Franchising sets the trends but be aware of risks!
Franchising worldwide, as a business mechanism, is known for setting trends and being the first to throw that stone that causes the ripple effect of the next big brand. But, whilst getting in on the ground floor of a new concept can be a good thing, in these harsh economic times, a prospective franchisee needs to be aware of the many risks he may be taking.
We've seen trends come and go and as almost any type of business can be franchised, many of these fads developed into franchises only to die a death when the novelty of the trend wore off. Concepts such as beading and scrap-booking come to mind and many an investor burnt their fingers as those concepts had a limited lifespan and were what is considered a passing fad.
Whilst FASA encourages new trends and entrepreneurs often scour the world to see what is trending internationally, many factors need to be considered when investing in a new concept that may work in one country but not as well in another. Some of the new franchise trends emerging such as frozen yoghurt & ice cream franchises, pop-up culture food trucks, gourmet burgers, fish & chips take-outs and pub concepts, whilst all offering exciting business opportunities, may, as many brands before them, start off with a bang but, due to seasonality, viability, over-trading or diminishing interest as new fads come on the market, find that their popularity wanes as time passes and they battle to stay relevant. All through this, it is the pool of franchisees who have often invested heavily into their franchises who still have to maintain and grow turnovers in order to meet the rental commitments and other costs which are increasing all the time.
FASA appeals to the brand owners of new concepts to factor in the challenges we face in this struggling economy when setting up a new franchise, fully research the concept and its viability and aggressively market to sustain the brand after the initial explosion of interest. Franchisors also need to stay ahead of the game and re-invent their product and product offering constantly in order to keep consumer interest alive. Luckily, many of the new brands coming onto the market are modern, colourful, vibrant and clearly target a young and trendy customer.
Whilst franchising in South Africa has held its own in the face of a struggling economy, and still has tremendous opportunities for growth if measured against franchise industries in countries like America, Australia and Brazil, today's trading environment is challenging, to say the least. Rentals remain high, electricity takes up a disproportionate slice of costs and the recent petrol hike is throwing margins out of kilt. Add to that the fickleness of the consumer who may show great enthusiasm for a new product or service initially and then moves on to the next fad.
FASA's appeal to prospective franchisees is to fully investigate the franchise concept they are considering, do their own research into its viability and make sure the franchisor has a long-term vision for the brand. Above all, go into the business fully understanding the risks that could impact the business and be prepared for the challenges of a volatile economic environment.