ECONOMY: Franchising Critical to Economic Growth – FASA
Recent Gauteng Business News
Franchising is under-utilised in the South African economy and needs more credit for the role it plays in job creation and boosting economic growth, according to the Franchising Association of South Africa (FASA), which this week hosts its annual expo.
The International Franchise Expo (IFE 2015), FASA’s 20th and taking place from 16 to 18 April at the Sandton Convention Centre, is sold out for the first year since the global financial crisis.
“It’s a good sign. When others are really down in the dumps, franchising seems to be more buoyant,” FASA spokesperson, Giuli Osso tells Moneyweb.
Spar, Melissa’s, Cash Converters and subsidiaries of Taste Holdings are among the franchises present at this year’s expo. According to FASA, fast food and restaurants make up 25% of the franchise industry, followed by retail at 13% and business to business at 12%.
While figures of the success rates of franchised businesses versus independent businesses are highly disputed, the latest FASA survey points to positive longevity in franchised businesses.
The 2014 FASA survey indicates that 75% of franchise owners in South Africa have been in business for more than six years, and 44% for longer than 12 years.
“That, without question, proves the sustainability of the sector – even in the face of recessionary times,” comments Vera Valasis, executive director of FASA.
There were more than 31 000 franchise outlets in South Africa in 2013, an increase of 3% from the previous year. The number of franchisors, on the other hand, fell 6% to 627 between 2012 and 2013, reflecting some effects of the economic downturn.
Previously disadvantaged individuals own 26% of South African franchise outlets, according to FASA. Quoting findings from its survey, FASA says ten of every 14 people employed in the average franchise outlet are black.
The industry employs more than 323 000 people and, says FASA, contributes 10% to the country’s GDP.
Ian Jacobsberg, partner in the commercial department of law firm, Hogan Lovells and former FASA chairman notes that franchising is gaining recognition as a safer way of promoting entrepreneurship and employment, since it comes with the support of a franchisor that has a vested interest in the success of its franchisee.
Off the back of difficulties in sectors such as mining and manufacturing, Jacobsberg says there is also a realisation that “giant formal industries are no longer the salvation of the country, particularly when it comes to job creation”.
“Smaller, privately-owned businesses are going to have to play a bigger role in solving the unemployment problem,” Jacobsberg says.
The mining sector employed 492 000 people at the end of 2014, a decline of 7 000 from the previous year, according to Quarterly Employment Statistics from Statistics South Africa.
FASA wants ombud status
With more than 200 members, FASA has submitted a draft code to the Department of Trade and Industry (dti) to become the ombudsman for the franchise industry in order to act as an alternative dispute resolution (ADR) body between franchisors and franchisees.
Although voluntary, it has been the industry’s only association for the last 36 years.
“This will give us teeth,” says Osso. Being the ombud will enable FASA to enforce its code of ethics as well as the franchising regulations included under the Consumer Protection Act (CPA).
Jacobsberg, who helped draft the code during his time as FASA chairman, says it will be beneficial to have a body adjudicating disputes that has an understanding of franchising and not purely “dry legalities”.
“This makes it possible for a more constructive view of the dispute to be taken, with the aim of saving the relationship and making it work. Where a dispute is resolved in court the relationship will generally come to an end,” Jacobsberg comments.
For the first time in its history FASA has a franchisee chairman, as opposed to a franchisor or service provider, such as someone from a law firm or bank. Chairman John Baladakis is a multiple-store Pick n Pay franchisee who says franchising has “barely scratched the surface” in South Africa, where it is found in only 17 business sectors, compared to countries like the USA, Canada and Australia where it is found in up to 75 business sectors.
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