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By Eric Parker

Franchising in 2012 has proven to be testing and highly competitive and the outlook for 2013 offers much of the same.

Here are some of the trends we believe franchisors need to take note of going into 2013:

  • Finance: Worldwide, access to finance remains one of the biggest concerns of franchisors. In order to assist franchisees to secure financing, the franchisor needs to start assuming some of the risk. For example, Bloemfontein’s Stadium Fast Foods franchisor provides a business buy back guarantee to franchisee’s if their business is not profitable after 3 months. This is attractive to banks as it mitigates their risk.
  • Franchisee Support: The franchisor has to re-look at servicing the needs of its franchisees. As illustrated by the image below, franchisees require different levels of service and support from a franchisor in different parts of the franchise development cycle:

Franchisee Development Cycle

Franchisee Development Cycle

  • Supply: Franchisors need to closely scrutinise their product supply to franchisees. They need to review their involvement in the supply chain and review their central kitchens/warehouses to improve pricing, buying and convenience for franchisees.
  • Training: There needs to be a re-emphasis on training. The service levels in South Africa have dropped, continued training and motivation will assist in increasing service and the customer experience. Another developing trend that franchisors should look to incorporate is online training initiatives to ensure the staff are constantly up to date using a cost effective medium.
  • Staff: Franchisors need to concentrate on retaining good staff, franchisors will have to be innovative when motivating staff. For example, Seattle Coffee Company pays 50% of their staff’s medical aid expense. The challenge in current circumstances is to get more productivity out of staff, meaning if you pay or incentivise staff they should be more productive in return. The best case scenario is to get less people working harder.
  • Marketing: Franchisors will have to look at spending marketing funds more wisely and effectively – every Rand must count! Franchisors will have to closely consider marketing initiatives on various platforms, including social media.
  • Online sales: Franchisors will need to find ways of involving franchisees to boost online sales and ultimately drive more feet through the franchise stores.
  • Online Communication: Going forward there will be more emphasis in online communications to franchisees. With travel becoming expensive, online communications like skype or video conferencing will be a more efficient way of communications with franchisees.
  • Up-to-date Point of Sale Systems: Franchisors need to ensure they have the most efficient and informative point of sale systems, this will enable franchisees to be competitive. For example a franchisee could benchmark to ensure their gross profits are in line with the franchise and industry norms. Many new point of sale systems incorporate an accounting function too.
  • Revamping: Franchisors need to ensure that franchisees keep their sites rebranded, freshened and revamped, for example fast food brands like Steers aim to revamp their sites every 5 years.
  • Landlord Negotiations: Franchisors need to assist franchisees to negotiate better rentals as well as guiding franchisees on how to utilise their space more effectively to cut down the size of stores – when compared internationally, it is clear that South Africans do not utilise commercial space efficiently. With the impact of rising electricity costs, there will be a need to negotiate rent in a more innovative way and to consider smaller store models where economically viable.
  • A business plan: Franchisors should ensure they have an annual business plan developed for example to review the pricing strategy or strategy of disproportionate pricing for perception of value.
  • Research: Franchisors control how customers perceive the franchise, it is important for the franchisor to research how the franchise is perceived to ensure that the franchise does have the competitive edge it believes it has.
  • Africa: Expansion into Africa is inevitable, with a large influx of Asian investment into Africa, franchisors should gear themselves towards growth in that direction.

Some other interesting franchising trends to watch out for in 2013 includes:

  • Continued growth and popularity of frozen yoghurt concepts such as Pink Berry and Red Mango in the USA. In that country, experts believe that the category is nearing saturation and foresee some consolidation. This is largely due to the low barrier of entry for these concepts.
  • With rising levels of unemployment, there is a need for the development of good quality, low cost of entry franchise concepts. In the USA, one of the fastest growing brands of the past five years is Five Guys, a no frills quick service restaurant offering burgers with a home-made feel and a choice of toppings. The chain opened 1 000 stores in 5 years! It will be interesting to watch the trends in food franchises in South Africa this year, especially since Burger King is now entering the market.
  • Growth of new categories of franchises eg: franchises for over 50’s. People in this age bracket are increasingly entering the franchise market for various reasons. It could be due to forced early retirement, corporate downsizing, a lack of retirement savings and the fact that due to better health care, many people are fit and able to work well into their later years. Franchises suitable for this market include business service franchises, business coaching franchises, training and development franchises and many others. Over 50’s normally have access to capital and good experience, which makes them attractive to franchisors and banks.