Franchising leads global recovery
Did you know that South Africa’s franchising economic output as a percentage of GDP ranks in the top five worldwide? That’s correct… with its contribution to GDP at 15,3% (in 2017) and slightly less at just under 15% in 2019, South Africa’s franchise sector is up there with France, Australia, New Zealand and the Netherlands.
The success of South Africa’s franchising sector puts us squarely amongst the best performing franchising countries in the world, according to statistics compiled by the World Franchise Council’s 2017 Survey on the Economy Impact of Franchising Worldwide, created to monitor the global franchise landscape. As a long-standing and active member of the World Franchise Council and the oldest franchise association representing franchising in Africa, this is indeed a feather in our cap.
That survey confirmed the phenomenon of franchising that continues to grow worldwide with most global markets receptive to the business model which provides entrepreneurial-minded businesspeople with an opportunity to run their own businesses.
The 2017 Survey showed that, globally:
- Approximately 2 million franchised businesses sustain over 19 million jobs globally.
- On average, franchising contributes 2.7% to national GDPs to the world economy of members in the World Franchise Council.
- Contribute over $1.75 trillion per annum, the United States leads the way, with over $650 billion of revenue generated per year.
… And then Covid-19 happened
As 2019 drew to a close, the franchise trajectory globally continued its upward spiral of success… until Covid-19 hit in March 2020. For the next two years, with seemingly no end to the ravages of the corona virus, businesses across the globe fought for their survival and shifted operations to accommodate an unknown landscape. With the mindset that ‘necessity is the mother of invention’, businesses, and particularly franchised businesses around the world re-organized and adapted their strategies changing the way they operated and interacted with consumers.
Confident that the business format of franchising could withstand the challenges, experts predicted that the franchise industry would make a faster and better recovery post-Covid than most other business categories, mainly due to the following:
- 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 behavior, identify problems and recognize 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 behavior 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 organizations – 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.
The power of the collective
The one unifying factor that unites franchising globally is the determination to overcome the obstacles to come out stronger as the world’s economy recovers. 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 management team at the helm were hard at work evaluating and improving policies and practices for safe trading, revise contracts and business systems to incorporate any changes brought about by the pandemic.
There is no question that globally, franchise businesses fared better than independents and this bodes well for a franchise revival as economies starts to recover. But it will be those franchise brands that look at revising and adapting all areas of their businesses to prepare for the future and pre-empt any further disruption that will come out on top.
It might not appear so but out of adversity come opportunities and the franchise sector can expect to see new business models emerge that have adapted to the new normal and will thrive. This is both a good thing for entrepreneurs looking to start new franchise concepts and for the many who find themselves out of work and looking for an investment opportunity.
Recovery on the cards
As the world continues to recover economically, businesses worldwide will be hard pressed to review, regroup and recover. Franchises in particular, by virtue of their ‘strength in numbers and the power of the collective’ and their solid support mechanisms, are showing signs of recovery and the sector remains one of the most resilient. The franchise sector is leading the way in its recovery and globally, we are seeing the determination of both franchisors and franchisees to overcome the challenges and forge ahead with revival plans.
Leading the way in the recovery of franchising is the United States of America, according to research released by the International Franchise Association (IFA). Its 2022 Franchising Economic Outlook showed that franchising leads the economic recovery in the United States. The report highlights exceptional 2022 job and business growth across all franchising sectors, ranging from personal services to lodging. The data indicates 2023 will be another strong year for job and wage growth in the dynamic, local-focused franchising industry.
Shielded from the additional onslaught of the war in Ukraine and the subsequent economic fall-out that is affecting most of the world, the US shows franchise growth stabilized in 2022, expanding by 2.2% to reach a total of 792 014 franchise establishments, 17 000 more than 2021. GDP contribution to the overall economy remained stable at 3% in 2022, but the growth rate is likely to slow to 5.7%, though still higher than the pre-pandemic level.
The rest of the world will recover in a more staggered way, based on their level of vaccination and recovery from the pandemic and rated on as having either a high, moderate or low level of new franchise development in 2023. Much depends on where they sit within the turmoil created by the war in the Ukraine with Northern hemisphere countries keen and ready to revive their franchise growth. South-east Asia and Australia in particular are seeing growing interest in new franchise developments as are some countries in South America.
If there is one business sector that knows how to confront challenges, balance the scales of supply and demand, be innovative enough to change course and use its collective power to weather any storm, it’s franchising!
To protect, lobby, promote and develop ethical franchising across all sectors in South Africa with specific focus on transformation.
