VENTURES: Franchising Grows Employment, GDP and Turnover
Recent Western Cape Business News
The Franchising sector’s thriving success, sustainability and substantial contribution to the economy has once again been highlighted by the findings of The Standard Bank Franchise Factor® survey.
The Standard Bank Franchise Factor 2008 survey, sponsored by Standard Bank and undertaken by Franchize Directions, looks into the status and growth of the franchise sector in South Africa over a two-year period and measures turnover from March 2007 to end February 2008.
According to the 2008 survey, the Franchising sector has seen excellent growth over the past two years, with a significant R256.46 billion turnover, marking a 37% increase in turnover and the creation of 67 000 new jobs. The sector also enjoys a staggeringly high sustainability rate of almost 96%. The sector’s contribution to the Gross Domestic Product was 12.57 percent.
Says Bendeta Gordon, Director of Franchize Directions: “This survey has brought home what a terrific mechanism franchising is - especially in the context of where we are currently at in the country and what the socio-economic needs are.”
She says that despite the many challenges facing the sector, including limited support apart from the financial institutions, skills development and the need for franchisees to become more financially adept, franchising is highly sustainable and free market capitalism at its best.
“Franchisors should be viewed as captains of the economy. Through their systems (franchises), they facilitate the creation of businesses and entrepreneurs who in turn create employment opportunities. Most importantly, they have proven that these mechanisms are sustainable.
The survey backs this statement. Gordon says that one of the most remarkable findings is the incredibly low failure rate of franchises - only 3% percent, with its subsequent effect on unemployment at an estimated 1.3% and less than half a percent on turnover.
Adds Gordon, “The sector’s ongoing (and growing) contribution to employment and economic growth is remarkable and demonstrates the importance and value of this sector.”
The survey identified 531 franchise systems in the country, an increase of 15% from 470 in 2006. However, the full effect of its contribution to the economy is evident in the net growth in business units with 3 567 new units, an increase of over 14% to 28 620. Of the units, 32% are PDI-owned (previously disadvantaged individuals).
“What is very pleasing is the contribution to employment, with an estimated 67 000 new jobs (permanent and casual) having been created over the past two years,” says Gordon.
The “champions” were the building, office and home services sector, with 26 new franchises, followed closely by retail (22 new franchises) and automotive and restaurant franchises at 14 and 12 new systems respectively. Real estate, the health, beauty and body culture sector, and education and training each gained 11 new franchises.
On international expansion, the survey also recorded that 95 franchisors (excluding the petroleum retailers) are operating in 21 different countries, mostly SADC countries.
“Sustainable, economic development is critical for Africa. South Africa, with its excellent infrastructure, is the ideal springboard into Africa. Franchisors have seized on this opportunity, with many companies electing to go the master franchise route as it addresses many of the cultural, economic and institutional challenges, among others,” says Gordon.
Louis Van Ravesteyn, Head: Small and Medium Business, Branch and Business Banking Channels at Standard Bank, says the survey shows that the franchising sector is enjoying healthy and sustainable growth, in addition to playing a key role in addressing national challenges, such as the growth of the SME market and Black Economic Empowerment.
“This survey provides valuable insight and knowledge to assist us in delivering further on our commitment to assist players in the sector to grow into economically viable industries.”
Gordon believes that the Franchising sector’s solid history of growth, innovation and sustainability, coupled with opportunities in South Africa and the rest of Africa, promises a good outlook going forward. “The Soccer World Cup alone is one opportunity that will no doubt present some opportunity for this sector,” says Gordon.
Looking ahead, Gordon says franchising is built on solid foundations and research has shown that in tough economic times or recession, small businesses sustain themselves and play an even more critical role in the economy.
“Good growth can be expected as companies diversify their risk and become more innovative, which is common during downturns in the economy as opposed to not wanting to rock the boat and being more inclined to own their own outlets during more favourable or high growth economic times. One can expect the bigger players to get bigger - as is already evident especially in the fast food market - while the smaller ones without critical mass might struggle,” concludes Gordon.
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