FRANCHISING
ENTREPRENEURSHIP AND ECONOMIC GROWTH
FRANCHISING
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EDITORIAL
Editor: Anthony Sharpe
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Contributors: Busani Moyo, Veroshen Naidoo, Giuli Osso, Thando Pato, Tarryn Richter, Simon Schaefer, Rodney Weidemann
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A THRIVING MODEL OF SME SUPPORT
Estimates by the International Finance Corporation (IFC) indicate that small and medium enterprises (SMEs) in South Africa contribute just over a third of the nation’s gross domestic product (GDP) and provide employment for 50–60 per cent of all workers. Considering our country’s nigh-on stagnant economic growth and burgeoning unemployment problem, these gures are clear indicators of the essential role of SMEs in sustaining and improving the lives of millions.
Despite this, the IFC reports that, in light of the number of SMEs and the GDP per capita, the country’s early-stage entrepreneurship rate is a third of what it should be. To put it simply: South Africa needs more entrepreneurs and small business owners. And these entrepreneurs need support.
The franchising model serves two key purposes: providing a means for franchisors to expand their business empires and a structured operating environment and recognisable brand within which franchisees can ideally thrive. It’s a model that has thrived in South Africa, employing almost half a million people and contributing 15 per cent of GDP, according to the Franchising Association of South Africa (FASA).
FASA kicks off this issue of Franchising, digging a little further into that economic contribution, exploring how new franchise concepts are introduced to market and looking at how franchisors see the future. We share some expert advice on how to survive during an economic downturn and why it is essential to invest in the services of a skilled nancial adviser.
We also look at the sector’s crucial employment contribution, where SMEs t into a broader snapshot of the economy, dispute resolution in franchising, successful liquor franchises and courier services lling the void left by the South African Post Of ce’s decline.
We hope this magazine contributes in some way towards the growth of South Africa’s crucial SME sector. Happy reading.
Anthony Sharpe Editor
What
How
Nando’s franchisee Lola Masemola relates how her entrepreneurial journey was inspired by family members and fuelled by determination and drive.
Buying a liquor franchise is not necessarily the cheapest way to tap into the alcohol sales market, but it may be the easiest.
Deloitte Insights unpacks the state of the South African economy and the role of small business in it.
What has the work-from-home movement meant for
and home-building suppliers?
Courier companies are picking up the slack created by the post of ce’s inability to deliver.
Without an industry code and ombud, resolving con ict between the franchisor and the franchisee is often challenging.
HOW FRANCHISING CONTRIBUTES TO THE ECONOMY
The franchising sector has grown significantly to help keep the economy going, writes GIULI OSSO, head of PR for the Franchising Association of South Africa
Throughout FASA’s 45-year history, the association’s main aim has been to nurture the entrepreneurial spirit at the heart of every franchisor and franchisee and ensure that this phenomenal business system continues to enrich while contributing to job creation and the South African economy.
The on-the-ground facts and gures of how the franchise sector has performed over the past four years were re ected in the eighth independent survey, conducted in late 2023 and sponsored by Absa, which assessed the contribution of the franchise sector to the South African economy. The survey measured the sector’s performance in terms of gross domestic product (GDP), business establishment, creation of employment and the identi cation of key franchise practices.
With an estimated generated turnover of R999-billion, a 36 per cent increase over the 2023 gure of R734-billion (equivalent to 15 per cent of total South African GDP of R6 660-billion), franchisors and franchisees can be proud of their tenacity and commitment to running pro table and ethical businesses, while also contributing to skills transfer and employment.
THE ROAD AHEAD
What the sector needs to spur it on to greater heights is a blueprint of how franchisors and franchisees see the future. Every franchise system needs to take on board the hard lessons learned from the past four years, harness the power of the collective made up of the franchisor and its franchisees, and face the future with a new determination to show that we can turn the tide.
FASA CEO Fred Makgato believes that the only way to avoid an impending disaster in South Africa is for the government to deal with load shedding and to recognise that
businesses, large and small, are keeping the economy going. “On the back of such a strong survey of the franchising sector, which is prepared to safeguard its position as a signi cant contributor to the country’s economy and is willing to play its part to keep the wheels of business and entrepreneurship turning, we call on government to now do their part in rectifying the debilitating state of the country for the sake of the economy, its citizens and the future of South Africa.”
FRANCHISORS AND FRANCHISEES CAN BE PROUD OF THEIR TENACITY AND COMMITMENT TO RUNNING PROFITABLE AND ETHICAL BUSINESSES, WHILE ALSO CONTRIBUTING TO SKILLS TRANSFER AND EMPLOYMENT.
Fred Makgato
INTRODUCING NEW FRANCHISE CONCEPTS TO MARKET
GIULI OSSO, head of PR for the Franchising Association of South Africa, provides an overview of franchising’s success and its growth prospects
Franchising is a unique business system that relies on duplication of a concept, brand, products and services through an ever-growing network of franchisees across 14 different business sectors. An overview of how those franchises have handled the strains and stresses of the past four years is invaluable to its future growth. The franchising phenomenon starts with an idea that germinates in the mind of an entrepreneur, who then goes on to make their dream come true by nurturing and developing that dream into a bankable businesses. Once they have piloted the concept, re ned the business strategy and set out a blueprint for duplication, they are ready to franchise it and offer opportunities to other entrepreneurs.
The proliferation of franchise systems globally relies on these maverick entrepreneurs coming up with new concepts. A slowdown can result in a domino effect, impacting the setup of franchisees, which, in turn, impacts job creation.
•Ac cording to the Franchising Association of South Africa (FASA) 2023 database, there are 727 franchise systems in South Africa. This sample was grossed up to represent 68 463 franchisees, a 43 per cent increase since 2019. The increase in the number of large franchise systems in the 2023 survey accounts for this marked increase.
• The franchise sector is a stable and robust segment of the South African business market, as is noted in the longevity of the businesses – 77 per cent of franchisors and 53 per cent of franchisees have been in business for more than 10 years. The average number of years in business for franchisors was 21 years and 12 years for franchisees.
THE FRANCHISE SECTOR IS A STABLE AND ROBUST SEGMENT OF THE SOUTH AFRICAN BUSINESS MARKET.
• Franchisors’ expectations that a new franchise would break even within the rst year of operations grew signi cantly, from 76 per cent in 2019 to 89 per cent in 2023. A similar picture is seen among franchisees that experienced break-even within the rst
year of operation growing from 69 per cent in 2019 to 89 per cent in 2023.
With franchising making such a valuable contribution to the country’s economy, it is important that a greater effort is made by government, its stakeholders and the private sector to explore the many facets of franchising, including social, tandem and micro franchising, that can be duplicated in all corners of the country to provide much-needed training and jobs.
HOW DO FRANCHISORS SEE THE FUTURE?
What do businesses see in their crystal balls for the year to come? By
GIULI OSSO, head of PR for the Franchising Association of South Africa
While the past four years have taken their toll on all businesses, the franchise sector has proved its resilience and, on the back of the survey results sponsored by Absa, the Franchising Association of South Africa (FASA) believes that now is the time for franchising to step up and nd ways to plan for its future growth.
Whether it’s lobbying government to partner with it in using the franchise business model to establish grassroots franchise concepts in the social, tandem or micro spaces, nding exible franchise options tailored to our new world or targeting corporate companies to look at franchising as an expansion mechanism, franchising remains one of the strongest business formats for future sustainability.
OPTIMISTIC OUTLOOK
The franchise sector is prepared to safeguard its position as a signi cant contributor to the country’s economy and is willing to play its part to keep the wheels of business and entrepreneurship turning. On the back of such a strong survey of the franchising sector, FASA and the franchise community are a testament to the power of the “ubuntu” collective that is the cornerstone of franchise success, as franchisors and franchisees work together to analyse challenges and nd solutions that will not only bene t themselves, but also their staff, dependents and the consumers they serve.
Franchisors continue to be optimistic about business, growth continues to strengthen, and the expectation that turnover will grow in the next nancial year is almost unanimous.
• From these survey ndings, it is evident that franchisors delivered on the promised return on investment (ROI), resulting in nine in ten franchisees expressing good levels of satisfaction with the ROI. Real estate franchisees (71 per cent), building, of ce and home services franchisees (60 per cent) and retail franchisees (52 per cent) all indicated levels of extreme satisfaction that were above average.
• The positive attitude expressed by franchisors is echoed by franchisees, with 88 per cent believing that turnover in their businesses will grow in the following year.
• The franchisees that were especially optimistic about future growth could be found in the following categories: automotive products and services (100 per cent), building, of ce and home services (98 per cent), business-to-business services (97 per cent), childcare, education and training (94 per cent) and real estate (100 per cent).
• Franchisees in dine-in restaurants (24 per cent) and fast food and QSRs (26 per cent) were less optimistic, believing that turnover would not change in the next nancial year to a greater extent than franchisees in other categories.
NAVIGATING TOUGH ECONOMIC TIMES
Efficiency is key to surviving tough economic times as a small business –here’s what to consider. By VEROSHEN NAIDOO, regional investment manager at SME financier firm, Business Partners Limited
Small businesses have been put through the wringer in recent years. Sluggish gross domestic product (GDP) growth, scal constraints and rising costs coupled with load shedding have placed many small and medium enterprises (SMEs) under immense strain. Still, in the true spirit of resilience – a trait with which the SME community has become synonymous –many businesses have found inventive ways to weather the storm. Survival strategies vary, but the solution to sustaining a
business in times of economic volatility lies in maximising ef ciency.
Ef ciency in business can be loosely de ned as the optimal composition of labour, capital, time and materials (inputs) to achieve the highest level of output (products and services). It is all about getting the same or higher output without more time and money being expended.
In tough economic times, time and money are two commodities business owners have very little of. The challenge is therefore for
SMES NEED TO REVIEW THEIR PROCESSES FROM END-TO-END TO REDUCE WASTE AND ENSURE THE PROTOCOLS IN PLACE ACCOUNT FOR EVERYTHING THE BUSINESS NEEDS IN THE MOST EFFICIENT WAY POSSIBLE.
SMEs to nd ways to reduce waste, make the most of any available resources and boost the business functions that produce the highest return on investment. Even the most well-run businesses can make improvements. I recommend that SMEs look into the following three business areas when evaluating what changes can be made to make their operations more ef cient.
Veroshen Naidoo
Business Partners Technical Assistance Programme
ABOUT
BE SMART ABOUT SPENDING
As a business evolves and grows, it begins to incur certain expenses that may not have been part of its financial outflows during its first few years. Some of these expenses could include subscription costs on software packages and tools, upgraded machinery and equipment, marketing costs, additional professional services, such as consultants and legal advisers, and licensing fees. While some of these costs may be imperative to sustaining a business, runaway expenses can add up when they’re not closely monitored.
Cutting unnecessary costs is one of the most essential parts of effective cash flow management. If left unchecked, these hidden costs are like leaks in your ship that cause revenue to slip away unnoticed.
Becoming more efficient means plugging these leaks by cutting costs –even if just as a temporary measure until stability returns.
Now is the time to close unused subscriptions and memberships, review your bank charges, cut back on nonessential travel, re-evaluate your office supply budget and go paperless to reduce spending on printing and paper usage.
UNLOCK YOUR TEAM’S POTENTIAL
Another key focus area is staffing. In
challenging economic times, SME staff members are often pushed to their limits and called upon to go above and beyond to make sure that the business keeps running. While asking staff to increase their efforts may be essential in surviving in the short term, it can take its toll on the team. In the long run, this could lead to greater levels of absenteeism, low staff morale, reduced productivity and increased human error.
Ultimately, these factors will cut into your profitability over time and decrease how efficiently your business utilises valuable human capital. The answer is not to cut jobs or wages in a panic. More effective measures could be to implement flexible scheduling –to meet employee needs while ensuring that the business keeps running during peak periods.
SMEs could also look into upskilling programmes that train employees on how to handle multiple tasks or roles within the business. Research available government-sponsored training programmes that can benefit your business and employees. Cross-training enhances flexibility, reduces reliance on specific individuals and enables smoother workflow transitions during periods of high demand or staff shortages. This has the added benefit of helping employees grow within their roles and advance their careers.
OPTIMISE YOUR PROCESSES
In tough times, it’s also useful to evaluate the efficiency of processes. For example, inefficiencies in the way inventory is managed and stored could cause wasted space in a warehouse. Likewise, if the SME’s raw material ordering system is not optimised, it could lead to materials expiring.
To guard against these types of inefficiencies, SMEs need to review their processes from end-to-end to reduce waste and ensure the protocols in place account for everything the business needs in the most efficient way possible. You could start by documenting existing processes to gain a clear understanding of how tasks are currently being performed. Use flowcharts or diagrams to visualise workflows and identify potential areas for improvement.
Working with an expert business adviser or turnaround specialist from programmes such as our Technical Assistance programme can also help identify areas of improvement in your business.
The review could also include identifying bottlenecks where work is slowed down or resources are underutilised. These bottlenecks often represent opportunities for streamlining or automation.
In the process of making your SME more efficient, remember never to compromise on quality. When budgets are tight, it may be tempting to switch to lower-quality raw materials or spend less time on after-sales service. However, quality may be the key to differentiating your business in the marketplace and ensuring you can continue to offer your customers value when cost pressures are high.
SMART PLANNING FOR FRANCHISE SUCCESS
OLD MUTUAL shares how smart nancial planning can power franchise success
South Africa’s franchising sector has demonstrated remarkable resilience and sustainability in recent years, highlighting its durability and potential for long-term success. Anchored by established and reputable brands, such as KFC, Nashua, Battery Centre and Sorbet, franchising has thrived.
“Franchising in South Africa is not just a business model; it empowers individuals to craft their destiny,” says Jayendra Naidoo, general manager, Agency Franchise Distribution, Old Mutual Personal Finance.
ENTREPRENEURIAL SPIRIT: MORE THAN BUSINESS
Franchising must be viewed through a lens of economic adaptability and entrepreneurial vigour, says Naidoo. “Franchise ownership expresses entrepreneurial spirit. It’s about embracing the challenge, the journey and the rewards,” he comments.
Franchising offers an edge over starting a business from scratch through a robust support system that is both broad and deep. These foundational pillars contribute signi cantly to the success of a new franchisee.
“It’s the support from the master brand and your fellow franchisees. This support extends to vital operational aspects, such as proven systems and processes that are crucial for the smooth functioning of the
franchise. The ability of the franchisor to support its franchisees with these tested methods is a major advantage over navigating the uncertainties of a solo start-up,” Naidoo notes.
He advises prospective franchisees to research and align their values with their chosen franchise. “The brand you choose re ects your aspirations. It’s imperative to delve into the franchise’s ethos and ensure it matches your vision,” Naidoo emphasises.
He highlights the importance of a robust support system within the franchise, including ongoing training, marketing strategies and a sense of community. “Franchising in South Africa offers a unique blend of community and innovation, where entrepreneurs share knowledge and grow together,” he adds.
IMPERATIVE FINANCIAL PLANNING
Thorough nancial planning is essential to successful franchising. “It creates a cushion against uncertainties, ensuring stability for your business and your loved ones,” Naidoo explains. “A solid nancial plan involves more than business assets; it’s holistic and extends to personal commitments and the welfare of employees and the franchise owner.”
Business assurance, Naidoo says, is critical in safeguarding the franchise’s future. This includes three key areas:
1. Buy-and-sell arrangements ensure a predetermined, fair value for the business owner’s stake, avoiding disputes or undervaluation at critical times. This setup also ensures a smooth succession plan, maintaining business stability.
2. Contingent liability is crucial; many business owners personally guarantee their business
debts. Should anything happen to the owner, this insurance ensures the business can settle its debts without straining its estate.
3. Key person insurance is essential for covering the impact of losing a key employee due to death, disability or severe illness, helping the business during the transition period by providing nancial support.
“These aren’t just nancial tools; they are lifelines in times of crisis,” Naidoo explains.
THE OLD MUTUAL EDGE
Collaborating with Old Mutual, Naidoo notes, offers multifaceted bene ts for South African franchise owners. “Our approach is holistic. We don’t just offer nancial solutions; we build nancial fortresses,” he says.
Old Mutual’s solution range and vast network of advisers provide accessible, personalised guidance. “Accessibility and trust are key. Our advisers are a phone call away, ready to offer tailored advice for the unique African market,” Naidoo adds.
“Old Mutual’s exemplary 178-year track record in claims support is an essential factor in turbulent times. A strong claims-paying record is a promise of reliability when you need it most.” Franchising is a story of growth, resilience and community, offering a roadmap for entrepreneurs to navigate the complex landscape of South African business and global economics. “In this evolving narrative, franchising is not just a business option, but also a catalyst for personal and collective prosperity,” Naidoo concludes.
Do you need more information about Old Mutual’s franchise services, please contact Jayendra Naidoo, OM’s Head of Franchise Distribution.
For more information: www.oldmutual.co.za
Jayendra Naidoo
DO I NEED A FINANCIAL ADVISER?
TARRYN RICHTER , financial adviser at Momentum, shares that the wrong financial advice can lead you down a rabbit hole
As an entrepreneur or business owner, you wouldn’t risk entrusting a crucial task such as xing your plumbing or undertaking a major construction project to someone unquali ed, would you? No, that would be nancially imprudent.
When it comes to nancial advice for your business, the same common sense should apply because the stakes are just as high, if not higher. The wrong advice can derail your journey, sending you down a costly rabbit hole.
You shouldn’t rely on just anyone for nancial guidance. It’s essential to nd a credible nancial adviser who understands your entrepreneurial needs and can steer you towards success.
Choosing an unquali ed nancial adviser can have serious repercussions. These advisers might lack the necessary knowledge about entrepreneurship and its speci c nancial challenges.
Their advice might be generic, misguided or even harmful, leading to poor nancial decisions, missed opportunities and potential losses. Misguided nancial advice can undermine your business’s foundation and growth prospects.
Entrepreneurs face unique nancial challenges requiring specialised expertise.
A nancial adviser well-versed in entrepreneurship can offer tailored advice aligned with your business goals. They understand the intricacies of cash ow management, funding strategies, tax planning and risk management speci c to businesses. This specialised knowledge is crucial for making informed decisions that support your long-term success.
FINDING THE RIGHT ADVISER
Finding the right nancial adviser involves a deliberate and strategic approach. Here are some pointers to ensure you choose a professional who can genuinely contribute to your entrepreneurial journey.
A FINANCIAL ADVISER WELL-VERSED IN ENTREPRENEURSHIP CAN OFFER TAILORED ADVICE ALIGNED WITH YOUR BUSINESS GOALS.
•Identify your needs:determine the speci c areas where you need advice. Whether nancial planning, investment strategies, tax optimisation or business growth, understanding your needs will help you nd an adviser with the right expertise.
•Search for experts: look for advisers who specialise in your area of need. Networking events, online platforms such as LinkedIn and referrals from trusted sources can help identify potential candidates with a clear history of success.
•Check quali cations and experience: verify the quali cations and experience of potential advisers. Look at their track record and ask for references. Ensure they have a proven history of working with entrepreneurs and a deep understanding of the business landscape.
•Evaluate compatibility: since you will be sharing intimate details of your business, you must get along well with your adviser. This should be felt through mutual respect and the ability to trust one another and work together.
•Know the fee structure: before making a nal decision, discuss the adviser’s fee structure and ensure it aligns with your budget and provides the right value to you and your business.
With the right adviser, you can navigate almost any nancial challenge, optimise your strategy and identify growth opportunities quickly.
The current economic climate reminds us that the entrepreneurial journey is fraught with risks. But the right adviser can transform those risks into rewards. By choosing a nancial adviser who understands your entrepreneurial vision, you can steer your business in the right direction, ensuring sustainable growth and long-term success. The right adviser will provide invaluable guidance, helping you navigate the complexities of nancial management and paving the way for your business’s success.
Remember, professional nancial advice can lead to big rewards, especially when you’re backed by the right expertise.
Tarryn Richter
HOW HAS FRANCHISING IMPACTED THE JOB MARKET?
A resilient and robust franchising industry is keeping half a million South Africans in jobs, writes
BUSANI MOYO
Undoubtedly, South Africa is a beautiful country, with abundant natural resources, tourist attractions and hard-working people. However, beneath the surface lies a perennial challenge that leaves millions living in poverty: unemployment. The unemployment situation in the country is so bad that Statista reports: “South Africa is expected to register the highest unemployment rate in Africa in 2024, with around 30 per cent of the country’s labour force being unemployed.”
South Africa’s high unemployment rate requires innovative solutions. In this setting, franchising emerges as a compelling avenue for economic growth and employment generation. But is this business model impacting unemployment in the country? Has the industry recovered from the calamity of COVID-19? Is there anything that needs to change for the sector to continue creating jobs? The good news is that the answer to all these questions is yes.
SUPPORTING ALMOST HALF A MILLION JOBS
Morne Cronje, head of franchising at FNB Business, says that, though often overlooked, franchising is “a healthy vehicle to drive sustainable jobs”.
Margaret Constantaras is the head of quantitative research and governance
POWER IN NUMBERS
According to the Franchise Association of South Africa, the franchise industry generated an estimated turnover of R999-billion in 2023, 36 per cent more than the 2022 fi gure. This represents 15 per cent of South Africa’s GDP.
at Research EQ, an independent market research consultancy. Much of her research has focused on the franchising sector. Asked whether the franchising industry impacts the job market in the country, she crunched the 2023 numbers based on research. She concluded: “The franchise industry accounts for an estimated 4.7 per cent of employment in the country, which translates into an estimated 471 233 employees.” This is almost the same number of people employed in mining, which the Minerals Council of South Africa estimates employs around 470 000 people.
RECOVERY DAMPENED BY BLACKOUTS
The disruptions faced by business, including the franchising sector, in South Africa during
the COVID-19-related lockdowns in 2020 are well documented. But how well has the industry recovered?
Constantaras notes: “In the South African fast food and restaurant sector, there was evidence of some recovery in 2022. However, this recovery was severely limited by rolling blackouts and water cuts in some areas, which have put many operators at risk of closure.” She adds: “Larger companies and fast food chains fared better than independent operators.”
Without load shedding, the franchise industry could have grown more robustly and created more jobs post-COVID-19. Indeed, the idea that load shedding costs South Africa hundreds of thousands of jobs is not just speculation. PwC estimates that “the adverse impact of load shedding in 2021 was a reduction in real gross domestic product growth of up to 3.1 percentage points, costing the economy up to 400 000 potential jobs”.
BROADENING THE BASE
Can franchising be expected to continue impacting the South African job market? Bailey Klinger of the Harvard University Center for International Development believes it is possible that “traditional franchising may not have much space for further growth as a percentage of the economy” in South Africa. This means that in its traditional form, the sector may not produce too many jobs in the future.
However, Klinger suggests that franchising innovations can make the sector more inclusive by expanding “the franchising model to less capital-intensive business concepts and serving lower-income consumers (micro-franchising)”. The main advantage of such a model is that it will solve the South African challenge where the economy is concentrated in a small number of large rms. Klinger suggests that reducing ownership concentration will “create new opportunities for a larger number of South Africans”.
Agreeing with Klinger’s views regarding broadening the franchising sector, Cronje says: “We need to start investing in it by raising more awareness so that more people can be familiar with how to get into this sector.”
DID YOU KNOW?
In an average franchise system, 8.5 per cent of employees are franchisor management, 38.3 per cent are franchisor staff, 7.7 per cent are franchisee management and 45.5 per cent are franchisee staff.
Source: Statistics South Africa
Margaret Constantaras
In the heart of Ga-Marishane, Sekhukhune, in a small village where dusty roads intersect, Lola Masemola discovered the seeds of entrepreneurship, seeds sown by the resilient hands of her family members – ordinary people who carved extraordinary paths. Their stories would shape her journey from that dusty village to the bustling world of business.
A LEGACY OF HARD WORK
FROM VILLAGE BEGINNINGS TO ENTREPRENEURSHIP
Inspirational role models and an entrepreneurial mindset ledLola Masemola to open a Nando’s franchise. By ANTHONY SHARPE
the other as a farmer. “Her days began tending to the sick and weary. But when the sun dipped low, she transformed. The soil welcomed her calloused fingers as she coaxed life from the earth. Blankets, neatly folded, adorned her makeshift stall. Pensioners shuffled over, their eyes crinkling with gratitude. She understood the delicate balance between healing bodies and nurturing livelihoods.”
Her grandmother’s resilience fuelled Masemola’s curiosity and she wondered if one person could be both a healer and entrepreneur.
POPCORN, ONESIES AND FRANCHISING
Masemola’s grandfather, who she describes as a man of vision and determination, was the village’s first graduate. “He founded Bopedi Bapedi High School,” says Masemola. “With its modest classrooms and boarding facilities, it became a sanctuary for knowledge seekers. I watched as students, wide-eyed and eager, stepped into those halls my grandfather had built.”
Her grandaunt ranGa-Luka, the village’s general dealer. “Ga-Luka was the heartbeat of our community,” says Masemola. “Its wooden shelves sagged under the weight of essentials: flour, soap and dreams packaged in colourful wrappers. As children, my cousins and I became unofficial apprentices, our hands sticky from counting coins and our laughter echoing through the narrow aisles. We sold my grandmother’s sugarcane to buy sweets. Ga-Luka taught me the art of negotiation, the rhythm of supply and demand and the warmth of community commerce.”
Masemola’s grandmother wore two hats –one as a professional healthcare worker and
Masemola’s high school years unfolded in Johannesburg, where she discovered her entrepreneurial spirit. A business studies project led her and her best friend to create Skopas, colourful popcorn with a sweet taste. “Then we dreamed of fashion onesies for adults. Before the onesie trend swept the world, we envisioned it. Our parents listened, amused, but the fire within us burned brightly.”
Then the petroleum industry beckoned –a world of fuel pumps, engine hums and calculated risks. Masemola and her friends secured approval from Total, and their franchise dreams drew close. “But life’s currents shifted and we veered away, yet the lessons endured. The franchise model, predictable yet demanding, revealed its secrets. Adaptability, strategic choices and the courage to pivot: these became my compass.”
THE NANDO’S CONNECTION
For Masemola, even as an entrepreneur, the dream of owning a Nando’s franchise felt massively ambitious, but her drive and persistence carried her until she finally acquired her first Nando’s restaurant.
“What I love about my journey with Nando’s is that I didn’t have any special networks or connections,” says Masemola. “I knocked on their door just like any other aspiring entrepreneur. Through relentless communication, I courted this hot brand. During the uncertainty of lockdown, when the world came to a halt, I persisted. People thought I was insane to invest in the restaurant industry at that time, but sometimes insanity leads to remarkable opportunities.”
LOLA MASEMOLA’S LESSONS FOR ASPIRING FRANCHISEES
Prioritise people. Understand that your customers and staff are the lifeblood of your business. Treat them with respect, empower your team and create an environment where excellence thrives. Reinvest and sacrifice. Be willing to reinvest in your business. Sacrifices are inevitable on the road to success, but remember they often lead to greater rewards than anticipated.
Stay humble and transparent. Never forget the privilege of your opportunity and remain humble in your interactions. Transparency with your franchisor fosters a genuine relationship built on trust.
Respect time. Value the time of others – your customers, staff or franchisor. Time is a precious commodity that should be respected and utilised wisely.
Surround yourself with excellence. As the saying goes, “If you are the smartest person in the room, find another room where you aren’t.” Surround yourself with intelligent, motivated individuals who inspire you to grow and learn.
“GA-LUKA TAUGHT ME THE ART OF NEGOTIATION, THE RHYTHM OF SUPPLY AND DEMAND AND THE WARMTH OF COMMUNITY COMMERCE.” – LOLA MASEMOLA
Lola Masemola
TIPPING INTO THE TIPPLE BUSINESS
The liquor industry in South Africa is booming and retail franchise outlets play an important role in the sector’s success.
By THANDO PATO
AMarch 2024 report by NielsenIQ South Africa reveals that in 2023 the South African liquor sector was valued at R144-billion and, following the disruption of sales during the COVID-19 lockdowns between 2020 and 2021, annual sales increased by 19.4 per cent in 2023.
In the retail sector, alcohol is available through various channels, including franchise chain bottle stores, which operate in a competitive market where competitors include licensed supermarket outlets and their stand-alone bottle stores, shebeens, taverns, bars, hotels, restaurants and fast-food outlets with liquor licenses. The South African liquor consumer is spoiled for choice when it comes to outlets.
LIQUOR CITY
Founded by Manuel De Atouguia in 1994 in Sophiatown, Liquor City is South Africa’s largest independent liquor group, with 300 stores countrywide. It has been running its franchise operations since 2007, with many stores under its umbrella now franchisee-owned and run.
Manny Parau, Liquor City head of ce franchise manager, informs that the cost of a franchise is dependent on various factors.
“The cost of a brand-new Liquor City store depends on its size and location, but franchisees can expect to pay around R2-million –this is for a fully tted and completed store with stock. However, this is only an estimate; costs could uctuate based on the size of a store and the nishes a franchisee selects.”
Parau says that existing stores wanting to convert to a Liquor City pay lower fees, but need to nance signage, liquor licence changes, stock of signature brands and, in some cases, renovations or upgrades. “Changing to a new franchise group can be just as challenging as setting up a new business, which is why our team works closely with franchisees to ensure a smooth transition. We require existing stores to be painted in the Liquor City colours and adhere to our standards.”
Parau and his team assist new stores with all the necessary infrastructure and systems to get the business up and running, including
“THE KEY BENEFITS OF BECOMING A LIQUOR CITY FRANCHISEE ARE BRAND RECOGNITION, BUYING POWER, TRAINING AND SUPPORT AND ACCESS TO LIQUOR CITY SIGNATURE HOUSE BRANDS.” – MANNY PARAU
liquor licences, signage, shop ttings, store layout, lease agreements, merchandising, stock ordering, supplier relationships, recruitment and labour-related matters, security and point-of-sale systems.
Parau says the key bene ts of becoming a Liquor City franchisee are brand recognition, buying power, training and support and access to Liquor City Signature House Brands. “As a franchisee, you are required to pay certain fees, such as a joining fee and monthly franchise fee, but we do not take a percentage of a store’s turnover.”
OVERLAND LIQUOR
Liquor City isn’t the only group offering franchising opportunities in the liquor industry. Overland Liquor Group’s franchising operations comprise 336 stores that include 275 Overlands, 58 Liquor Zones and 24 Spot-Ons.
The price of an Overland franchise varies depending on the store type, with a new store costing approximately R10 000 per square metre. The optimal recommended size is 250–400 square metres. This includes refrigeration, shelving, point of sale, staff uniform and stock.
Other costs include a once-off joining fee of R3 750 plus VAT, a once-off signage contribution of R3 750 plus VAT, a monthly administration fee of R2 000 plus VAT and a monthly advertising fee of R1 000 plus VAT.
DRINK PINK!
According to a recent NielsenIQ South Africa report, South African’s liquor palates evolved in 2023 in favour of flavoured ciders and coolers. The market share of flavoured alcoholic beverages (FABs) rose to 22 per cent in 2023 from 20 per cent the previous year. FABs sales surpassed whiskey, beer and vodka. The report also showed that there was an increase in the volume of sales of gin, brandy and liqueurs, although these categories are still struggling to meet their pre-pandemic sales levels.
HARNESSING SOUTH AFRICA’S CAN-DO SPIRIT
Small business has a crucial role to play in unlocking the country’s potential – but other stakeholders need to come to the party, too.
By SIMON SCHAEFER , economist at Deloitte Insights
This year is likely to be a critical test for South Africa’s relatively young democracy, which has not yet managed to unlock the country’s full economic potential. Sluggish gross domestic product (GDP) growth, stubbornly high unemployment and rising poverty are stark reminders that the country has been underperforming for many years.
Unreliable electricity and water supply and ailing transport infrastructure have become major headaches for the population and businesses. While these challenges undermine the performance of business and have put the brakes on the economy, many companies – and individuals – have realised it is futile towait for government to sort out these issues.
Instead, we see companies and communities coming together to nd solutions. Furthermore, businesses,
through organisations such as Business Unity South Africa, have provided a helping hand to government to address key challenges, including the electricity and logistics crisis and nd solutions to rampant crime.
WORKING TOGETHER TO UNLEASH POTENTIAL
This South African can-do spirit shows what can be achieved when political differences are set aside and we work towards a common goal of improving the economy. While some challenges might seem daunting, South Africa can regain its status as an attractive emerging market once the country’s interests are put ahead of political ones.
The country holds notable potential in a range of industries. For example, the tourist industry – brought to its knees during the COVID-19 pandemic – has risen like the proverbial phoenix from the ashes. The Western Cape, a key hub for tourism, has seen record numbers of local and foreign visitors during the past year-end festive period. South Africa needs to build on this momentum and seek out investments in its tourism and auxiliary infrastructure to remain an attractive destination for visitors.
Despite a few setbacks, the country’s agricultural sector fared relatively well during the pandemic. In contrast to many African countries that mostly rely on subsistence farming, South Africa’s agricultural sector is well-developed and dominated by medium to large commercial farms.
Franchising remains a stalwart of the sector, employing almost half a million people and contributing significantly towards GDP.
Commercial farms will play an important role in feeding the world’s growing population, which, according to the United Nations, will expand by two billion in the next 30 years.
Attracting more investment into agriculture-related infrastructure, such as transport and irrigation, could strengthen South Africa’s position as a global supplier of various agricultural products, ranging from grains to fruits and meat.
Similarly, South Africa’s endowment with important minerals and metals, such as manganese, platinum and vanadium, and its great potential for green hydrogen, positions it well to become a major player in the clean energy supply chain. In addition to its resource endowment, South Africa has a strong research and scienti c community working at academic, private and public research facilities. These research and development capabilities enable South Africa to develop technologies and proprietary technologies in the renewable energy sector.
While other emerging markets are also looking to position themselves vis-à-vis these opportunities, South Africa has several additional advantages over its peers. Despite recent attempts to undermine critical institutions, South Africa’s judiciary remains independent and, according to the World Justice Project, provides relatively strong protection from political interference. Further, South Africa has a highly sophisticated nancial services sector. The Johannesburg Stock Exchange is by far the largest in Africa and among the 20 largest globally by market capitalisation, offering companies access to a large pool of local and international capital. While it faces numerous challenges in terms of onerous regulation and access to capital, the small business sector has recovered from the decline it experienced during COVID-19. Franchising remains a stalwart of the sector, employing almost half a million people and contributing signi cantly towards GDP.
Considering its potential in, for example, agriculture, clean tech and tourism, it is inexcusable that the country’s economy has been underperforming for so long and has left millions of South Africans behind. Here’s hoping that the rest of the year sees all stakeholders coming together to help unleash what we all know lies within our country.
Simon Schaefer
SOUTH AFRICANS LOVE DIY
The DIY and hardware sector is flourishing, thanks in part to TikTok home decor and DIY influencers and the shift to work from home.
THANDO PATO speaks to the experts about franchising opportunities
Despite global supply chain issues that affected most industries during the COVID-19 pandemic, key players in the South African DIY and hardware sector experienced double-digit year-on-year growth, says Gerhard Waldauer, CEO of Jack’s Paint and Hardware.
“With many people working from home and spending more time indoors, there was a greater focus on creating comfortable and functional living spaces. This led to increased interest in DIY projects that could improve the look and feel of homes.”
However, there is evidence suggesting the growth that occurred during the pandemic has slowed, says Waldauer. “Top DIY and home improvement retailers revealed single-digit growth rates in the fourth quarter of 2021, a much slower pace than the double-digit growth rates reported at the same time in the previous year.
“As more discretionary spending shifts from household to out-of-home, we continue to see DIY and hardware store market growth return to pre-pandemic levels. While this may sound like bad news to some, we see it as something
positive and predict steady growth between 2023 and 2027 due to growing demand for housing and the continued desire to renovate homes.”
BUILDING A COMMUNITY
For the 56 franchisees of Jack’s Paint & Hardware, the DIY boon over the last three years has not only been good for business, but also for reinforcing the advantages of being part of a franchise, says Linda Margolius, owner of Jack’s Paint in Blackheath Johannesburg.
“Being part of a franchise group has enabled me to access buying power and expertise from people who have been in the industry for many years, who allow me the exibility to operate independently in my local community and not as a ‘one-size- ts-all’ operation. The various stores all have their own personality, while offering the service, knowledge and pricing that Jack’s Paint & Hardware is known for,” she explains.
Margolius has been a franchisee for 30 years and says what drew her to the
“FOR FRANCHISEES, THE ADVANTAGE OF BEING PART OF THE BUSINESS IS UNHINDERED ACCESS TO EXPERT MARKET KNOWLEDGE THAT SPANS 80 YEARS.” – GERHARD WALDAUER
brand was its vision of community, value for money and offering customers sound advice on all things paint-related. “I am passionate about paint, colour and creativity. The Jack’s Paint & Hardware Group offered me the platform to grow a business in the paint and DIY space.”
FRANCHISE OFFERINGS
Jack’s Paint & Hardware has four business models to suit every type of business owner’s needs.
Jack’s Paint Specialist is a full franchise model specialising in decorative, industrial and automotive paint, waterproo ng, supplementary brushes and associated hardware.
Jack’s Paint & Hardware is a full franchise model specialising in decorative, industrial paint and automotive paint, waterproo ng, brushes, hand and power tools, general hardware, plumbing, electrical, gardening and pool tools and accessories.
Jack’s Build & Trade is a full franchise model specialising in decorative, industrial and automotive paint, waterproo ng, brushes, hand and power tools, general hardware, plumbing, electrical, gardening and pools, with a yard that can service cement, sand, bricks and building materials.
Jack’s Paint Store within store is a semi-franchise model specialising in your own business with the addition of any three Jack’s Paint franchise models. This depends on the space available and synergy required.
Waldauer says for franchisees, the advantage of being part of the business is unhindered access to expert market knowledge that spans 80 years and includes residential, commercial and DIY infrastructure and projects.
“We also provide a full turnkey system. You are allocated a business development manager to facilitate training and development of stores. You are provided with a market-leading inventory of paint and hardware brands, including our supreme Panaché Paint home brand, a business manual explaining Jack’s successful business disciplines, market-leading group rebates and continuous training on products and customer service, and you will be plugged into our national advertising efforts.
“You also have access to our National Buying Of ce, which negotiates the best deals for Jack’s franchisees to supply your community with the best quality products at the right price,” concludes Waldauer.
PASS THE PARCEL
Courier companies are adopting various methods to take up the slack created by the post office’s increasing inability to deliver small parcels effectively, writes RODNEY WEIDEMANN
The South African Post Of ce (SAPO) decline has been ongoing for some time, with multiple hubs closing each month and no mail distribution or proof of delivery. However, there is still a need for secure delivery of parcels –something that has meant a signi cant uptick in business for local courier service providers.
There has certainly been a decline in service capability and a reduction in the number of operational post of ces, notes Pargo CEO Lars Veul. He says the unreliable and unpredictable nature of SAPO’s operations has resulted in many retailers losing con dence in its service, as they cannot trust its ability to deliver small parcels to consumers.
“Most, if not all, retailers today work with private courier companies to deliver goods to consumers or with companies such as Pargo that offer an alternative counter-delivery solution in the form of pickup points,” he says.
Veul explains that optimal parcel delivery is about accessibility, convenience, speed and reliability. Some areas, including townships and rural regions, have limited access to goods and services so delivery can be challenging.
THE GROWTH IN E-COMMERCE HAS CREATED A HUGE NEED FOR INNOVATION, AS CONSUMERS DEMAND NOT ONLY FASTER DELIVERIES, BUT ALSO WANT THEM FOR FREE.
“Pargo solves the challenges of last-mile logistics by allowing people to receive parcels at thousands of Pargo points across South Africa. With these points generally within reach of citizens, and delivery at a lower cost, anybody can now buy online and collect their goods when and where it is convenient for them – without fear of delays or missed deliveries,” he adds.
PICKING UP THE SLACK
Glenn Whittaker, CEO and founder of MOLO Last Mile Delivery Solutions, says his company has spent the last four years creating a national last-mile distribution network using multiple existing partners with these services and hubs in place already.
“Using the free MOLO delivery app (available from the Google Play Store), with route optimisation and real-time dashboard reporting, enables distributors to have full visibility of all
MOLO’s deliveries and manage their agents from a single platform. Meanwhile, MOLO’s clients have access to real-time data, proof of delivery and reporting.”
Whittaker suggests that once MOLO’s network reaches 85–90 per cent of South Africa, it will use this network to also deliver packages and other goods.
“Most of our agents live in the communities where they work, so they know their local area well. If they are already delivering a local newspaper, food, pamphlets, and so forth, it becomes easy to leverage this network to also deliver parcels collected from a regional hub. By adding our volume to their current business, we can deliver a low-margin-high-volume business – pretty much what SAPO’s model is,” he states.
Garry Marshall, CEO at the SA Express Parcel Association (SAEPA), points out that there has been a move by couriers to set up unmanned drop/collection boxes countrywide as a cheaper alternative to either manned operations or physical deliveries.
He explains that some retailers – PEP, for example, with its PRAXI service – have set up their own store-to-store service, which is another way to take advantage of an existing network. The growth in e-commerce has created a huge need for innovation, as consumers demand not only faster deliveries, but also want them for free.
“I think government’s approach of penalising couriers through legislation to try to keep SAPO alive is misguided,” says Marshall. “Courier companies add to the country’s wealth, generating revenues for the scus and creating thousands of jobs.
“When the country was going through the COVID-19 crisis, who kept individuals safely at home by delivering everything, including groceries to their door? It wasn’t SAPO. Who kept companies going by getting their urgent and important parcels to their customers? Not SAPO. So, the question is: when the chips are down and we are facing a delivery crisis, who can we rely on?” concludes Marshall.
FAST FACT
SAPO’s decline has come as e-commerce in South Africa has started to become a major option for retailers, indicating that growth in courier volumes has come mostly from new business rather than taking over SAPO’s historic volumes.
Source: SAEPA
CONFLICT MANAGEMENT
Without an industry code and ombud, resolving conflict between the franchisor and the franchisee is often challenging, writes
BUSANI MOYO
The success of the franchise business model hinges on a healthy relationship between the franchisor and the franchisee. However, conflict can arise from various issues, including contractual agreements, operational autonomy and concerns over profitability. Recognising the significance of a harmonious relationship between the key parties in the franchise relationship, the Franchise Association of South Africa (FASA) is collaborating with the government and key stakeholders to establish a franchise industry code. This initiative will introduce an industry ombud, offering a structured arbitration mechanism for resolving such disputes. Meanwhile, what is the best way to resolve conflict between the franchisor and the franchisee?
MONEY IS THE ROOT OF ALL CONFLICT
As expected, financial issues often form the basis of disputes between franchisors and franchisees. Proof of this can be seen in the much-publicised dispute in which 75 Cash Crusaders’ franchisees severed ties with the business and established a new brand called Cash Exchange. The dispute was about the initiation fee franchisees charged customers wanting to access loans by pawning their valuables.
Ian Jacobsberg, director in corporate/ commercial and competition at law firm Fluxmans, says: “Most disputes between franchisors and franchisees arise when franchisees face financial difficulties in their businesses and fall into arrears with payments due to the franchisor for royalties and goods and services provided by the franchisor.”
Jacobsberg says many disputes involve accusations where the “franchisees usually claim that the franchisor did not provide the expected level of management support and training according to the franchise agreement or that the prices the franchisor charged for stocks and services made it impossible for the franchisee to trade profitably”.
Faced with these financial difficulties, Jacobsberg explains: “Distressed franchisees also often try to save money by buying lower-grade stock and compromising on the standards of products and services they provide to customers.” Worried about their reputation, “the franchisor might cancel the franchise agreement due to the nonpayment or the franchisee’s failure to carry on its business according to the prescribed systems and standards,” he adds. “Then a dispute will arise around whether the franchisor
“MOST DISPUTES BETWEEN FRANCHISORS AND FRANCHISEES ARISE WHEN FRANCHISEES FACE FINANCIAL DIFFICULTIES IN THEIR BUSINESSES AND FALL INTO ARREARS WITH PAYMENTS DUE TO THE FRANCHISOR.” – IAN JACOBSBERG
FASA MEDIATION
FASA offers its members a mediation service to assist franchisors and franchisees in resolving disputes. The organisation promises: “All decisions are based entirely on the merits of the matter and FASA does not favour any party.”
However, participation in this mediation process is voluntary, implying that no party can be forced to attend against its will.
or the franchisee is responsible for the demise of the business.”
Abigail Reynolds, a corporate law and commercial matters mediator at Reynolds Attorneys, agrees with Jacobsberg: “Disputes in the franchising relationship often involve money. The disputes seem to arise because the costs of running the franchised business seem to be much higher than the franchisee realised or originally anticipated. This often leads the franchisee into cash flow difficulties, causing it to breach the franchise agreement in various ways, such as inability to pay the franchisor timeously for the various fees and marketing fund contributions.”
HOPE IN AN INDUSTRY CODE
Jacobsberg suggests a negotiated settlement is the best form of resolution, “if both parties wish to try and save the business relationship”. He adds:
“This can be assisted by mediation with an objective, professionally trained mediator assisting the parties in reaching an agreement that will allow the relationship to continue for their mutual benefit. FASA offers a mediation service to resolve disputes between its member franchisees and their franchisees.”
Reynolds says while the legal route is always open, “the franchisee can often not afford legal representation”. To mitigate the challenge of high costs involved in the legal route, she advises: “Gather several franchisees with the same complaints, in the hope that as a group they can convince the franchisor of the need for change or fund a legal battle against the franchisor.”
She adds that although “an efficient and active specialist franchise industry ombud is needed to intervene in these disputes and assist in settling them quickly, it’s a pity it has not moved forward over the last few years”.
Ian Jacobsberg
Abigail Reynolds
