When asked to name the most iconic South African businesses, the first names that come to mind - Pick n Pay, Shoprite Holdings, Dischem, Spur, Sorbet, Nandos – are all franchises.

“This common trait is no coincidence,” says Grant Smee, property entrepreneur and owner of Only Realty. “Franchises have long been a successful outlier in the often-turbulent South African economic landscape.”

Smee attributes this success to the value of the franchise model’s ‘strength in numbers,’ and the ability for franchise owners to tap into a wealth of brand resources that entrepreneurs who start independent businesses do not have access to.

While many of these iconic franchises, particularly those in the restaurant industry, have taken an undeniable knock due to the economic wreckage of the COVID-19 pandemic, the franchise sector has proven itself capable in challenging circumstances before.

Despite a weak Rand and a shrinking economy at the end of 2019, in their annual survey sponsored by Sanlam, the Franchise Association of South Africa (FASA) found that the sector contributed an estimated turnover of R734 billion – equivalent to 13.9% of the country’s GDP.

“As strange as it may sound, South Africans actually have a distinct advantage over the rest of the world as we begin to rebuild the economy in the wake of the pandemic: we’re used to turbulence”, explains Smee. 

A safer choice for aspiring entrepreneurs

“Many people who lost their jobs as a result of the pandemic have resolved to create their own employment opportunities rather than waiting for someone else to offer them one. Choosing to do this via franchising rather than starting from scratch is a safer option as you can tap into a support structure that already he exists,” he continues.

As an entrepreneur himself, Smee passionately believes that entrepreneurship presents a pathway out of poverty for many young South Africans, which is why it is so disheartening that over 70% of small businesses in the country fail in their first two years of operation according to the Small Business Institute.

“While your chances of success are obviously not 100% guaranteed if you opt to buy in to a local franchise, the failure rates are significantly lower than that of independent businesses.”

This commercial success can be partly attributed to the enthusiasm by which South Africans have embraced both international and local franchises, as evidenced by the popularity of brands like KFC and Nando’s, as well as the franchise model itself.

Explains Smee: “There are many arguments for why the franchise model lends itself to success, the most persuasive being that there is no need for you to build a brand when you are a franchisee – brand awareness already exists”.

“In addition to brand awareness, franchisees have access to an existing loyal customer base; a wealth of market knowledge; easy access to experienced leaders; marketing and advertising resources and access to suppliers.”

Finally, Smee emphasises the link between the controlled growth built into the franchise expansion and the sustainable growth needed for long-term success. 

“My own franchise, Only Realty, has seen year-on-year growth since it was established. That’s because we prioritise controlled growth rather than pushing for new franchisees to just pop-up overnight.”

Buyer Beware

As a successful property investor and franchise owner, Smee has been around the block a few times when it comes to spotting a lucrative business opportunity. 

He’s also occasionally been burned, a setback that he hopes to help other prospective franchisees avoid through sharing the tips below.

Smee’s top tips for those considering buying in to a local franchise:

• Make sure you know what you’re going into. “Access to market information and customer insights is one of the greatest benefits of joining a franchise – there’s no excuse not to do your homework before you buy!”
• Ask for a realistic overview of the costs you can expect. “Many franchisors will show you their slick marketing material and then push you to sign on the dotted line. Make sure you take a look at the real numbers before you do.”
• Consider the location. “Is the market where you’re opening already saturated? Make sure that you’re addressing a gap in the space you’re operating in.”
• Ask yourself the tough questions. “These could include: Am I okay with not having total control over very element of the business? Can I handle a high level of monitoring? Am I willing to share a percentage of my profits with the franchisor?”
• Explore the brand reputation. “Trust your gut and ask around. You don’t want to be saddled with a terrible reputation before your franchise has even opened its doors.”
• Talk to other franchisees. “They’ve already gone through this process – would they recommend it to others? Ask them to be honest about the challenges of being a franchisee.”