Franchising in South Africa - then, now and the future

On the eve of South Africa’s elections franchise stalwart Eric Parker was the guest speaker on FASA’s monthly networking event reflecting on the past and looking ahead to the future of franchising in South Africa.

“One reason we look back at history is to understand the driving force behind the existence of FASA, to acknowledge its success and to rally together to continue its trajectory and map out the future – especially now as we enter a new phase in our country’s socio-political and economic environment” says Eric Parker, director at consultancy firm and a founding member of FASA.

Being ambassadors for ethical franchising has always been at the core of FASA’s mandate and needs to remain front and centre in guiding the association into the future and dovetail to become the catalyst for positive change in the industry and in the country’s future.

Reflecting on the past

Franchising’s trajectory from that original seed that was sown by the Halamandaras and Ambor families who visited the US and brought back the ‘steakhouse’ restaurant concept in the 1960’s is a testament to the entrepreneurial spirit of those early pioneers of franchising.

The first restaurant opened in1962 by Steers was a sit-down steakhouse which then started franchising in 1965. The Halamandaras brothers also started Burger Ranch as their take-away arm and then Milky Lane and Juicy Lucy. In 1971 the first KFC opened as a tiny outlet that really drew the crowds and cemented franchising’s success in South Africa. As it was a US company it really put franchising on the map and interest from other entrepreneurs peaked as many scrambled to introduce other franchise concepts in various business segments. South Africans were bitten by the ‘franchising bug’ that today contributes 15% to the country’s GDP worth R999 billion.

In 1979 a number of franchisors came together socially to exchange ideas under the then name of SAFA (South African Franchise Association) banner. In 1985 it was formalized and a constitution was set up and from 1990 awards, conferences and exhibitions followed to grow the industry. Eric Parker was elected Chairman in 1992 and the association soon had 80 members. Says Eric, “the association then was run very entrepreneurially – as is typical of economic mavericks – all who volunteered for the board were welcomed and co-opted and decisions were taken in the interests of growing this phenomenal business format. Interestingly, FASA’s biggest growth period was during the country’s transition to democracy in the 90’s and 2000’s with the banks playing an active part in funding new concepts when entrepreneurs and business owners were motivated to help build the new South Africa.”

Assessing the present

Thirty years later and both the country and franchising have reached a crossroads as recessions, bad governance, corruption and disillusionment has impeded growth. Franchising has meandered through the decades – membership of FASA varying anywhere between 80 and 200 over the past forty-five years. It lags behind the rest of the world in terms of franchise growth with entrepreneurs wary to start new concepts in an economic environment that is restrictive and not conducive to small business development and amid deteriorating governmental infrastructure and support.

Franchising still behind the rest of the world – compared to first world countries that enjoy anything from 25 to 70% of business activity going through franchising, South Africa at 15% has a long way to go – which is a positive as there is room to grow and expand this tried and tested business format.
FASA membership – out of a pool of around 700 franchise systems in the market-place, only 140 to date are FASA members. With membership voluntary, co-opting every franchise in the country becomes a challenge. Whilst government has acknowledged franchising to the point of gazetting FASA’s code of ethics, it has stalled in giving FASA statutory powers.
Upholding ethical franchising – this is a concern as many franchise systems are not upholding ethical business practices. One of the main reasons why FASA was established was to ensure that all franchises adhered to international standards of business practice that is the foundation to the success of franchising worldwide.
Companies wary to go the franchise route… despite FASA’s 2023 survey showing the resilience of the sector in the face of ongoing challenges, companies and corporates that could be franchised are often skeptical as they hear of some of the ‘bad apples’ that are often exposed in the media.

Adapting to the future

In the same way that, post our elections, a restructured government has the opportunity to turn the corner and rekindle its former glory under Mandela, so the franchise sector can re-invigorate itself and offer solutions and elevate the franchise concept, get it back on track and show even more exponential growth in the future. To do this, FASA needs to consider the following:

Audit members and prune – the same way some companies do annual reviews to see what is working and what is not, FASA should do the same to determine which franchisors are liabilities, often doing more harm than good.
Run FASA more entrepreneurially, less formally and be more flexible and creative in pushing entrepreneurial ideas that will become tomorrow’s big brands – thus contributing to the economic recovery.
Revitalize the board – try and get major franchisor members on the board – experienced people that are hands on and prepared to put time in. Ask them not what FASA can do for them but ask that they give back to the industry.
Drive for major members – many that were past members and who benefitted in their formative years but who now believe they don’t need the association. It must be pointed out that FASA, unlike other associations that have statutory powers, acts as the voice of franchising and by extension is the voice of all those in the sector.
Less emphasis on Government and more on private sector – over the years FASA has spent so much time knocking on government’s door – to no avail. FASA survived 45 years in supporting what is probably one of the most important sectors in the economy, without the assistance of government and must continue to do that by continuing to grow it on the back of the private sector.
Relaunch around a white/green paper – now is the time to re-launch FASA and franchising and drive the sector forward for the next three to five years. Especially now that we have a new government structure, this is the time to re-invigorate our sector and plan for a brighter future.
Introduce a meaningful business plan – that emanates from the proposed white paper which will outline the current situation of franchising in South Africa and maps out the best way forward to maximise the potential of both franchising and FASA.

CONCLUSION:

Concludes Parker, “looking at the success of franchising globally, the potential of franchising is still huge in South Africa but it has been impeded by many factors, some out of our control, others due to inefficiencies and a sense of futility in the face of adverse economic conditions. Only by bringing together key players – in business, corporate, government and academics to thrash out a future plan and drive a ‘white paper’ recovery project can franchising move to the next level for the benefit of the sector and for South Africa’s ultimate economic survival and future growth.”