose thousands of rands as they have to spend more on extra supplementary expenses like fuel, labour and maintenance which can add R1 000 an hour for each load shedding. Equipment also gets damaged because of the power surges – all impacting the bottom line.”
Franchises taking the lead to recovery and revival
No other industry, which spans around 14 different business sectors, has contributed so extensively and continuously over the past fifty years to the country’s GDP (at 13,9%) and brought together the winning elements of entrepreneurship, small business development and job creation. “The one unifying factor that unites franchising globally,” says Pertunia Sibanyoni, FASA’s Chairperson, “is the determination to overcome the obstacles presented by the pandemic and finding the opportunities out of the adversity to come out stronger as the world’s economy recovers.”
While the food and hospitality sector is the one mostly in the spotlight as it has borne the brunt of shut-downs and restrictions that impact social activity, franchising is represented in many other sectors for whom the pandemic and its consequences have certainly been a wake-up call and have brought many changes in everyone’s personal and working lives. Jobs have been lost, projects put on hold, and business owners have had to rethink how they will continue to operate their businesses.
The franchise sector has proved that it can adapt with franchisors taking pro-active steps to optimize their operating systems, adjusting their margins through careful cost controls and keeping labour and waste in check in order to survive. A strong franchisor management team at the helm of every franchise brand is hard at work evaluating and improving policies and practices for safe trading, revising contracts and business systems to incorporate any changes brought about by the pandemic and socio-political challenges.
FASA canvassed several member companies in different sectors on how they are being impacted and what their survival strategies are in handling the challenges to grow their franchise network and their brand.
Nicole Gundelfinger – Group Marketing Manager – Cash Converters
Impacts our business somewhat – Majority stores have now got generators in place; and sadly – we have learnt to live around it. It is an extra cost though, which is unfortunate in the current economy. Reduces footfall into our stores – the roads are chaos and thus off-putting to customers. Also – customers not always sure if we are open during load shedding so they rather don’t take a chance. Our service is impacted as the internet and mobile lines are not operating at full strength when there is load shedding which slows down our customer service – we run off tech platforms that are powered by the internet.
Tiaan Bosch – Business Development Manager – HJ Bosch & Sons
Impacting our business severely – We are in the panel beating space. Without power, we are unable to repair or paint vehicles. This is a heavy burden on the whole industry. No alternate power supply, landlord not supplying power and staff battle to get to work.
Aneez Amod – Jimmy’s Killer Express
Impacting our business severely – Major drop in sales, power surges to the equipment, unable to keep up with expenses especially rentals. Landlord is supplying power as part of the lease agreement and for the moment staff is not being impacted that badly in getting to work.
Jared Price – Marketing Manager – On Tap Plumbing & Bathrooms
Impacting our business severely – Some store owners are not equipped with large back-up generators or UPS systems, so when it is lights out, trade i.e. traffic in the doors, dramatically drops. Now with higher load shedding levels, you can sometimes get two power outages in a day which almost forces some of our stores to trade for only half the day. Landlords are not assisting with backup power and staff battle to get to work.
Angus Khan – Franchise Operations – PG GLASS
Impacts our business somewhat – Load shedding has impacted all our franchises in different degrees of severity to such a point that some franchisees are not able to operate for up to a week. This severely impacts cash flow and limits their efficiency. In most franchises landlords are supplying electricity as part of their lease agreement. Load-shedding has impacted on their staff attendance.
Clara Namnick – Head of Marketing – Del Forno
Impacting our business severely – One would believe that the effects of load shedding on that of the restaurant sector would have been negative, however as a brand we have managed to adapt to all of the struggles we as a country have had to endure in the last two years. This adaption has allowed us to better facilitate our customers more effectively throughout the ongoing load shedding. Del Forno has certainly become the dependable and delicious solution to a household affected by load shedding. Eskom may turn off our lights, but our wood- fired ovens keep burning and our generators keep us running. Whilst most franchisees are not being supplied electricity by landlords as part of their lease agreement, most have alternate energy supplies. They are also fortunate in that the load shedding has not affected their staff getting to work.
Louis Minnaar – Group General Manager – The Drain Surgeon/The Electro Surgeon Group
Not affected too badly – Being in the essential-service plumbing industry, The Drain Surgeon group and our franchisees are fortunately not affected too badly by load shedding. Drains will block and taps will leak, regardless of load shedding. On the electrical side, The Electro Surgeon group and our franchisees are remaining busy with burst geysers, DB boards and other electrical appliances that break with continuous power outages. In addition, there is a much higher demand for generator-installations.
These responses from a broad sample of franchise sectors should instil confidence in the franchise sector for development funders, banks, landlords and other stakeholders, but unfortunately no meaningful relief or initiatives have been forthcoming from government who should recognise the potential that lies in the franchising sector and the most suited to lead the post-Covid recovery.
“FASA is therefore calling on the DSBD and the DtiC to galvanise support within government corridors to continue with the relaxed lockdown regulations as small businesses contribute to job creation, youth and women employment as well as poverty alleviation in the country” concludes Freddy Makgato, FASA’s CEO. “To this end, FASA will therefore continue to engage with both Departments in ensuring that the existing small franchise businesses are protected and allowed to grow.”
To protect, lobby, promote and develop ethical franchising across all sectors in South Africa with specific focus on transformation.