RELATIONSHIPS: THE KEY TO FRANCHISING SUCCESS

This came on the back of surprisingly positive survey results both on the performance of the franchise sector and, perhaps more importantly, on the high level of franchisee satisfaction recorded in a franchisee survey.

Tony Da Fonseca, FASA’s 2017/8 Chairman, echoed these views, confirming the franchise sector’s ability to take tough economic times in its stride. “Joining a franchise does not guarantee success, but common sense tells us that starting a business under the umbrella of a known brand, having access to tried and tested systems and procedures, and the wide range of initial and ongoing support a bona fide franchise offers, enhances a newcomer’s chances of success tremendously. The well-known slogan, ‘to be in business for yourself but not by yourself’ sums it up nicely.”

The survey results show a high level of optimism and business satisfaction amongst franchisees. While the average gross profit claimed in the last financial year has dropped from 22 to 14 percent, the number of franchisees who are optimistic about the future of their business increased from 72 to 82 percent. Only one in ten franchisees intend on selling their franchise within the next 12 months.

Within the first year of operations, it was expected that 42 percent of new franchisees would break even. Comparing these results with those from the Franchisor Survey indicates that there is inconsistency in the results as 73 percent of franchisors believe that a new franchisee breaks even within the first year.

The premise that if franchisees are making money and are happy with their franchisors, then the franchise is a successful one, holds true, and the survey results back up this theory. 

The survey showed that 72 percent of franchisees are happy with their franchisor and while this is a strong score it is also an eight percent decline from the previous year’s rating with a concomitant increase in the neutral ratings. Only seven percent of respondents rated their relationship with their franchisor as poor or very poor. An overwhelming reason for the positive relationship score is the franchisors’ readiness to be helpful and supportive. 

Pride in belonging to their particular franchise has a top box score of complete agreement at 65 percent and a similar number of franchisees indicated that they intended to stay within their franchise network. The franchisees report that communication from their franchisor is open and honest and they have confidence in the franchisor’s leadership team. 

Along with the high statistic of franchised businesses having a 90 percent success rate compared to start-up businesses who have a 90 percent failure rate, the number of years in business reported by the survey respondents supports this statistic. 

Nearly one in two (44 percent) have been in business for more than ten years, while 62 percent have been in business for more than five years. The average number of years in business over the sample was 7.8 years.

An estimated one in two franchisees claim to own more than one franchise; the majority being of the same brand. 

Staffing is a major concern, so too is the ability to consistently offer good service, growing the business with new customers and marketing the business. Franchisors are most likely to provide assistance with training and local store marketing (65 and 64 percent respectively), followed by assistance in compiling a business plan (41 percent), legal documentation and assistance with accounts management at 38 percent each. Access to finance from financial institutions scored low at 12 percent.

Product knowledge and customer satisfaction are the key aspects of the training provided by the franchisor. Personal motivation and sales are also covered, but general financial management and accounting receives less attention. 

There is no better endorsement of a successful franchise operation than when franchisees confidently recommend going the franchise route to others. FASA’s survey shows a strong loyalty to franchisees’ respective brands.

Franchisees are essentially happy with their franchise business and four out of five (81 percent) are extremely/very likely to recommend the purchase of their brand of franchise to others. The main reason for recommending the brand is that they consider it a good business that yields returns and because of the support they receive from their franchisor. Other reasons for recommending the franchise brand for purchase include the reputation and quality of the brand, staff training and the fact that it is a desirable product/brand/service. 

Only seven percent are not likely to recommend their franchise brand with the main reason being a lack of profit and a perceived lack of support from the franchisor.

Maintaining an understanding relationship, being responsive to queries and resolving issues, contribute to landlords receiving a positive score. Poor scores are attributed to the landlord not coming around and an attitude that leaves much to be desired. Most franchisees report a good relationship with their landlord (70 percent) and a further 20 percent rated it as neutral. 

Roughly half of the respondents claim they were not required to pay a deposit upon renting their site and amongst those who did, the average deposit was R55,919. The average rental cost is R165 per square and the average franchise occupies 344sqm.

The franchise business format often prescribes which suppliers must be used, both in the set-up of the franchise and in the ongoing supply of goods. A good relationship with suppliers remains an important element to a franchisee’s satisfaction barometer. It is, after all, the franchisees who have the most contact with suppliers and report back to their franchisors the efficacy of the product and service.

While the majority of franchisees are extremely or very satisfied with their suppliers, only around 16 percent believe they are benefitting from better pricing.