By Eric Parker

The first thing you need to do before you start a business is to develop a comprehensive business plan. Part of the plan will be a distribution strategy, and this is where you could consider owner operators or franchising as an option.

So, under what circumstances will you consider franchising?

  1. Where you will need brick and mortar distribution points throughout the country e.g. a retail network
  2. Where you have limited capital or would like to utilize the franchisee’s capital in your growth plans
  3. Where you would like rapid growth e.g. to get a good footprint prior to your concept being copied
  4. Where you require stability in the management, i.e. a franchisee with capital invested is a long-term player
  5. When you require superior customer service, i.e. an owner with skin in the game will always outperform an employee

It is important to note that you don’t have to go only franchising and you can have a combination of company owned, joint ventures and franchising, as illustrated here:

If you choose the owner operator or franchise option, you must make sure the business meets the following criteria:

  1. Scale: You must be able to open around 30 outlets minimum to create meaningful royalty income
  2. High gross profit to make it viable for the franchisee to pay a royalty and marketing contribution
  3. The skills needed to run the business must be easily transferable
  4. There should be some unique U.S.P (Unique Selling Point) to stop competitors copying your concept
  5. The brand name must be registered (name and logo should be trademarked)
  6. The concept must be in a growing market with long-term viability
  7. You must have good systems and controls in place
  8. Your supply chain (raw materials) must be secure and freely available

It should be noted that to become franchise ready, you will need an investment to create the franchise package which consists of

  • Operations and Procedures manual
  • Franchise Agreement
  • Franchise Disclosure Document

In conclusion

Franchising is a very viable distribution tool which has been very underutilised in South Africa. In the U.S.A, franchising represents over 50% of retail sales whereas in South Africa it accounts for only ±12%.  There is much potential to grow franchising as a distribution mechanism across multiple sectors. 

Franchising Plus