ST Franchising August 2021

Page 1

AUGUST 2021

WWW.BUSINESSMEDIAMAGS.CO.ZA

JOIN THE FRANCHISING FOR AFRICA VIRTUAL EVENT DECIDING ON A SERVICE OR PRODUCT-BASED BUSINESS EMERGING TRENDS ENTREPRENEURS ARE EMBRACING DO WE NEED TO GROW THE PLUMBING SERVICES SECTOR?

TRANSFORMING A SECTOR

New opportunities, growth and business

Franchising_Cover_approved.indd 1

2021/07/29 2:34 PM


Untitled-9 2

2021/07/19 12:49 PM


Untitled-9 3

2021/07/19 12:49 PM


Untitled-9 2

2021/07/20 12:20 PM


Untitled-9 3

2021/07/20 12:20 PM


Untitled-3 1

2021/07/29 2:38 PM


IMAGES: XXXXXXX

F ROM T HE EDI T OR

www.businessmediamags.co.za

Published by:

PIcasso Headline, a proud division of Arena Holdings, Hill on Empire, 16 Empire Road (cnr Hillside Road), Parktown, Johannesburg, 2193 PO Box 12500, Mill Street, Cape Town, 8010

www.businessmediamags.co.za EDITORIAL Editor: Anthony Sharpe Content Manager: Raina Julies rainaj@picasso.co.za Contributors: Trevor Crighton, Delia du Toit, Caryn Gootkin, Anél Lewis, Thando Pato, Rodney Weidemann Copy Editor: Brenda Bryden Content Co-ordinator: Vanessa Payne Digital Editor: Stacey Visser vissers@businessmediamags.co.za DESIGN Head of Design: Jayne Macé-Ferguson Designer: Mfundo Archie Ndzo Advert Designer: Bulelwa Sotashe Cover Design: istock.com

ONLY THE BRAVE

T

here’s a quote that’s often attributed to Winston Churchill: “Success is not final; failure is not fatal: it is the courage to continue that counts.” There doesn’t actually appear to be any proof that he said that, but it’s good enough for the purposes of this magazine. Business owners, especially those in the SME space, required great reserves of courage to endure through the morass that was last year. Some succeeded, some failed, and both sides hopefully pressed on. A surprising number of people entered the entrepreneurial space, spurred by lay-offs and a desire to take control of their own destinies in uncertain times. We explore this and other sector trends on page 20. Business owners need enabling structures, finance and legislation, so we investigate the role organisations like the IDC, SEFA and the NEF play, as well as what budget 2021

has in store on page 8. Support comes in the form of knowledge too, which needs to be shared both vertically and horizontally within a franchised business (see page 26). COVID-19 and the associated lockdowns have seen a rise in service-based franchises, but the lines between these and product-based franchise aren’t always clear, as we see on page 16. Concerns around service delivery seem to be driving the growth of water-provision franchises – see page 27. And speaking of water, why aren’t there more plumbing franchises? Find out on page 17. Going into business requires courage. Being part of a franchise, with the structures and support inherent to the model, can hopefully make that step – and every one on the road to eventual success – a little easier to take.

Anthony Sharpe Editor

Contents 8

PRODUCTION Production Editor: Shamiela Brenner Ad Co-ordinator: Johan Labuschagne Subscriptions and Distribution: Fatima Dramat, fatimad@picasso.co.za Printing: Novus Print MANAGEMENT Management Accountant: Deidre Musha Business Manager: Lodewyk van der Walt General Manager Magazines: Jocelyne Bayer

Industry Is the franchise industry driving transformation, job creation, economic recovery and skills development?

SALES Project Manager: Roman Ross romanr@picasso.co.za | +27 73 253 9440

15

FINANCE The seven biggest challenges when trying to secure funding for your franchise

16

Business Service- or product-based franchise – which is best for you?

17

Home services Plugging the leak in the plumbing franchise market

20

Trends Amid economic and investment uncertainty, what emerging trends are entrepreneurs following?

26 COPYRIGHT: Picasso Headline. No portion of this magazine may be reproduced in any form without written consent of the publisher. The publisher is not responsible for unsolicited material. Franchising is published by Picasso Headline. The opinions expressed are not necessarily those of Picasso Headline. All advertisements/advertorials and promotions have been paid for and therefore do not carry any endorsement by the publisher.

Training Both franchisees and franchises can learn from best practice

27

Water Water-purification franchises are making waves

28

LEGAL Legal requirements to consider when franchising your business

FRANCHISING

Franch_EdsNote/contents.indd 5

5

2021/07/29 10:35 AM


Untitled-9 1

2021/07/20 12:19 PM


Untitled-9 1

2021/07/19 12:32 PM


F

ranchising could play an important role in much-needed post-pandemic economic recovery, yet insiders believe government support for the sector is lacking. Anita du Toit, franchise development consultant and director of Franchise Fundi, says: “The lack of specific programmes supporting franchising indicates that government doesn’t emphasise the sector’s role in economic development. Franchises are more sustainable than start-ups and economically more viable than subsistence businesses. The fact that the major commercial banks all have franchise divisions focused on funding the sector indicates that this is a strong one commercially.” Though there are several programmes that support small, micro and medium enterprises (SMMEs), the only direct support for franchises from government comes from the Small Enterprise Finance Agency (SEFA) within the Department of Small Business Development, adds du Toit. “They are seemingly the only government agency with a clear focus on franchising, though the National Empowerment Fund (NEF) does provide some franchise funding under its iMbewu fund, and other initiatives provide transformation-focused financing.”

LOOK FOR SUPPORT OUTSIDE OF GOVERNMENT Still, for those looking for support, the best route is often through other institutions, du Toit adds. “SEFA is a member of the Franchise Association of South Africa (FASA) and has signed a memorandum of understanding (MoU) with the association to assist franchisees applying for finance. “It’s not always clear what SEFA’s requirements are, but it’s worth it for applicants to contact FASA because of the MoU that is in place,” explains du Toit. “Another alternative is to speak to commercial banks about government funding and guarantee schemes, as some of them co-operate with these agencies to facilitate finance.”

GROWING THE INDUSTRY

The franchising sector is a missed opportunity for transformation, job creation, economic recovery and skills development, writes DELIA DU TOIT There is no government master plan for the sector and no programmes that leverage its admirable track record when it comes to job creation and skills transfer. According to FASA, the sector employed close to half a million people in 2019 in over 800 franchise systems with around 48 000 outlets. “Franchises promote job creation and skills transfer in a country burdened by severe unemployment and skill shortages, yet franchisees face cumbersome laws and red tape,” says du Toit.

Shenelle Nair, engagement manager at management consulting and investment firm Letsema, says relaxing regulatory and market access barriers will be essential for growth in the sector. And the numbers are there to back up such a drive. “Around 70 per cent of businesses fail within their first two years of operation, while the franchising failure rate is estimated to be as low Anita du Toit as 10 per cent.”

“FRANCHISES PROMOTE JOB CREATION AND SKILLS TRANSFER IN A COUNTRY BURDENED BY SEVERE UNEMPLOYMENT AND SKILL SHORTAGES, YET FRANCHISEES FACE CUMBERSOME LAWS AND RED TAPE.” – ANITA DU TOIT, FRANCHISE DEVELOPMENT CONSULTANT, FRANCHISE FUNDI

TRANSFORMING THE SECTOR 8

Industry.indd 8

FRANCHISING

2021/07/29 4:23 PM

IMAGES: ISTOCK.COM, SUPPLIED

S

henelle Nair, engagement manager at management consulting and investment fi rm Letsema, says transformation concerns have been raised in the past by some development fi nance institutions involved in franchise funding, like the National Empowerment Fund (NEF). “These institutions believed that black-owned companies were being given bad franchise sites or testing sites, resulting in their high business failure rate. “Franchising has been perceived negatively by government on the basis that there are links to international brands with limited local black ownership. However, a study by Sanlam indicated Shenelle Nair that historically disadvantaged individuals own 28 per cent of franchises, and women own 39 per cent. Furthermore, more than 80 per cent of franchises are local brands, showing that the sector has a largely positive impact on the local economy.”


INDUS T RY

Key takeaways from the 2021 Budget DELIA DU TOIT finds out what small businesses really need from government

W

hile businesses across the spectrum watched the budget speech early this year with bated breath, it did little to reassure the franchising industry of future support. Viresh Harduth, vice president of small business at Sage Africa and Middle East, says that the budget lacked focus on the small business sector. “After the president spoke extensively about supporting small businesses and driving investment in the State of the Nation Address, it was disappointing that Finance Minister Tito Mboweni did not add more details. We were hoping to hear more about how government will overhaul the electricity supply market, drive affordable broadband for small businesses and accelerate digital transformation in government.” The Department of Small Business

Development did, however, allocate R4-billion to township and rural enterprises – though little detail was given about how this would be allocated. The one percentage point reduction in corporate income tax is also not likely to make much of a difference to SMMEs, says Harduth. “Given that South Africa has a relatively high corporate tax rate, the reduction is welcome; however, it seems likely that larger enterprises will benefit more from this tax reduction than smaller businesses. Many of these companies are one-person operations where the owner extracts most of the income through loans and salaries – most small businesses in South Africa are not running at a profit. For them, welltargeted grants, less red tape and a focus on reducing other Viresh Harduth

Yet transformative support is lacking. “Government support is usually (only) offered in the form of funding, with the franchisor being responsible for training and other forms of support,” says Nair. “Rather, FASA serves the purpose of protecting, lobbying, promoting and developing ethical franchising across all sectors in Africa, with specific focus on transformation.”

IMAGES: ISTOCK.COM, SUPPLIED

FUNDING OPTIONS The NEF’s franchising loans, however, are transformative in nature. Criteria include that the franchise must have at least 50.1 per cent B-BBEE shareholding and active management by the B-BBEE parties. Loans are limited to R10-million, with prime-linked interest rates over five to seven years. Other fi nancing schemes that focus on empowerment include government’s Isivande Women’s Fund, which focuses on female empowerment and targets businesses that are starting up, expanding, rehabilitating or franchising; and

DID YOU KNOW?

SMMEs contribute 20 per cent to gross domestic product (GDP) on average, says Shenelle Nair of Letsema. The franchising sector generated around 15.3 per cent of GDP in 2017, ranking it in the top five worldwide based on output as a percentage of GDP, reports FASA. In 2018, this figure was at 15.7 per cent (R721-billion), though it dropped to 13.9 per cent in 2019.

taxes such as the fuel levy might move the needle more effectively than a modest income tax cut.” Another important relief measure for SMMEs, Harduth believes, would be to raise the VAT registration threshold that requires businesses to register for VAT when they reach a turnover of R1-million. “This threshold has remained unchanged for years. Raising it could relieve many small business owners of an admin headache and free their time to focus on growing their businesses instead.”

the Umsobomvu Youth Franchise Fund from the National Youth Development Agency, which targets the youth to assist with startup and operational funding through loans. Still, access can be a challenge, says Nair. “Support exists for SMMEs and franchises, but the processes are usually cumbersome and require several documents for application. The upfront costs are also more exorbitant for franchises than SMMEs, as fi nancial institutions often seek a minimum contribution of at least 50 per cent of the initial loan amount – a significant barrier to entry.” Removing such barriers and supporting previously disadvantaged individuals who might not have such capital upfront could improve transformation. “Franchises create a springboard for growth as there is a fairly strong support system in place from the onset,” says Nair. “Positive brand associations, an established customer base, marketing, head office support, fi nancial track records, effective systems and training are further enablers for growth. Ultimately, the risks of entering franchising opportunities are much lower than starting a new business.”

FRANCHISING

Industry.indd 9

9

2021/07/29 4:23 PM


Untitled-2 2

2021/07/26 9:40 AM


Untitled-2 3

2021/07/26 9:40 AM


Untitled-2 2

2021/07/26 9:41 AM


Untitled-2 3

2021/07/26 9:41 AM


Untitled-1 1

2021/07/28 4:44 PM


F IN A NCE

SECURING FINANCE

IS CHALLENGING Securing financing for a franchise can be tricky – even if it’s a “sure thing”. Here are the seven biggest challenges when seeking funding. By Trevor Crighton

B

uying into the world of franchising can seem like a safer bet in the current economic climate than striking out on your own. But, unless you’re flush with cash, you’re going to need financing – and banks are being more careful than ever when it comes to lending money.

images: istock.com, SUPPLIED

1. OWN YOUR BUSINESS Plan Absa Business Bank head: Wholesale, Retail and Franchise James Noble, says that a common challenge is that franchisees don’t necessarily have the business acumen to put together business plans as part of their funding proposals, so they turn to experts to draw them up. “There’s absolutely nothing wrong with that, but we find that once we start asking questions about elements of the plan or the projections, they don’t really understand it. They’ve had it prepared purely for the purposes of attempting to secure finance.”

images: istock.com, SUPPLIED

2. UNDERSTAND BUSINESS FINANCE “The reason so many businesses fail is because the operators have great ideas, but

James Noble

don’t possess the skills to understand the financial management side of the business,” says Noble. He believes that there is a general lack of those sorts of financial skills in the small and medium enterprise world because people aren’t taught basic financial skills. “Franchising associations, banks and government should be more proactive in providing platforms where prospective business owners can be upskilled.”

3. GET YOUR PROJECTIONS RIGHT Eric Parker, partner at Franchising Plus, says that a good franchise will give an organised franchisee a return on their investment in three to three-and-a-half years. “That’s your check – do the figures and make sure you will make your money back,” he says. “That timeframe is also important because most franchise agreements state that you have to remodel your franchise after three to five years, so you need to ensure that you’re in a financial position to honour that.”

4. THINK AHEAD If you’re financed for one franchise, it’s important to think ahead – are you looking to open more stores? Noble says that the bank considers the value of the brand when it comes to expansion. “We take into account the value of the existing store and can make a determination on whether a second store could be geared higher than 50 per cent, but with cross-surety from the existing one to help mitigate risk.”

“THE REASON SO MANY BUSINESSES FAIL IS BECAUSE THE OPERATORS HAVE GREAT IDEAS, BUT DON’T POSSESS THE SKILLS TO UNDERSTAND THE FINANCIAL MANAGEMENT SIDE OF THE BUSINESS.” – JAMES NOBLE, ABSA BUSINESS BANK

5. BACK THE RIGHT HORSE As with any investment, Parker says it is vital to look at the franchise and throughly do your homework – especially in terms of how it’s going to fit into the ecosystem of a much-changed world. “Consider what’s going to happen when we start beating COVID-19 and come back from lockdown. Even then there will be fewer people working from offices and less traffic on the roads. Shopping patterns and habits will be different,” he says. “With so many shopping centres built around business hubs, they’re going to have to find new ways to function. If your franchise is going to depend on business traffic or proximity to offices, you need to consider the model and your location.”

6. KNOW WHAT YOU’RE FINANCING Noble says that it’s important to interrogate the setup costs when looking to establish a franchise so you understand where your money is going. “You need to know what you’re paying for. Some franchisors earn rebates from the suppliers to their franchisees – even for equipment required to set up the business – so it’s important to look around and make sure the start-up and operating costs aren’t overpriced,” he says.

7. HAVE REALISTIC EXPECTATIONS “A lot of franchisees come from a corporate background and are used to a fixed salary. They start a franchise and expect to receive the same income every month,” says Noble. “The business may not be able to afford that until the breakeven point, so franchisees may have to make some lifestyle changes to accommodate a lower income.” He advises stress-testing a cashflow projection – reduce the turnover by 20 per cent and increase the expenses by 10–15 per cent to see if the numbers are still viable.

franchising

Funding.indd 15

15

2021/07/29 10:43 AM


BUSINES S Both product and service franchises rely on excellent customer service, so franchisees must focus on being customer-centric.

THE BEST OF BOTH WORLDS

PRODUCT VERSUS

SERVICE FRANCHISES Franchises can offer tangible products or intangible services to their customers. CARYN GOOTKIN compares the two models

BOTH PRODUCT AND SERVICE FRANCHISES RELY ON EXCELLENT CUSTOMER SERVICE, SO FRANCHISEES MUST FOCUS ON BEING CUSTOMER-CENTRIC. 16

the demand for essential services franchises like cleaning services grew,” says du Toit. “In economic recessions, consumers often reconsider expensive or nonessential purchases, but might still treat themselves to low-value purchases such as takeaways or coffee.”

A Sorbet franchise store

WHICH IS RIGHT FOR YOU? “Service businesses often have lower overheads as rentals are lower outside of prime retail locations,” says du Toit. “But they often have higher staffing costs and require more active selling.” Service franchises also require more customer interaction and specialised knowledge, adds de Bod. “And, while setup costs may be lower than for product-based franchises, it is generally more difficult to secure funding for a pure service offering without tangible assets that can be used for collateral.” On the other hand, while product franchises tend to have more predictable sales trends, they are often more expensive to operate because of stockholding costs and retail rental, says du Toit. “The benefit of product franchises is that they are generally well-known brands with marketing campaigns managed by the franchisor,” adds de Bod. Investors need to consider what they are best suited to. “They must look inward to determine whether or not they have what it takes to be successful in that business and to run it full time,” says de Bod. “Are they passionate about it?”

SATISFACTION GUARANTEED “Offering a guarantee can go a long way towards ensuring that staff do their best to achieve customer satisfaction,” says Franchise Fundi’s Anita du Toit. “For example, the Sorbet service promise says that customers who are not entirely happy with their treatment don’t have to pay for it.”

ONLINE SHOPPING “Many product retailers offer online sales, which change a pure product offering to a combination of service (the logistical delivery process) and product (the tangible product they ordered),” says Sasha-Lee de Bod of Franchising Plus.

IMAGES: SUPPLIED

F

Sasha-Lee ranchising relies on de Bod standardising customer experiences, something that is often easier to do with a product franchise. “Product-based franchises have more tangible quality standards based on their products,” says Anita du Toit, franchise development consultant at Franchise Fundi. “Customer satisfaction is, however, also influenced by the buying experience. Service-based franchises should also have clear service delivery standards. “As service franchises often deliver services at customers’ premises (think cleaning or courier services), the microlocation is not always that important,” adds du Toit. “Product franchises generally rely on customers visiting their premises (think restaurants and specialised stores), so require a location with visibility and consumer traffic.” Regardless, the success of either depends on location, market trends and availability of labour, says Sasha-Lee de Bod, franchise development consultant at Franchising Plus. “Location plays a major role in the financial success of a franchise.” Potential franchisees should think about the impact of market trends on the industry. “Restaurant and beauty franchises suffered terribly during the hard lockdowns, whereas

Many primarily service businesses have a product element, and the opposite is also true. “Some products are bought from the shelf, some require installation, and others require ongoing service, which can be true for product or service franchises,” says de Bod. “Generally, franchises are not purely one or the other.” She says Sorbet is a great example of a combination franchise. “It started by offering beauty treatments – a service – and then introduced products. So the front of the store has merchandising display stands and the treatments happen at the back.” Du Toit cites home services as another example, where a franchisee installs products like kitchen cupboards, and both product and service elements are important. “Both the quality of the product and the sales process, including after-sales service, are important. Take a tyre fitment business, for instance: consumers want good-quality tyres, but their experience (waiting times and staff efficiency) can differentiate one brand from another.”

FRANCHISING

Business.indd 16

2021/07/29 10:36 AM


HOME SERV ICES

PLUGGING THE LEAK IN HOME SERVICE FRANCHISING Home services like plumbing seem to be the ideal candidates for franchising, so why are there so few plumbing franchises in the country? RODNEY WEIDEMANN investigates

P

erhaps the biggest reason for home service franchises not having taken off in South Africa as they have elsewhere in the world is a lack of regulation and enforcement, explains Brendan Reynolds, executive director of the Institute of Plumbing South Africa. Reynolds says that while South Africa has a legal framework that covers plumbing, there is no enforcement in the country. “This effectively means that anyone, whether qualified or not, can call themselves a plumber and do plumbing work, with no consequence,” he says. “The Plumbing Industry Registration Board (PIRB) is making big strides in correcting this situation, but it remains a huge challenge.” The Drain Surgeon’s group general manager, Louis Minnaar, suggests that one reason plumbing franchises have not yet exploded onto the local market is simply that the bar to enter is set too high. “Some franchisors ask a lot in terms of fees, which for a one-man operation is just not viable. We have kept our costs as low as possible, and our key sales pitch is to target these small businesses with the message that once the owner retires, will they still have a brand to pass on?” The idea, Minnaar continues, is for existing plumbers or entrepreneurs to invest in a

IMAGES: SUPPLIED

FAST FACT

brand like The Drain Surgeon because it will improve the resale value of their business. It is also worth mentioning that one doesn’t have to be a plumber to purchase a franchise – the owner can always employ a qualified plumber and an assistant. “We have registered over 120 trademarks under the Surgeon Group’s umbrella, including Pool, Garden, Irrigation and Electro Surgeon,” adds Minnaar. “So technically, a single investor could combine five or six services under a single umbrella. For me, this proves that the sky is the limit for home services franchising.” Reynolds adds that he has a sneaking suspicion that the time is ripe for franchising in the plumbing industry. “There are a few companies that have built up really good brand equity, which they could start leveraging. The work that the PIRB is doing is also starting to take effect in managing the unqualified ‘plumbers’, creating more opportunities for careful investors,” he concludes.

ONE DOESN’T HAVE TO BE A PLUMBER TO PURCHASE A FRANCHISE – THE OWNER CAN ALWAYS EMPLOY A QUALIFIED PLUMBER AND AN ASSISTANT.

According to FASA, those in the service, business-to-business and education sectors were in demand during the past year. This was because people confined at home were undertaking renovations, using courier companies and moving to online learning – adding new streams of income for many franchise concepts.

HOW MUCH DOES A PLUMBING FRANCHISE COST?

L

ouis Minnaar, group general manager at The Drain Surgeon, indicates that as the local economy has shrunk and retrenchments have grown, an increasing number of people are realising that essential home services like plumbing are a key sector to enter. “While many franchises can be quite costly, The Drain Surgeon has kept these to a minimum by not making a profit on the procurement of tools, parts or vehicles for franchisees. We ask for a joining fee of R50 000 per team. The franchisee can pay about R130 000 for a branded vehicle and a further R20 000 for stock on hand. If you don’t already have them, tools and equipment should cost another R25 000. “Other than the initial investment, there is a monthly royalty of 10 per cent gross turnover, which goes to the franchisor, and a 5 per cent marketing fund contribution that goes towards marketing and advertising. The contract is a renewable five-year agreement.” The franchisee has access to head office resources and its administrative helping hands, including a 24/7 call centre and a computerised program that records invoices, jobs, follow-ups and more, so franchisees essentially have to do very little admin. “I think we are going to see our plumbing franchises taking off soon. After all, there are very few other similar business opportunities where you can get a business of this nature going for this kind of investment,” Minnaar concludes.

FRANCHISING

Home services.indd 17

17

2021/07/29 10:42 AM


Untitled-9 2

2021/07/16 1:07 PM


Untitled-9 3

2021/07/16 1:07 PM


Morne Cronje

WHAT’S TRENDING? With the pandemic ebbing and flowing like the tide, and uncertainty still the order of the day, ANTHONY SHARPE looks at the current key trends in the franchise sector

F

loundering businesses, lay-offs and a ACQUISITIONS BY LARGER FRANCHISEES loss of faith in traditional work styles South Africa’s economy wasn’t exactly have had a positive upshot: a growing roaring pre-COVID-19, and several number of people are embracing franchisees were in distress, says Cronje. entrepreneurship with enthusiasm. “The second lockdown hurt many franchisees “A lot of companies are downsizing or who used up their capital to weather the first employees are choosing to leave on their storm. It’s difficult for them to stay afloat, and own terms, so there’s been an uptick in we are seeing a trend where larger, more people looking at new avenues, speaking to successful franchisees are looking to acquire franchisors and wanting to enter the market,” other stores. I think that moving forward we’ll says FNB head of franchising see this at a franchisor Morne Cronje. We’ve always level too.” seen that franchising is a safe Le Roux says they’ve way to enter entrepreneurship definitely noticed such because you’re in business for, a trend. “Many of our but not by, yourself.” franchisees are aware Hot Dog Café general manager of the opportunities Nicollette le Roux says that since within the brand and December 2020 the company are always looking for has noticed an increase in ways to increase their franchisee queries, but with portfolios. This depends little to no follow-through. “We on the franchisee, believe that people know and their financial position appreciate that franchising offers and their vision for Pertunia Sibanyoni the support and know-how one the business.” hopes for when venturing into a new business, but the uncertainty of the times is making them indecisive. Many people want to buy businesses, but the fear of investing hard-earned money prohibits them from taking the next step.” FRANCHISING, FNB

EMBRACING E-COMMERCE COVID-19 or not, our online habits are here to stay, and businesses need to be ready. This has forced many franchises to fast-track ideas that might have been on the backburner, says Franchising Association of South Africa chair Pertunia Sibanyoni. “For example, a number of education and training franchises were forced to operate online over the past year and, while doing so, established alternate online courses that will continue into the future. Real estate franchises have moved to online showings and this opens up different franchise options. Those in the food sector, including some of the big names, are developing ‘dark kitchens’, drive-throughs and delivery services to supplement their main offerings.” Cronje says the restaurant industry is a prime example of this trend. “Before the pandemic, very few restaurants had a comprehensive takeaway offering. Now if a restaurant or fast food establishment is not fully operational on an e-commerce platform, it’s missed the boat.”

“THERE’S BEEN AN UPTICK IN PEOPLE LOOKING AT NEW AVENUES, SPEAKING TO FRANCHISORS AND WANTING TO ENTER THE MARKET.” – MORNE CRONJE, HEAD OF

20

TRends.indd 20

FRANCHISING

2021/07/29 10:40 AM


T REND S

IMAGES: SHUTTERSTOCK.COM/ SUPPLIED

Aneez Amod, MD of Jimmy’s Killer Express, says businesses need to take advantage of delivery service providers such as Mr D Food, Uber Eats and the like that already have the necessary vendor- and user-friendly apps. “Creating one’s own app is not feasible for fast food franchise outlets, so making use of established service providers works out well.”

Amod says fast food franchises should direct more of their marketing activities at getting potential customers to make use of online ordering systems or call-and-collect services. “It is key to find new ways of distributing your product to the customer,” says Kauai franchise executive Guy le Ray-Cook. “Convenient access to your brand coupled with credibility or brand trust should mean you can keep your brand front of mind for your customer base, if you get the delivery channel and product extension right.”

HOME IS WHERE THE OPPORTUNITY IS People are spending more time than ever at home, and savvy franchises need to figure out how to reach isolated consumers.

Businesses need to embrace online consumer trends, trends beyond COVID-19.

“It is key to find new ways of distributing your product to the customer.” – Guy le Ray-Cook, Kauai franchise executive

FROM SMALL BEGINNINGS TO A BIG FUTURE Tembisa-based Swypa Delivery could be the answer to SA’s delivery prayers. By TREVOR CRIGHTON

Swypa Delivery

N IMAGES: SUPPLIED

ecessity birthed invention in Tembisa on Gauteng’s East Rand in 2019, when Boitumelo Monageng and Thabang Kgopane founded Swypa Delivery, an on-demand delivery service for township-based businesses that were underserviced by existing delivery platforms. Monageng and Kgopane couldn’t possibly have foreseen how quickly the arrival of the COVID-19-related lockdown would make their business a necessity, rather thana luxury. Swypa was initially established to offer logistics solutions to assist with the delivery of food, alcohol, laundry, motor spares, groceries, parcels, medicine, lifestyle and clothing brands, and business support. Lockdown saw the service expanding into deliveries of more types of food, masks and hand

sanitiser. Now Swypa offers delivery support to over 40 local businesses, as well as takeaway and fast food brands including Chicken Licken, KFC, Galito’s, Nando’s, McDonald’s, Steers, Roman’s Pizza and Debonairs. “We first started deliveries with four scooters and the call centre was mainly run by Kgopane on most days,” says Monageng. “We’ve now built a state-of-theart call centre run by four call centre agents and our delivery team has grown to 15 drivers. We initially had 20 orders daily, but our numbers have grown to 6 000 orders monthly.” Swypa’s current footprint covers

“WE INITIALLY HAD 20 ORDERS DAILY, BUT OUR NUMBERS HAVE GROWN TO 6 000 ORDERS MONTHLY.” – BOITUMELO MONAGENG, CO-FOUNDER, SWYPA DELIVERY

Boitumelo Monageng

Tembisa and surrounding areas, including Rabie Ridge, Chloorkop, Terenure, Norkem Park, Bircheleigh North, Clayville, Olifantsfontein, Ebony Park, Glen Austin, Klipfontein View and Waterfall Estate, and the company plans to expand into Soweto. “We hope to grow the business into a free-to-use township business-focused delivery service for consumers nationwide,” says Monageng. “We’re exploring the franchising route as a way to help establish that nationwide footprint and connect more people with more townshipbased businesses.” Deliveries are co-ordinated through WhatsApp and the call centre, but a mobile application will be rolled out soon.

FRANCHISING

TRends.indd 21

21

2021/07/29 10:40 AM


Untitled-1 1

2021/07/29 11:14 AM


ga l i t o’s A DV ER TORIAL

Sizzling good chicken from the successful Galito’s brand Galito’s unique flame-grilled flavour and unwavering focus on product quality and affordability has fuelled its success throughout South Africa and the world

G

alito’s is all about fresh, full-flavoured, flame-grilled chicken! If you would like to be part of a brand that is all about making customers consistently happy, one chicken at a time, then make sure you get in touch. The Galito’s story began in the Mpumalanga city of Mbombela (Nelspruit) when the first Galito’s restaurant opened its doors in 1996. With a powerful combination of great tasting chicken, excellent service and pride, Galito’s soon became a huge success. Within a few short years, Galito’s had become a Lowveld favourite and with the valued participation and support of close friends, Galito’s had opened a closely-knit family of eight restaurants by mid-2002. During 2003, Galito’s decided to share its unique flavours with the rest of South Africa. It was at this point that the Galito’s brand began to develop and franchising efforts took off in earnest. With founder Louis Germishuys still at the helm, Galito’s has continued to expand and now operates in more than 16 countries internationally, with 163 stores and counting — across Africa into Malaysia, Pakistan, the UAE, India, Canada and most recently Kazakhstan with two more countries confirmed for 2020. Galito’s is an example of a strong, stable South African franchise investment that has stood the test of time, constantly innovating to include different store formats from casual dining and take-away to food court, drive-thru and fuel station models.

The menu has been carefully crafted to cater for a broad range of customers, using only the best ingredients in Galito’s original marinade recipe. Each chicken is carefully marinated for a minimum of 24 hours and then flame-grilled, ensuring the authentic flavours of Galito’s are retained and enjoyed daily.

WHAT YOU NEED TO BE A FRANCHISEE The ideal franchisee candidate plans to operate his restaurant as an “owner-managed” business and has the following qualities: • Demonstrates entrepreneurial skills, yet also shows the ability and willingness to be a team player. • Must consider the business as a long-term investment, show commitment and have a loyal and consistent character. • Must be a “go-getter” with high energy levels and a strong will to succeed. • Be people-orientated with excellent interpersonal and communication skills. Must have a love for working with people and be capable of gaining and maintaining a rapport with the client base through being friendly, patient and tolerant, yet firm.

Galito’s is an example of a strong, stable South African franchise investment that has stood the test of time, constantly innovating to include different store formats.

INVESTMENT AND RETURN ON SALES • The Galito’s financial model recommends a maximum business gearing of not more than 50 per cent. Therefore, we require potential applicants to have a minimum of half of the total cost of the store as unencumbered funds (money not secured by any creditor), togetherwith sufficient collateral to secure a business loan for the balance of the required set-up cost. R300 000 is recommended for operating capital. • A Galito’s restaurant enjoys a gross profit of 56 per cent+ (including packaging costs), with expected Return on Sales (ROS) ranging from 15 to 20 per cent, prudently modelled on turnovers of R300 000 to R600 000+ respectively.

• Must be able to manage others and have good motivational skills. • The restaurant business often requires long hours and hard work, therefore, the franchisee must have the stamina and strength required to operate a Galito’s store. • A potential Galito’s franchisee need not have any formal qualification, but must have a matric certificate. It is also essential for the candidate to be computer-literate. • The applicant would need to be creditworthy and have available financial resources.

SET-UP COSTS An ideal Galito’s franchise restaurant is between 160m² and 180m² . The average set-up cost of a store is between R10 000– R12 000 per m²*. This amount includes: • Initial franchise joining fee • Restaurant design • Franchisee assessments cost and project management • Internal building construction from plumbing and electrical to tiling • All operational equipment • Furniture and fittings • Point of Sale system • External and internal signage and menu boards • Staff training and uniforms Please Note: This cost may be subject to review, depending on the floor size, initial premise’s condition and location.

Franchise Fees • A royalty of five per cent is payable on a monthly basis. • Brand development contribution of four percent of turnover is payable on a monthly basis. For more information: www.galitos.co.za

franchising

Galitos.indd 23

23

2021/07/29 2:54 PM


Untitled-5 2

2021/07/28 11:33 AM


Untitled-5 3

2021/07/28 11:33 AM


T R A INING

THE POWER OF KNOWLEDGE SHARING Training can occur both vertically and horizontally within a business, and franchisees should look to learn from each other, writes ANÉL LEWIS online platforms, through which to share information and best practices, as well as provide ongoing training and development. Knowledge sharing forms part of Leapfrog Property Group’s organisational structure, says CEO Bruce Swain. “We value learning and also learning from each other. Information and knowledge sharing are critical in any business, even more so within the franchise model where the structure tends to be more independent. Just as there is strength in numbers, so too is there power in sharing insights and learnings that help to encourage success and growth.”

E

26

Russell Berkman

“FRANCHISEES COLLABORATE FOR SUPPORT, INNOVATIVE IDEAS AND AS A WAY TO SHARE THEIR SUCCESSES AND CHALLENGES.” – RUSSELL BERKMAN, FRANCHISE DIRECTOR, JAWITZ PROPERTIES

LEARNING FROM THE BEST

stablished franchises are a great source of knowledge for emerging businesses. As the industry body promoting franchising, the Franchise Association of South Africa (FASA) offers online networking opportunities and hosts regular training events. Pertunia Sibanyoni, current chair of FASA, says it also partners with government to establish initiatives to encourage entrepreneurship, training and job creation. Franchisee councils, seminars and workshops allow franchisees to network with each other and exchange best practices, says Sibanyoni. Business Unity South Africa is one of several organisations that allow business Akhona Qengqe owners to network

Sandy Varty, brand manager for Wiesenhof Management Services in South Africa, says internal training and development keeps costs low and ensures brand consistency. Varty was previously director of operations at McDonald’s in Canada, managing and training franchisees. She advocates a “care and share” approach. “By all means, steal shamelessly (from other franchisees). That is why you are in a franchise.” Franchisees usually have varied experiences and insight that can add considerable value. Swain agrees, saying: “Even though our agencies are independently managed, there is the collective understanding that when the individual thrives, the group thrives and vice versa.”

and influence policy as a collective, says Akhona Qengqe, chief people officer at KFC Africa. Also, franchisors encourage new franchisees to “buddy” with an established franchisee as mentors to help them learn the ropes, adds Sibanyoni.

MENTORSHIP AND CSI Asked if business mentorship should be incorporated into CSI initiatives, Grant Smee, managing director of Only Realty, argues that while mentorship is intrinsic to the franchisor-franchisee relationship, he would find it difficult to understand fully the value behind providing this through a CSI mechanism. “Having said that, it has been my personal experience that mentorship is severely lacking within franchise structures, which is perhaps where the industry should focus first before looking outward to provide mentorship in other areas.” Qengqe argues that mentorship and upskilling are already incorporated into

most organisations and are part of company CSI. “As part of B-BBEE, there’s definitely a requirement from a supplier point of view in terms of companies to share knowledge and upskill new suppliers.” However, she adds that how companies on-board emerging businesses as part of their transformation initiatives should be institutionalised and underpinned by a strong business rationale. “We should always absorb SMEs into our business operations to assist them in becoming larger enterprises that employ more people to contribute to our economy actively.” This approach should therefore be incorporated not only as company CSI, but also as a company’s licence to operate, concludes Qengqe.

FAST FACT

McDonald’s Hamburger University, based in Chicago, trains employees in company culture and best practice. More than 40 per cent of its top management are graduates of the programme, which is offered at satellite campuses around the world. The university-accredited courses include leadership, service efficiency, franchise costs and business growth. Source: McDonald’s

IMAGES: SUPPLIED

T

he ability of franchises to share knowledge and offer ongoing training has helped many of South Africa’s successful businesses withstand turbulent economic times and even a pandemic. “Now, more than ever, those franchisors that have given solid support to their franchisees are living up to the principle underpinning successful franchises: that sharing, mentorship and support are at the heart of the model,” says Pertunia Sibanyoni, current chair of the Franchise Association of South Africa (FASA). Communication between franchisees is key too, says Russell Berkman, franchise director at Jawitz Properties. “Franchisees collaborate for support, innovative ideas, and as a way to share their successes and challenges.” The company has developed effective channels, including

CARE AND SHARE

FRANCHISING

Education&Training.indd 26

2021/07/29 10:41 AM


WAT ER H20 International storefront

SELLING CLEAN WATER South Africa has a growing number of water purification-related franchises, THANDO PATO speaks to some of the key players to find out how business is faring

images: istock.com, SUPPLIED

I

n Southern Africa, access to clean drinking water is becoming a luxury. This is why over the past 25 years several water-purification franchises have succesfully expanded their footprint across the region. Key players and Franchising Association of South Africa (FASA) members include H2O International, Perfect Water and Oasis Water. Tony Marchesini, managing director of H2O International, says that the growth in the industry has been spurred by several key factors. “There is a greater demand for clean water by both big business and the consumer. People are also becoming more health conscious, so they are looking at the quality of their water more closely. But our business is lucrative on many different fronts, from the supply of water coolers to the refilling of water bottles and water treatment for big business. There are different income streams, and it’s up to the franchisee and their sales team to delve into the needs of the local community.”

“THERE IS A GREATER DEMAND FOR CLEAN WATER BY BOTH BIG BUSINESS AND THE CONSUMER.” – TONY MARCHESINI, MANAGING DIRECTOR, H2O INTERNATIONAL

OFFERING ALTERNATIVES TO BOTTLED WATER Marchesini says that while H2O International’s primary target market is individuals who are health and fitness conscious, its customer base has grown over the years. “Our products are also used widely in the hospitality industry, offices, light commercial businesses and factories. We’ve responded to the increasingly questionable quality of our municipal water supply and allowed customers to purchase water in their own refillable containers.” Oasis Water director Naas du Preez says that they’ve seen growth in several areas of their business. “We refill water into existing containers at 300-plus stores. This is a value-for-money solution for customers and costs a fraction of the price of buying bottled water. We have also seen growth in demand for water coolers and office dispensers.

This has shifted from being exclusive to corporates and businesses to include home and home offices.”

GETTING YOUR FEET WET Du Preez says that the start-up costs for a water-purification franchise are lower than those of a franchise restaurant, for example, but the standard and quality of service are high. “We do not cut corners in our purification and opt for state-of-the-art equipment,” he explains.

THE STATE OF SOUTH AFRICAN WATER Access to fresh water is a basic human right enshrined in Section 24 of the South African Constitution, yet many municipalities do not provide this essential service, according to a report compiled by AfriForum in 2020. The Department of Water and Sanitation (DWS) is responsible for ensuring that water provided by municipalities to the public meets a minimum standard for human consumption. This standard is outlined in the DWS Blue Drop Report, an audit of drinking water conditions across the country. DWS last released a Blue Drop Report in 2014. In 2020, AfriForum tested the drinking water (blue drop) in 220 towns and the treated sewage (green drop) of 118 sewage treatment plants as part of its annual blue and green drop project. According to the report, the drinking water of five towns (Boshof, Brits, Delareyville, Sannieshof and Stella) and 90 sewage systems did not comply with national standards.

fast fact

While water covers 70 per cent of the planet, only 3 per cent of that is fresh water and only two-thirds of that is readily available for human consumption. As a result, it is estimated that at least 1.1 billion people do not have access to fresh water. A total of 2.7 billion people find water scarce for at least one month of the year. Source: worldwildlife.org

franchising

water.indd 27

27

2021/07/29 10:41 AM


L EGA L similar brands. There’s a cost to this – about R3 000 – but it could save a franchisor plenty of time and money down the line when the brand is ready to be rolled out and a similar brand objects. “Whatever the franchise Maria D’Amico brand is, a franchisor will need to register it in at least two trademark classes – the type of business and then in the franchising class,” says D’Amico. The cost of registering in these classes is also around R3 000 per class.

your business Turning a business into a franchise involves a different type of acumen – and plenty of planning, writes TREVOR CRIGHTON

N

ot every business is franchisable, says Eric Parker, partner at Franchising Plus. “It’s important to do a full feasibility study to see if a business’ processes are replicable and scalable with the potential to grow it into a franchise, rather than a network of branches,” he explains.

POKE THE BEAR Franchising Plus runs through an 11-point checklist with potential franchisors as part of their feasibility study, which also examines the financial aspects of the would-be franchise. Those points examine things like whether the skills are transferable, whether the gross profit is enough to warrant royalties and so on. “That’s a two-month process, with a thorough examination of and write-up on all aspects of the business to see if it would be sustainable as a franchise,” says Parker.

GET CPA-COMPLIANT Franchising law expert Maria D’Amico explains that, once someone has decided to proceed with franchising their business, there are several steps, starting with drawing up documentation that complies with the Consumer Protection Act (CPA). “The first step is the Disclosure Document – this contains all the information that backs up the franchise, including details

28

Legal.indd 28

about the franchisor, the financial projections, establishment costs and the like – between 20 and 30 elements,” she says.

PROTECT YOUR BUSINESS WITH A CONTRACT Once the Disclosure Document is drawn up, the Franchising Agreement, which also needs to be CPA-compliant, follows. This is the document that acts as a contract to legally underwrite the rights and obligations of both franchisee and franchisor, outlining intellectual property ownership, definitions, payment clauses, franchisee and franchisor obligations, disclosure, confidentiality, restraint of trade and handling termination. “I believe that if these documents don’t comply with the CPA, franchisors run the risk of them being invalid and seeing the franchisee able to resile from the agreement,” says D’Amico.

TRADEMARK YOUR BRAND Next is the registration of the franchise trademark with the Registrar of Trademarks. Before you do this, it’s important to do an initial investigation to see whether there are any other businesses in the same sector with

With the brand outline and trademarks protected, the real meat of any franchise is the Operations Manual – effectively the business’ bible. “It’s the A–Z – how long before opening the staff need to arrive, what needs to be prepared before opening, the value of the cash float for the till, the branding, uniforms – literally every aspect of the franchise’s day-to-day operation,” says D’Amico. “It’s an essential part of the franchising process because every aspect of the business depends on it.”

BUYER – AND SELLER – BEWARE Prospective franchisees need to be given the Disclosure Document and Franchise Agreement at the start of the partnership process. They have 10 working days to peruse, ask questions, do their due diligence and ask for opinions. If they sign, there is another 10-working-day cooling-off period, during which they can terminate the agreement without penalties, financial or otherwise. “I advise all franchisors to never impart any IP, confidential information, the Operations Manual or anything that relates to the ‘secret sauce’ of the business during that cooling-off period,” says D’Amico. “If a franchisee has that information and cancels the agreement within that period, they can retain and use it without penalty.”

PAY TO PREPARE “Assessing and preparing a business for franchising is an expensive exercise, but doing it properly can mitigate enormous costs down the road,” says Parker. The Disclosure Document can set you back around R30 000, the Franchise Agreement another R45 000– R50 000 and a comprehensive Operations Manual, about R180 000. “Franchising is an investment from both franchisor and franchisee, but that investment helps ensure that the principles are sound”.

“ASSESSING AND PREPARING A BUSINESS FOR FRANCHISING IS AN EXPENSIVE EXERCISE, BUT DOING IT PROPERLY CAN MITIGATE ENORMOUS COSTS DOWN THE ROAD.” – ERIC PARKER, FRANCHISING PLUS

IMAGES: ISTOCK.COM, SUPPLIED

What to know when franchising

LAY IT ALL OUT

FRANCHISING

2021/07/29 10:44 AM


Untitled-9 1

2021/07/15 2:09 PM


Untitled-9 1

2021/07/15 2:09 PM