KM: What work does FASA do to ensure franchising in South Africa remains ethical?
PS: FASA holds the distinction of being one of the first countries in the world to adopt a code of ethics and business practices that became amongst the most stringent in the world and is in line with global ethical standards.
As the leading and oldest franchise association on the African continent, it serves as a springboard for international brands to establish a presence in South Africa with a view to expanding to sub-Saharan Africa and beyond.
FASA members voluntarily align themselves and their brands to the World Franchise Council, an internationally recognized body that adheres not only to international best practices but to sound business ethics established through South Africa’s Consumer Protection Act and FASA’s government approved Franchise Industry Code for the sector.
The fact that a franchisor that is a FASA member voluntarily opens himself, his company and his operations to scrutiny shows his commitment to running his operation ethically and along sound business principles. FASA members are viewed as credible operators and quality companies within the franchise community and more likely to be accredited by the major banks and lending institutions.
FASA makes a thorough assessment of each applicant company before membership is granted. This would typically include a look at the viability of the concept and that the company has a pilot operation operating for at least a year as well as the presence of appropriate franchise documentation.
The three pillars of a good franchise system cover all the bases to a well-run business format. The first two – the disclosure document and the franchise agreement – pertain to the legal and moral side of the business you’re buying. The operations manual is the blueprint on how that business should and must be run.
KM: What makes South Africa an attractive region for international brands looking to introduce their concepts to the continent?
PS: South Africa’s franchise industry started roughly a decade after it exploded onto the American scene and this is where the South African franchise story starts. Those early entrepreneurs in the 1960s who brought concepts to our shores recognized that the unique quality of this new business model lay in the fact that for the first time the franchise contained a complete business management package.
New businesses found it relatively easy to establish themselves and were successful from day one. During the 1980s, political and economic sanctions were biting hard prompting the withdrawal of several foreign concepts and caused the virtual drying up of new arrivals.
“Since the lifting of international sanctions against South Africa, new international brands have been entering the country on a regular basis”
Enforced isolation from foreign concepts did not stop South Africa’s entrepreneurs from picking up international franchise trends or developing home grown franchises which they did with great enthusiasm. Today, home-grown franchise concepts account for 80 per cent of all franchise brands in South Africa, with many, like Nando’s, finding success internationally.
South Africa has a first-world and first-class franchise industry contributing almost 14 per cent to GDP, through its 800-odd franchise systems and over 48,000 outlets. The industry employs around 500,000 people.
Since the lifting of international sanctions against South Africa, new international brands have been entering the country on a regular basis. The most obvious consideration for a franchisor entering a new territory is that each market and each country presents unique challenges and a one-size-fits-all approach does not necessarily work. The franchisor has to consider local conditions and having a strong local partner is a decided advantage.
The first issue is local law as every country has a unique legal system, with specific tax and exchange control laws, competition and consumer protection legislation. South Africa also has indigenisation or affirmative action legislation laws designed to empower and protect previously or currently disadvantaged sections of the population.
“Cultural” and local market conditions and preferences may also be a major factor in determining how and where to launch a concept, and whether the offering needs to be “tweaked” to appeal to the local buying population.
The state of existing competition in the market is also a factor to be considered. The franchisor needs to consider whether there is room in the market for another offering in the sector concerned. Having regard to these considerations, it is definitely advisable for a foreign franchisor to do their due diligence and to appoint a local master franchisee who is familiar with local conditions.
It is also important that a partner is chosen who can provide the necessary operational expertise. This is especially true in international relationships where it is much more difficult for a franchisor to supervise operations on the ground directly, and he is far more reliant on the local licensee.
KM: What do you find personally fulfilling about the work that you do with FASA as chairperson?
PS: InspectaCar joined FASA as a member in 2017 and I, as its CEO, was nominated onto the board in 2018 and subsequently nominated as chairperson elect for 2021/2022. I was truly humbled and honored to be entrusted to lead a non-profit organization that has been in existence for 42 years, of service to the public and the franchise sector in promoting the universally accepted and most successful business formats.
In my two-year reign as chairperson, I am excited to share my visible leadership as captain of this important sector by proactively promoting the advantages of franchising to both businesses and entrepreneurs, prospective franchisees, and the public at large and playing a role in in stimulating our economy.
My role is to get support from the board and executive director to steer and ensure sustainability of this auspicious association as the voice of the franchise sector and to deliver the key strategic objectives and nurture the key stakeholders’ relationships that include government, funders, banks, and industry bodies.
KM: How well has the South African franchise industry bounced back from COVID-19, and what more could be done to continue with growth and success?
PS: Among the many industry sectors in South Africa, whether agriculture, mining or manufacturing, franchising is the only one that covers a whole spectrum of business sectors (around 14) and contributes almost 14 per cent to the country’s GDP – far above all other sectors whose contributions are in the single digits – but sadly, as an industry sector, it often does not get enough credit for its contribution to the country’s economy.
There is no question that franchising fared far better than independent businesses during these tough times. While some of our sectors, like those in the restaurant and retail sectors are being hardest hit, surviving the crisis and rebooting becomes a precarious balancing act for all franchises that requires team work and a focused business approach. But if there is one business sector that knows how to balance the scales of supply and demand, be innovative enough to change course and use its collective power to weather the storm, it’s franchising.
The silver lining to the events of the past two years may well be a positive effect on the franchise environment as individuals, entrepreneurs and business owners are now looking for opportunities to progress, develop and find new avenues to pursue.
“Don’t let a bad experience distract you from the progress you have made; as long you are providing value in people’s lives, there will be a market for your product or service”
Some individuals have been forced to seek alternative employment solutions. Some feel insecure in their current positions or have changed their priorities in life. This has led to an increase of new entrepreneurs in the market or people seeking to buy employment opportunities.
Corporate companies are also starting to see the value of franchising but due to their rigorous structures and cultures, the transitioning to a franchise environment may seem to be more complex, but it achieves great results and gives the corporate companies the opportunity to empower and develop individuals from within.
The narrative of the success of franchising in South Africa is one that gives inspiration to the possibilities of this business system gaining momentum not just in South Africa but in the rest of Africa.
South Africa stands out as the only country in Africa that embraced the franchising model way back in the 1960s and built it into the formidable business sector that it is today.
KM: What advice would you give to entrepreneurs who are getting into the franchise industry for the first time in 2022?
PS: Leverage the brand equity from the franchisor and their know-how and ability to have access to group buying benefits; this allows for immediate access to penetrate the market unlike going on their own as an independent, unknown brand.
Focus on customer needs or pain points and proper cash flow planning. COVID times have shown that one needs to be agile to respond to changing customer need; without cashflow, many businesses were unfortunately not able to survive the lockdowns restrictions.
Personal leadership is also an important building block for entrepreneurs. They need to be consistent and intentional about self-leadership and have the core values to lead in their community to be successful in their business, and have the resilience to have the drive when things get tougher; especially in the first year of starting your business.
Finally, celebrate your small wins along the way. Don’t let a bad experience distract you from the progress you have made; as long you are providing value in people’s lives, there will be a market for your product or service.