FRANCHISEES FLOURISH

“All this feeds into maintaining healthy franchisee/franchisor relationships,” says FASA Chairman, Tony Da Fonseca. “Being able to pick up undercurrents of uncertainty or areas needing improvement allows franchisors to step up their game to better service their franchisees. It is encouraging that franchisees are optimistic about the growth of their businesses as this means that the potential for growth in the franchise sector remains strong and positive.”

The best litmus test for determining how successful franchising is as a business model, is to ask franchisees whether they would recommend franchising to others. FASA’s survey revealed that four out of five franchisees surveyed would not hesitate to recommend their franchise brand to others. According to FASA’s Executive Director, Vera Valasis, this is the best endorsement potential franchisees could have when researching a franchise. “During the various seminars and franchise shows we run, in addition to the usual due diligence, we strongly advise prospective franchisees to speak to as many franchisees as possible to find out how successful they are and how happy they are with their franchisor(s).” 

Whilst franchisees report an average nett profit of 9.5 percent, indications are that franchisees are less positive about the growth of their businesses compared to a year ago. This is linked primarily to economic and political influences resulting in new franchisees taking longer to break even.

The survey highlighted the challenges facing the franchise industry with regards to attracting adequately skilled staff, the ability to offer consistently good service, and the poor economy. Secondary challenges included growing the business with new customers, managing running costs and keeping prices competitive. Increased training in marketing the business and its products/services was identified as being of great benefit to franchisees. 

41 Percent of franchisees have been in business for more than ten years and 69 percent for more than five years. Over the sample surveyed the average number of years in business has increased to 10.3 years compared to 7.8 in 2016. 

There was a significant increase in the number of businesses situated on high streets (35 percent), where most passing trade occurs, and a concomitant decline in the number of outlets in shopping centres/malls (38 percent). Roughly one in four franchisees claimed to own their business premises and a similar number were unable or declined to disclose their rental deposit amount. Among the balance, the average deposit paid was R45,724. 

The average size of the premises occupied is 391sqm at an average rental of R167 per sqm and annual escalations of 8.5 percent. In 2014/2015 the average premises occupied was 344sqm at an average rental of R164 per sqm and an annual escalation of 6.5 percent. 

Working capital refers to the amount the franchisee should have on-hand/access to, to cover salaries, rent, stock, replenishment and running costs as well as any cash shortfall while getting the business off the ground. The average initial working capital required is R725,007. 

79 Percent of franchisees claimed to own more than one franchise, mostly within the same network. Only two percent of franchisees own franchises across different brands. 

Being supportive and helpful, providing good property maintenance, prompt attention to queries, and effective communication earned landlords a positive score. 73 Percent of franchisees reported a good relationship with their landlord while 18 percent rated it as neutral.

A supportive attitude/approach by the franchisor contributed greatly to a positive relationship score, while poor ratings were attributed to a lack of support and poor communication. 72 Percent of franchisees rated the relationship with their franchisor as good or very good. Although this is a strong score it is down from the 80 percent recorded last year and there was a concomitant increase in the neutral ratings category. Only seven percent of franchisees rated their relationship as poor or very poor.

Four out of five franchisees would be extremely/very likely to recommend their brand of franchise to other would-be franchisees. 

Among the eight percent who would not recommend their brand, the main reasons given are the perceived poor relationship with the franchisor and lack of profit. A further one in five had a bad experience and/or did not believe that the franchise concept worked for all businesses.

91 Percent of franchisees are extremely/very satisfied with their suppliers. While roughly one in three believe they are benefitting from lower prices, 52 percent feel prices are similar to those charged by other suppliers. 

 

The average number of employees per business, including the owner, is 18 and the average ratio of management to staff is 1:6. Ethnicity, on average, can be broken down as follows: thirteen black, four white, one coloured and 0.4 Indian employees.

The complete results of the Franchisee Survey can be accessed at www.fasa.co.za/survey.php