South Africa is in the midst of challenging economic times with rising costs, power outages and the influence of global conditions such as the rising oil price. It takes a lot of courage to start a business in this environment and franchisors can expect potential franchisees to be much more discerning. We always tell clients that franchising a business means that your core business changes to franchising and that you will now compete with other franchises for potential franchisees. We have identified five aspects that will determine whether your franchise will be competitive.
1. Strength of the brand
It’s undeniable that strong, well-known brands are the most popular franchise opportunities due to their evident support from customers. New, upcoming brands might find it difficult to compete. All is not lost though, as clever brand positioning and marketing can still contribute to a brand’s popularity. Food franchises should use social media to its fullest extent to win more loyal patrons and should be aware of apps such as Zomato, which rate everything from service to quality of the food. In service orientated businesses, word of mouth is critical and superior customer service can contribute to brand building.
To convince potential franchisees to join a new brand, you need to show evidence of what you are doing as franchisor to build the brand. Don’t wait for franchisee contributions to spend money on marketing, but rather invest in marketing upfront. You can also accentuate the first mover advantage, as the first franchisees will get the most lucrative areas with the most potential.
2. Track record
Before franchising, the business must build a proven track record in terms of sales and customer support over at least a year (but preferably longer). The Consumer Protection Act (CPA) requires evidence of the financial stability of the franchisor. Proven financial success of a concept is ultimately one of the main drivers of the decision to buy a franchise.
3. Support provided to franchisees
Franchisees will also evaluate the support they will receive from a potential franchisor. Are you doing scientific site selection? Do you provide initial and ongoing training, not just on operations but also on aspects such as financial management, retail principles and customer service? Will you assist the franchisee to approach banks for financing? Do you have a team to assist with store opening or launch of the business? All of these aspects are critical considerations for a potential franchisee.
4. Investment level and fair franchise fees
Potential franchisees have to make a substantial financial commitment and will look for good opportunities in the investment bracket they can afford. Banks mostly finance on a basis of 50% own contribution in cash, so a franchisee buying a R2 million franchise would need R1 million of his/her own. This is a serious sum of money and we can see evidence from our whichfranchise.co.za website that lower cost franchises are very popular.
Some brands are just more expensive to set up, especially in retail and the food business. Franchises that are struggling to find franchisees in their investment bracket could consider entering joint ventures with potential franchisees to grow their initial footprint and attractiveness as a franchise opportunity. The downside of that is that the franchisor has to invest some capital to do that.
When it comes to franchise fees, franchisees will also compare the initial and ongoing fees of the franchise and these should be in line with other franchises in the same industry.
5. Good franchise relationships
Potential franchisees may contact current franchisees in the network and listing their details in the disclosure document is a CPA and FASA requirement. Therefore, it’s important to maintain good relationships with current franchisees as they are ambassadors for the brand.
Given these factors that are considered by potential franchisees, how competitive are you as a franchise opportunity? We hope this article highlighted some focus areas for your franchise. Franchising Plus has a variety of tools that could assist with franchisee recruitment, including our franchise opportunity and information portal www.whichfranchise.co.zaand our psychometric assessment, the E test. Contact us if you would like to find out more.