Gauteng Business News

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FRANCHISE SECTOR: Survey Shows Franchise Industry a Big Job Creator


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The franchise sector has shown great resilience for the 2 years ending 28 February 2010 with growth of 37 660 new jobs, 2 286 new businesses and a contribution of R287.15 billion to the SA economy. The franchise sector contributed 11.8% to GDP from March 2009 to February 2010. 29 204 businesses operate under the 551 franchised systems.

These are the findings of The Franchise Factor 2010 conducted by Bendeta Gordon of Franchize Directions. Gordon who has tracked the growth of franchising since 1994 says: “Leave it to small business to show big business that people really do make the difference. Franchisors have to ensure the survival of their franchisees. Consequently they have made strategic changes in adapting their systems and business models to meet the uncertainty of the market with impressive results”.

The survey results confirm that the best in class entrepreneurs sit in the franchise space. Comments Gordon, “If these operators sniff growth you can be sure a franchise business opportunity will emerge. In particular we have seen greater numbers of new systems in Education and training, Building, Office and Home, Retail and Food (Quick service restaurants and Restaurants)”. A total of 112 new franchised systems have entered the franchise sector.

Consumers, pressed for disposable income and faced with great uncertainty, looked for reliability in brands they know and trust. “Many of these trusted brands, says Gordon, “sit in the franchise space. Franchising is all about distributing product and/or services to a broad market through business units operated by owners who have a vested interest in satisfying customers. The franchisees, who often invest their life-savings or retrenchment packages, have to survive trying economic times and they have done so admirably. Overall franchisors showed a 12% growth in turnover with contraction of turnover in Real Estate, Building, Office and Home and Entertainment and Leisure.

But, the survey period also shows a clean-up of some 104 struggling franchised systems. 67% of these franchisors which represented some 985 businesses decided that the franchise mechanism was not working for their respective businesses. These operators are still in business but the franchise opportunity is no longer marketed. Most of these franchisors are still supporting their licensees with product supply but are not growing the brand or the franchise network. “This is a market that takes no prisoners,” explains Gordon. “These operators were smart enough to bow out of franchising as the mechanism imposes great responsibilities on franchisors to ensure sustainability for franchisees”.

Franchisors have also consolidated in terms of the number of business units that have been closed. A slowdown of the economy cannot carry struggling business units. Closures were pronounced in Real Estate, Petroleum Retail, Entertainment and Leisure and Retail categories.

Gordon believes that franchisors should be viewed as captains of business taking into consideration unemployment and the socio-economic needs of the SA population, “Franchise systems create businesses and employment and facilitate the development of entrepreneurs. Franchisors transfer key operational and management skills to franchisees. Compliance with a blueprint business model, which is proven as viable, and ongoing franchisor support are key reasons for sustainability and success.

Despite the backdrop of gloom in job losses and GDP growth, franchising shows it has soul. Whilst the franchised business models have had to adapt to the slowdown in the economy, one fundamental of franchising has not changedÂ…. the human element. The symbiotic and mutually interdependent relationship between franchisor and franchisee remains intact and this has made the sector an example of how to ride the tough times.


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