The Franchise Sector joins the call for urgent action from government

The Franchise Sector joins the call for urgent action from government

As the franchise sector suffers more debilitating losses as a result of the load-shedding crisis, The Franchise Association of South Africa (FASA) adds its voice to other representative business associations calling on government to take urgent action to resolve the energy crisis and bring national security under control to prevent an explosion of unrest and civil disobedience.

Franchising, which contributes around 14% to the country’s GDP represents businesses across fourteen different sectors, and FASA has done everything to ensure that its members comply with government’s guidelines and continue to contribute to keeping the economy going. The inadequacy of the response from the authorities in providing the very basic services that can enable businesses to operate and thrive is untenable and FASA calls on government to act with the urgency it requires to solve the energy crisis and prevent further anarchy and the collapse of the economy.

The Franchise sector is focused on putting entrepreneurs into business employing half a million people. According to Fred Makgato, FASA’s CEO, “The current situation is having a detrimental impact on not only the economy, but more devastating are the wider ramifications that include staff and their families. Through the pandemic, the rioting, looting and load-shedding, it has been the business sector that has held the economy together through their efforts to remain viable, keep their doors open and employ as many people as possible.”

FASA, through the years, has worked tirelessly with its stakeholders, its members and the industry at large to stimulate new entrepreneurial opportunities that result in expansion through the franchise route, ensuring skills transfer and job creation. “We are appalled by the current crisis in the country that is putting all our citizens’ livelihoods at risk. Should this state of affairs be allowed to continue, most businesses may not be able to recover and people will in all likelihood lose their jobs and the economy will come to a standstill as it is already in dire straits”, says Freddy Makgato, CEO of FASA.

All sectors taking strain

– The Retail Sector has borne the brunt of the crisis, in particular with the aftermath brought about by the riots and floods and has yet to see any significant steps taken by government to assist those who have had to rebuild and restart from scratch with no assistance – for themselves and their staff. Reports from members indicate that, if steps are not taken immediately and urgently, rioting and looting is going to resume and escalate nationally which they are already seeing happening sporadically.

– Food security is threatened as load-shedding puts pressure on manufacturers, food growers and meat/poultry suppliers who are reporting massive wastage as produce goes bad due to incessant load-shedding. This disruption in the value chain is critical to feeding the nation and cannot be ignored. The knock-on effect of producers not being able to get produce to market, coupled with retailers forced to close operations during load-shedding or simply not being able to afford the cost of alternate power will impact all communities across the country. The destruction, not only to retailers and property, but to the very infrastructure and basic services – from the collapse of essential services, inadequate policing to water security – is cause for alarm.

– The Fast food/restaurant Sector, which took strain during the pandemic is being hit another devastating blow with up to 10 hours a day of load shedding that is further debilitating the sector as, even with generators, restaurants remain unable to generate enough income during the hours of load shedding and end up with no customers and 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 with each load shedding. Equipment also gets damaged because of the power surges – all impacting the bottom line.

– For the broader Franchise sectors – from Automotive Products & Services, Building Office & Home Services, Business to Business, Health & Beauty, Education & Training to Real Estate, the bottom line is that the loadshedding and power crisis in South Africa is going to constrain economic growth and increase costs across the board. As a country, and across the global environment, we are already in a significant inflationary environment at present, and the power situation adds unnecessary pressure.

According to Richard Mukheibir, CEO of Cash Converters and a board member of FASA, “The reality of living with loadshedding extending into 10 hours plus daily is that in order to continue to conduct a business, a plan has to be made, and businesses and business owners must respond with action. Whether it is a generator, an inverter, solar panels or a combination of these, and at what level of intensity, people have to find additional money to invest in their business, just to keep their businesses going.”

Although the increased costs of doing business hurts the bottom line, not trading during extended loadshedding is worse for business, according to many franchisors in less power intensive sectors. These businesses have rallied, and because of the way the businesses are set up, they can continue to trade off the back of improved IT systems, a few lights, and the internet. From this perspective, they are slightly better off than businesses requiring extensive power to keep going – those using power-intensive dishwashers, ovens, stoves, fridges, freezers, furnaces, large scale manufacturing and so on.

Tony Da Fonseca, past Chairman of FASA and CEO of OBC Better Butchery, whose stores are concentrated in the lower-income areas believes that the impact on South African consumers who have to find money in order to live through the extensive power outages impacts on businesses as consumers’ spending power is cut – to the extent that many are going out of business. “The sudden increase in loadshedding has taken its toll on all franchise businesses across all sectors as the cost of doing business has become increasingly difficult due to the power crisis. Franchisees are struggling with maintaining the financial obligations of running their operations and are focused more on staying afloat than focusing on growth.”

The banking sector that supports business and particularly franchising, has always seen the franchise industry as a business model to grow SA’s economy. According to James Noble, Head of Wholesale, Retail & Franchise at Absa and a FASA board member, “the cost to operate a business has been increasing over the last couple years even before the Covid-19 pandemic. The biggest costs are rent, staff, increasing cost of sales due to inflation, electricity and the cost impact of load-shedding which not only reduces revenue due to limiting trading hours but it increases the cost to operate the business should you have solar or generators to keep the business open during those periods. As a bank it becomes important to ensure the business is profitable with a positive cash flow when we look at lending opportunities. It is important to ensure that franchisees are conservative when doing cash flow budgets and that they can still meet their financial obligations even if there is a dip in revenue or substantial increase in operating expenses.”

FASA is concerned at the governments’ inability to acknowledge the extent of the problem, and to put any realistic and timeous solutions into action. “We don’t believe proposed cabinet and minister reshuffles will solve the electricity woes, and Eskom is starting to feel beyond hope, with no tangible solutions to bring enough independent power supply to the national grid. It is imperative that government tackle this problem immediately, to prevent further loss of business and employment. To alleviate the power crisis, FASA suggests as a short-term solution that government provide some sort of rebate or reduced tariffs to key sectors to provide some industry relief.”

According to Maria D’Amico, FASA’s Chair for 2023/2024, “the Franchise sector, which has been a beacon of success for the African continent and an active player on the world franchise stage, has played its part to stimulate entrepreneurship, transfer skills training and above all contribute to job creation and the country’s GDP. It would be a tragedy if, as a result of an incompetent administration and inaction on the part of government, the sector faces irreversible collapse.”