Retail franchise operations core to franchise mix

Frank Orchard, head of the Specialist Support Unit at Standard Bank.

This is according to the results of The Standard Bank Franchise Factor R survey, conducted by Franchize Directions and sponsored by Standard Bank. The survey determines the status and growth of the franchise industry in South Africa. During the course of 2007, industry-specific results for the fast food and restaurant and automotive sectors have been shared, with the retail sector being the final market to be unpacked and the results interpreted for franchisors, franchisees and other related stakeholders.

Says Bendeta Gordon, initiator of the research and Director of Franchize Directions, "The retail business category in South Africa is made up of 69 franchise systems, most of which operate in the fast moving consumer goods (FMCG) sectors. In the past 18 months, 586 new stores have been introduced to the market, taking the total retail franchise stores in operation to 4,290. Store classifications are varied with the largest contributors, aside from FMCG, being baby, confectionary and clothing and shoe operations."

"78% of retail franchise systems are located in Gauteng (40.7%), KwaZulu-Natal (12.5%) and the Western Cape (25.7%) with the smallest representation in the Northern Cape. These figures are in line with the population purchasing power of South Africa."

The retail sector provides employment to approximately 107 000 people, 26% of the total number of employment opportunities created by franchising systems in South Africa. Currently only 24% of retail franchise systems are BEE compliant, with 15% of stores being women-owned. This is in line with the 20% of women owners who are represented in the industry as a whole and has been earmarked as an area for real growth within the South African franchise environment.

Enormous opportunities

"There are enormous opportunities for existing participants and new entrants within the retail franchise environment, particularly in rural markets, which are largely untapped, and in townships where numerous new developments and shopping complexes are looking for strong franchise brands to take up space. With retail-focused franchisors and franchisees recognising the benefits of linking up with partners from within these communities, overall BEE compliance in the industry will continue to improve," says Frank Orchard, head of the Specialist Support Unit at Standard Bank.

He adds that deals such as the recently completed Khula Credit Indemnity Agreement between his bank and the Department of Trade and Industry, which will make a portion of funding available for franchising and foster the sustainability of franchise businesses, will go a long way in increasing BEE compliancy in the retail franchise sector. The revised legislation will also make it easier for small business owners to secure new business and pursue new opportunities in rural and township areas.

Gordon predicts that with existing and planned growth in shopping centre space, particularly in the townships, increased average household income and an almost insatiable "hungry" consumer market the growth trends in retail franchising will continue unabated.