Panel Discussion with:
- De Wet Oosthuizen, Master Licensee (Namibia), Famous Brands;
- Stephen Walters, Founder/COO, Fernridge Consulting;
- Warren Adams, Head, FNB Global;
- Arnold Meyer, Director, Nera Capital;
- Joe Boyle,Commercial Director, Fresh Stop.
South Africa stands in the middle ground between the frontier economies of Africa and the developed world. Of the more than 31,000 global franchise systems, just 620 are to be found in South Africa. Franchises are active in 17 business sectors in South Africa, compared to 75 in developed economies like the US and UK. With figures like these, South Africa can expect enormous growth in its franchise sector from its current 12% of GDP – yet the potential is even greater in Africa, where there are few homegrown franchises and it remains virtually virgin territory for international and South African brands. With the middle class expected to grow to 42% of the total African population in 30 years it may be the last remaining business frontier.
A panel discussion on the convenience and fast food franchise sector in Africa was hosted at the FNB Franchise Leadership Summit held in Johannesburg on 12 November, with panelists: Joe Boyle (Commercial Director: FreshStop); Warren Adams (Head: FNB Global); Stephen Walters (Founder and COO: Fernridge Consulting); Arnold Meyer (Director: Nera Capital); and De Wet Oosthuizen (Master Licensee Namibia: Famous Brands)
Some of the core challenges of opening up a new African market to one’s business model were discussed: primarily the need to overcome entrenched shopping habits, and to differentiate among what are vastly different markets.
One of the most rapidly growing retail trends in South Africa, and one likely to spread rapidly into the rest of Africa, is convenience or forecourt shopping at petrol service stations. Boyle explained that the concept had seen “major changes compared to 10-15 years ago” with availability of fresh fruit and vegetables, more competitive prices and ‘dashboard dining’ involving quick but fresh meals.
“Each motorist fills up on average three times a month – this is where convenience is headed.” FreshStop now has 64 Seattle coffee stores each doing R1 million/year, he said. He said the forecourt experience continued to evolve with more services, ranging from delivery services to exploit its 24/7 shop hours, to the use of more technology. “We know how much that big brands bring to convenience stores, but these brands are only viable at high-volume stations – so I expect lower volume stores to adopt in-house brands, with consequent lower capex and which enable existing staff to double up. A trend I expect to see in the coming years is for these in-house brands to become better known, and indeed to emerge as well-known brands in their own right,” said Boyle.
Meyer said South Africans still needed to come fully to terms with Africa, with some people still regarding the continent as “high risk” notwithstanding the highest risk market in the world at the moment being Wall Street, while talking generically of ‘Africa’ was akin to viewing New York and Hong Kong as the same market.
FNB Global’s Adams reinforced that one could not talk of Africa as a holistic market for a number of reasons: logistics around the continent was one of the biggest challenges (as countries remained more likely to be linked to European countries than to their neighbours) and as each had different regulations. Walters added that each country was also at a different stage of retail development: South Africa, for instance, has 64 times as much retail space per consumer as Nigeria. “This has to affect your strategy,” he said.
“In many countries, consumers are not used to mall shopping and even if you build one it can remain empty. Most major brands rely on malls for concentration of shoppers, so this is something to watch for in African markets,” explained Walters.
The entrenched habits of African consumers means that successful models developed by South African franchise systems and retailers cannot simply be exported to another African market. Adams noted that in Africa, mobile platforms are preferred to online, while even within one country there had to be a very different business model in remote rural areas than in cities.
Walters pointed to the challenge of home-grown brands which are well entrenched in markets such as Nigeria. “South African brands have to recognise that fast foods weren’t invented in South Africa – there are strong brands which can rival the household name brands in fried chicken and hamburgers.”
Skills and reputable partners go hand in hand in Africa, the panel advised. “When you go into a new market you need a local partner – one that will assist you with identifying the necessary local resources,” said Walters.
Oosthuizen emphasised the need for great care in selecting a local partner. “If you have a popular brand, local partners will find you rather than the other way round – but you have to select partners with a passion for your business and brand, even if they don’t have a chequebook initially.”
As to regional differences, Adams explained that while East Africa has a stronger retail culture and more collaborative approach to business, in West Africa entrepreneurs preferred to go it alone and were more likely to copy your brand and compete with you, said Adams.
It was emphasised that it can take two to three years to penetrate a new market, requiring patience and caution. Oosthuizen said: “We have a motto of ‘Easy come, easy go’, if you do not choose the right partner.”