As a franchisor, it's essential to recognize and leverage the robust and stable nature of the franchise industry in South Africa, which significantly bolsters the nation's economy. Insights from studies commissioned by the Franchise Association of South Africa (FASA), ABSA, and Research EQ underscore our sector's vital contributions to GDP, business establishment, job creation, and key industry practices. The latest 2023 survey unveils critical trends and data, offering a clear picture of the industry's health and highlighting potential growth areas. The previous survey was conducted in 2019.

Business Longevity

The stability within the franchise sector is exemplified by the impressive longevity of businesses. Notably, 77% of franchisors and 53% of franchisees have been operational for over a decade. On average, franchisors have been in business for 21 years, while franchisees have maintained their operations for 12 years.

Sectoral Breakdown

FASA's 2023 database reports 727 franchise systems in South Africa, indicating a decrease in franchisees since 2019, likely due to recent disruptions. The fast foods and Quick Service Restaurants (QSR) sector remains the largest, comprising 19% of the market. Other significant sectors include retail and direct marketing (17%), building, office, and home services (12%), and automotive products and services (10%).

Property Ownership and Rental Trends

Approximately 36% of franchisees own the property where their business operates, a figure that rises to 46% among very large franchisees. Annual rent escalations average 7.9%, with very large franchisees facing higher escalations at 11%, and 30% experiencing increases over 15%.

Break-Even Expectations

Franchisors' expectations for breaking even within the first year surged from 76% in 2019 to 89% in 2023. This optimism is reflected among franchisees as well, with 89% breaking even within the first year in 2023, up from 69% in 2019. Additionally, most franchisees own multiple outlets of the same brand, and 44% also own outlets of different brands.

Expansion Beyond Borders

Two in five franchisors operate in other African countries, particularly Botswana, Lesotho, and Namibia. Additionally, one in five franchisors has expanded beyond Africa, with notable destinations including the United States, the United Kingdom, Mauritius, and Europe.

Ownership Diversity

The South African franchise industry is experiencing positive shifts in ownership diversity. Ownership by previously disadvantaged groups has risen significantly from 20% in 2019 to 48% in 2023. Black ownership has nearly doubled from 11% to 21%, with similar positive trends for coloured and Indian ownership. Conversely, white franchisors have decreased from 80% to 52%.

Among franchisees:

• 48% are white,
• 32% are black,
• 10% are Indian,
• 9% are coloured,
• Women’s ownership remains at 30%

Franchising’s Contribution to the Economy

 In 2023, the franchise industry’s estimated turnover reached R999 billion, marking a 36% increase from 2019. This substantial figure underscores the industry's growth, though it excludes revenues from listed companies operating in the franchise market. This turnover represents 15% of South Africa's total GDP of R6,660 billion in 2022.

Employment Impact

The franchise sector significantly impacts employment, accounting for approximately 4.7% of total employment in South Africa, translating to around 471,233 jobs. Each franchised outlet employs an average of 24 staff members, with black employees forming the largest proportion at 60%.

Diversified Franchise Outlets

• The majority of franchisees own multiple outlets within the same brand, with 44% also diversifying by owning outlets from different brands.
• However, willingness to purchase additional stores within the same network has decreased from 76% to 61%. This decline indicates a cautious "wait and see" approach, reflecting hesitancy in committing funds to new acquisitions.

Key Practices and Future Outlook

• The survey indicates franchisors are delivering promised returns on investment (ROI), resulting in high levels of franchisee satisfaction.
• Disclosure practices during negotiations vary across sectors, with building, office, and home services franchisees leading in receiving disclosure documents.
• Relationships between franchisees and landlords remain stable, with property maintenance being a key factor.
• Franchisees are generally satisfied with the communication and training provided by franchisors.
• Optimism about future growth is high, with 88% of franchisees expecting growth in the coming year.

Conclusion

The South African franchise industry remains a resilient and stable market, fostering diversity and contributing significantly to the country's economic landscape. As the industry evolves, these findings provide invaluable insights for existing and potential stakeholders, paving the way for continued success in the years ahead.