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Franchise industry predictions 2016

By Eric Parker

We take a look at four of the major themes that are set to influence the franchising sector in 2016. While the franchising sector remains resilient we expect 2016 to be a challenging one for small business.

  

 

1. Tough economic times set to continue

Tough times ahead
  • A weaker Rand, sluggish economic growth and probable interest rate hikes make for a dreary economic picture.
  • This is even before the impact of the drought is factored in.
  • This means that input costs for many businesses are set to rise whilst a cost-conscious consumer will not bear these costs. Franchisees should watch both cash flow and manage debtors tightly in 2016.

There are nevertheless some silver linings;

  • a weaker Rand insulates the struggling mining sector and may stave off job losses
  • while tourism will get an additional boost.
  • We can expect franchisees to lean on franchisors for their guidance on cost cutting and developing value offerings to keep customers coming.

mining tourism worldThe challenges that South Africa is currently facing are not unique – an economic slowdown in China means that most emerging markets and even some developed ones will be feeling the pressure in 2016.

2. The tech evolution picks up speed

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The use of technology will become more pervasive in the franchising industry:

  • This will change how franchisees operate their businesses and how communication flows within the franchise network.
  • With data costs slowly coming down, we can expect the use of video conferencing and other digital communications platforms to become more prevalent.
  • This means many exciting opportunities to push training and operations procedures online.

For the restaurant and fast food segment:

Mobile applications
  • We are already seeing greater adoption of technology with local apps like Kitchen Manager that allow for seamless monitoring and ordering of stock from a phone or tablet.
  • We can expect more automation and innovation in this space – following what is happening internationally.
  • In the US, the franchise industry is experimenting with the idea of an automated restaurant operation:
  • Not exactly robots flipping burgers, but automatic grills that form burger patties and sensors that monitor equipment efficiency for power savings and temperature control.
  • The investments in these technologies are massive: Chick-fil-A spent $50 million to create a grill that adjusts pressure during the cooking process to churn out 10 pieces of chicken in minutes.

3. The media is dead. Long live the media

  • We’re seeing massive change in the media space as an increasingly connected world will revolutionise how we consume an
  • d produce media. This, combined with dropping circulation figures for more print media, will shift Long live the media - it is not deadfranchise brand budgets towards digital media.
  • Latest Facebook statistics indicate that 11, 8 million South Africans use the social media platform – a whopping 22% percent of the population. The number of YouTube and Instagram users is also on the uptick. With these platforms becoming more pervasive we expect franchisors to develop stronger, more prescriptive policies on social media usage. Franchisors are evaluating how franchisees can use social media to reach local customers through tools such as Facebook’s geo-targeting.
  • The use of smart phones and tablets to view media has also climbed – with consequences on how we process information.
  • A study by Microsoft reveals that the average human attention span is eight seconds. This fell from an average of twelve seconds in 2000. To put this in perspective, the average attention span of a goldfish is nine seconds. This means that brands have to be smarter and bolder to capture attention.

4. Think green

Ecological challenges;Think green - sustainable energy resources

  • come to the fore as consumers are more conscious of pressures on natural resources.
  • Franchisors must look at ways to reduce environmental impact, save on costs as well as communicating this green identity to customers.

Rising electricity costs;

  • will also mean that franchises will need to look at reducing energy consumption.
  • Higher prices for water can also be anticipated with South Africa experiencing its most severe drought in decades.

The green sector including sustainable energy remains a growth area for South Africa. Where there is growth, there will be business opportunities. We can expect franchise opportunities to open up in this space in the years to follow.

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