By Eric Parker and Sasha-Lee de Bod

In these tough economic times, franchising is the solution to support small business people.  According to the Franchise Association of South Africa August 2017 survey statistics the estimated turnover for the franchise market is R587 billion Rand, which is 13,3% of the South African GDP. In total, some 20 000 people are employed by franchisors, while 323 592 are employed by franchisees.

However, the franchise sector’s reputation is suffering due to the bad behaviour of a few brands and if it continues on this current path, franchising might not exist in the future and impact our economy dramatically.

12 Mistakes Franchisors make:

  1. Franchisors don’t listen to franchisees
  2. Franchisors assume franchisees are making more money than they actually do
  3. Franchisors become greedy and try to make too much from franchisees
  4. Franchisors don’t communicate effectively
  5. Franchisors don’t offer an ongoing constructive training programme
  6. Franchisors accept rebates and kickbacks with no benefit passes on to the franchisees
  7. Franchisors underestimate the power and intelligence of franchisees
  8. Franchisors do not have good franchisee selection criteria and sell a franchise to unsuitable franchisees rather than award a franchise to suitable franchisees
  9. Franchisors don’t review the franchisees’ financials and carry out benchmarking
  10. Franchisors don’t help the franchisees develop a business plan
  11. Franchisors over promise and under deliver
  12. Franchisors are inconsistent in the way they treat franchisees

What would a world without franchising look like

  • Franchising allows people to be in business for themselves but not by themselves – without this proven business model and systems they will be left battling it out all on their own
  • Franchisees will lose the access to the tradename and established brand. They will need to create their own independent brand and regain the acceptance of the public and local community, this might take a long time.
  • Management services fees wouldn’t exist anymore, but it also eliminates the support from field service consultants and the support office. Franchisees will have to deal with issues independently and won’t have access to benchmarking data to measure their business performance against.  External consultants would need to be contracted to assist when need be
  • The current system being used in the franchise network will no longer be accessible
  • Franchisees would need to negotiate individually with various suppliers and they won’t be able to unlock the deals the franchise network acquired due to bulk discount arrangements.
  • Retail management centres won’t have the guidance and support from franchisors on standards, therefore franchisees are left to their own devices with regards to store image, customer service and product quality, etc.
  • Franchises tend to be more compliant to tax obligations due to strict Consumer Protection Act regulations and requirements. Franchisors ensured that franchisees declared information and kept accurate accounting records to ensure the safety and compliance of the entire network – small independent businesses might not be as inclined to adhere to or remember all these requirements.
  • Franchisees would no longer have guidance from the franchisor with regards to pricing structures, they can now set own pricing to their advantage or own detriment
  • Advertising will be entirely up to the franchisee, they have to produce and distribute their own content locally. National brand building initiatives will no longer be available unless they have the means to pay for it.
  • Franchisors will lose the owner operator factor which has been proven in various brands to have increased sales by between 20-30% – therefore sales will decrease dramatically even if all stores are retained as company owned stores
  • Franchisors might not have enough capital to sustain and manage all the previously franchised stores, thus leading to a closure of stores in various locations, especially remote or outlying areas where they have less control or supervision. If stores close down, then it will increase the unemployment levels dramatically

Embracing positive franchising

  • The public should be educated that franchising is a solution to our current economic condition, not the problem
  • Create solid support structures to ensure the success of the network
  • Franchise relationships should be strong throughout the network
  • The franchise model should be up to date and relevant to current market conditions
  • Franchisors should review the health of their franchise network
  • Franchising should be a win-win scenario for all parties involved
  • Treat all franchisees the same
  • Franchisors should always under promise and over deliver
  • Franchisee selection is critical – don’t set someone up for failure
  • Listen to your franchisees – if franchisors listen to franchisees this will resolve so many issues internally
  • Training is key – offer an ongoing constructive training programme

Contact Franchising Plus for assistance in your franchise business

Source: franchisebusiness.com.au and fasa.co.za