ECONOMY

Franchising in the age of

COVID-19 Will franchises remain a safer bet in the economic aftermath of the pandemic? DELIA DU TOIT investigates

With South Africa already facing a recession before COVID-19 hit, strategy for some time now, which includes businesses have been feeling an e-commerce and WhatsApp commerce the pinch like never before – and service. The pandemic forced us to roll this even tried-and-tested franchises out sooner than planned, but it’s already are no exception. working well.”

Business owners, franchised or not, have This is one of the reasons Stegmann had to come up with creative ideas to remain believes franchises remain a safer business sustainable. Some franchisors opted to lower model and can contribute to rebuilding the franchisee fees during the lockdown, while economy. “By being part of a franchise others helped renegotiate leases with landlords. network, you’re immediately afforded a

Sean Stegmann, CEO of Cash Crusaders, plethora of insight, knowledge and advice, says the second-hand giving franchisees more stability than standgoods chain rolled out alone entities. You immediately have brand digital sales channels presence and a footprint across a region or during lockdown. an entire country, and access to training and “We’d been working upskilling for employees, which could create on a digitisation much-needed jobs.”

Sean Stegmann

“By being part of a franchise network, you’re immediately afforded a plethora of insight, knowledge and advice.” – Sean Stegmann, CEO, Cash Crusaders

Financial access

As lockdown regulations were eased, the Franchise Association of South Africa called on the banking sector to support the franchising industry. Yet  nancing is hard to come by as  nancial institutions become more riskaverse in these trying times.

Anita du Toit, an independent franchise consultant, says though  nancing was previously more accessible to franchisees than independent entrepreneurs, banks are now taking a closer look at the industry in which a franchisee will operate. “Some industries are better positioned for the current conditions, such as hardware, automotive repairs, courier services, wellness and weight loss,” says Du Toit.

Though loan interest rates are linked to the lowered prime lending rate, banks assess applications individually. “Where franchisors offer additional support to survive these dif cult times, such as extended terms for stock purchases, applicants could get a better rate,” explains Du Toit. “As always, applicants should start by applying to their main private bank, where their consumer pro le might make it easier to secure  nancing.” Still, says Du Toit, franchisees remain better positioned to secure funds than independent loan applicants. “All the major commercial banks Anita have divisions specialising du Toit in franchising, so that is an indicator of banks’ appetite for franchises, which are generally seen as more successful than start-ups.”

“Applicants should start by applying to their main private bank, where their consumer profile might make it easier to secure financing.” – Anita du Toit, franchise consultant

ONLINE SHOPPING BECOMES A THING

Online shopping has grown exponentially in SA during the pandemic, and experts predict sustained development. According to Nielsen, 37 per cent of South Africans say they are shopping more online, compared to the 8–10 per cent of shoppers who’d made an online purchase in the year before the pandemic.

Where fashion, travel and entertainment used to be the frontrunners, groceries and essentials have now gained a massive slice of market share. Still, access remains a barrier, as only 58 per cent of South Africans have internet access.

The age of e-commerce

Though South African e-commerce is in its infancy, market research company Euromonitor expects sales to double this year after a boost during lockdown. A survey conducted by Visa found that 64 per cent of South African shoppers bought groceries online for the fi rst time during lockdown.

Local e-commerce franchises are still few, but this might soon change.

Anthony Phillips, CEO of Ready Made Stores, which sells ready-to-launch dropshipping stores, says the franchise has seen consistent growth in its 12 years of operation – with a large spike during lockdown. “We’ve had to hire more staff to cope with the infl ux. Investors are getting on board too: Lebo Gunguluza (Dragons’ Den SA) recently stepped in to run our partner franchise DropShipClub.”

Online trading offers many advantages, especially now, says Phillips. “Online businesses aren’t constrained by geography and could still sell during lockdown, including in overseas markets. Dropshipping, especially, is a low-risk option, as dropshippers don’t keep stock, instead relying on manufacturers to ship directly to buyers.”

Unfortunately, dubious online business offers abound. Phillips says those interested in becoming franchisees should be vigilant. “Look for franchises with longevity, a good reputation and the necessary systems and support.”

Lebo Gunguluza