Franchising can be the business format to turn the economy around
South Africa has the biggest vehicle market by sales and exports global contribution of just below 1% of new vehicles. The automotive aftermarket sector has recovered to pre-pandemic level in 2021 thanks to the franchising business format, whilst workshop revenue was still below that of 2019. The industry continues to face a number of challenges such as semi-conductors and global logistic bottlenecks, the electricity crisis and fuel prices hikes. The global shift to electric vehicles has fast-tracked the local production to service the growing global demand as we export more than 60% of our vehicles to the EU market.
The vehicle servicing, repairs and parts supply channels form one of the largest portions of the entire automotive aftermarket sector industry in respect of employment and contribution to the economy. One of the objectives from the Master Plan 2035 is to achieve industry transformation across the value chain and lower the barriers to entry for SME’s to have an opportunity to operate and service vehicles that are covered by the warranty.
The Automotive Aftermarket sector in South Africa is expected to grow as the Auto parc is growing and this will assist with parts and distribution planning for dealerships, component manufacture and retailers across South Africa. According to Transunion, the segmentation of South African car parc is at 12.7 million vehicles by end 2020 quarter 2, with over 80% of vehicles that are over 5 years old on the road. This is an opportunity for the consumer to be able to keep their vehicles at required service levels as the majority will be out of their normal service plans; therefore, extra finance will be required to keep on maintaining the vehicle especially around the times where they are under financial pressure during the entire lifecycle of a vehicle.
What does this mean for franchising?
Industry challenges forced businesses to think outside the box and to become smarter at delivering their products and services. Many retail businesses fast-tracked their eCommerce strategies with online sales platforms where customers can view, order, securely pay and get their goods delivered to their door on time. Retailers have also had to become even more aggressive with their loyalty programmes to ensure customer retention that drives value for money.
Due to the rising unemployment rate and increases in new vehicle prices, the average age of the car park in South Africa is ageing, meaning that motorists keep their vehicles longer and therefore have an increased need for maintenance. This can have a positive influence on franchises in the aftermarket sector. The implementation of right-to-repair from July 2020 can also generate opportunities for service centre franchises to grow and take business away from the big original equipment manufacturer (OEM) service centres.
The majority of SMME’s businesses formalize their business and improve on their service offering by also seeking financial assistance to accommodate the cost of their new machinery and working capital requirements. The current dealerships will continue to reap the benefit as they have the relationship and goodwill with their current customers; however further education will need to be shared with the customers who will be buying the parts and service plans.
Access to finance is one of the barriers to SMME’s that are starting out with less experience in the industry as the cost of machinery and renting of place to service is high. We have noted that franchisors that are operating in the sector have packaged business concepts that will cater for this previously excluded market. The business in a box concept backed by a well operated franchisors, has given business opportunities, assistance and training for aspiring franchisees with business acumen and experience to participate and financial institutions can work together with them to offer financial assistance.
The private sector and public sector have been engaging to find solutions for new entrants and formalizing some of the businesses for them to gain access to much needed funding and access to markets.
South Africa has over 45 000 franchise businesses, creating employment for more than five hundred thousand people. Franchising is still a safer way of getting into business and become financially independent. The support of a franchisor and value of brand recognition still outweighs the risk of starting a business on your own.
Absa’s Wholesale, Retail and Franchise team operates across a number of business categories. We can provide you with the best solutions that will continue to contribute to your business success. If you’d like to talk to us about your business plans and dreams, we’ll gladly listen.
Thami Letsoalo is Business Development manager in the Wholesale, Retail and Franchise team and responsible for the Automotive sector focusing on Dealership, Automotive Aftermarket and Fuel sector at Absa Business Bank. He is responsible for the development and implementation of Absa’s Automotive strategy.
He focuses on sector development across segments by providing solutions that address sector specific needs including industry stakeholders. Thami has passion for SME’s market due to the potential and innovation the segment has by collaborating with different stakeholders to solve challenger in the automotive sector by developing solutions and value propositions from a banking perspective
Thami holds a BCom Marketing from the University of Pretoria, Management development program certificate, Post Graduate diploma in business manager and master’s in business administration (MBA) all from GIBS
To find out more about the wholesale, retail and franchise industry and Absa’s available financial solutions:
– Call us on +27 11 350 8000
– Email franchise@absa.co.za
