Franchises and independent businesses are competing and operating in highly competitive and in some instances saturated markets. Business owners are now looking at alternative means of market expansion and ways of revitalizing the economy to address poverty, inequality and unemployment.
Townships were never previously conceived to have the potential for development. Over the past few years there has been a motion and effort to stimulate township economies through the provision of infrastructure, mainly for services and the limited commercial sector. Township businesses are more sustainable than most franchise owners might imagine. To maximize South Africa’s economic potential, the public and private sectors need to create and enable an environment for growth, especially in the township and rural communities. There has been proof of established companies thriving in those markets even more so if they have a deep understanding of the local market e.g. SA Breweries and Coca-Cola
Township businesses are mainly all informal, unregulated and unlicensed, but yet they survive and generating income for the unemployed.
Businesses in the township include, but are not limited to:
- Kiosks, spaza shops and roadside clothes stalls
- Taxi drivers
- Mechanics and electricians
- Salons and beauty stalls
- Road side venders selling a variety of goods
At the Independent Retail Forum conference in April, Lief Petersen, MD of Sustainable Livelihoods Foundation (SLF) indicated that there are approximately 1,600 micro-businesses including 623 liquor outlets, 293 informal outlets and 230 spazas. In total, food and drink accounted for 54% of businesses, services 34% and manufacturing just 2%.
Gauteng premier David Makhura said: “I dream of townships being spaces where there is a vibrant culture and dynamic local economies underpinned by state of the art infrastructure”
Disruption in township retail
According to Lemok Group founder Lebogang Mkubule, the biggest disruption in townships is seen in a shift of power the market’s awareness and buying decisions. There are various factors influencing consumer spending behaviour, of which lower disposable income is most prevalent, therefore businesses need to be aware of actual consumer needs
Challenges in townships
South Africa’s townships are a growing hive of entrepreneurial/business activity that faces challenges due to various restrictions and limitations in terms of:
- Limited access to resources and basic infrastructure
- Limited access to finance/capital
- Limited access to markets
- Limited access to skills training and mentorship
- Competition from foreign nationals. There is continuous conflict between local and foreign-run township businesses due to pricing and employment.
- Red tape in terms of business compliance and tax registrations. The process of opening a business is tedious in South Africa.
- A disconnect from the mainstream economic activity
- Development cost involved to upgrade and revitalise some areas
- Underdeveloped and underserviced logistics and supply chain
- Limited capacity to absorb labour and the cost thereof
These challenges lower the prospects of rapid replication, expansion and development in these areas as well as scaling them up.
Small businesses in townships can be grown and supported by:
- Providing access to marketing
- Offering mentorship, coaching, development and support
- Assisting in building a business network
- Formalising the market from an informal to more formal business structure
- Providing ownership and employment in local communities
Franchises and chains should work with locals:
In a recent article with Eye Witness News, OBC Garankuwa Butchery’s Bonga Sepeng commented that wholesalers venturing into townships are having a negative impact on local businesses and indicated that they need expertise and new ideas. They believe although the government provides opportunities for small businesses, it fails the follow through.
This is an indicator that franchises, chains and groups should partner and work with the local community to ensure the survival and continuity of these businesses.
Initiatives that are developing townships
- Airbnb Partners with a local enterprise precinct, Ikhaya le Langa on a programme to develop township-based tourism entrepreneurs. In addition to this programme, they are investing $1 million through 2020 to promote and support community-led projects in Africa.
- Ithala Development Corporation, Sumitomo Rubber SA and Dunlop are enabling job creation in townships by establishing containerised tyre fitment centres across Kwa-Zulu Natal townships and rural areas.
- Absa contributing toward the transformation of township economies by investing in Spaza shops in Gauteng, Mpumalanga and Limpopo. They invested in eSpaza Sum Holdings to ensure upliftment and accelerated transformation, of black-owned spaza shops by improving sustainability and competitiveness with bigger retailers. Absa assists the spaza shops with banking solutions to run a sustainable business. Mastercard and Spazapp are connecting informal SME’s to formal markets through digital payment systems that are secure, convenient and mobile. Spazapp allows the user to accept cashless payments from consumers through mobile phones
- Gauteng Township Economy Business Week empowers entrepreneurs through an event hosted by top entrepreneurs and business leaders. The initiative was hosted by South African Black Entrepreneurs Forum (SABEF) The head of the Standard Bank incubator programme and the director of Liberty Group transformation.
- Some government institutions are prioritising SME’s in procurement where these businesses can register on a database as a listed supplier. Gauteng premier David Makhuru indicated in a Mail and Guardian article that between 2014 and 2017 public procurement in township businesses increased form R600 million to R17 billion and that the township businesses working with government has increased for 642 to 4182 for that same period.
- Nedbank offers a supplier development programme to entrepreneurs on their database, those who are selected for the programme are mentored and trained in various aspects of business.
- Sorbet initiated ‘SEW’ that helps improves the earning potential and circumstances of women in South Africa by providing training which enables them to find employment within the beauty industry
What will my contribution do?
If an informal economy is transformed to a formal one, it will continue to grow, expand and succeed. They will benefit from new business development incentives and subsidies, technological advancements and of scale economy. The benefit of a thriving township economy is employment creation in communities.
This can be done by:
- Duplication of an established business concept at micro-level
- Group or cluster initiatives in designated spaces to enhance business development and economies of scale
- Forming an understanding of the cultures, motives and operations of the township-economy. An example of this is the disruptive e-commerce drive, township consumers are sceptical of online transactions and require physical interaction and instant gratification..
- Developing structural and sustainable support programmes
- Cross-sector partnerships between businesses, the government and the community can ensure a linkage between the formal and informal sector
- Mentorship and skills transfer
- Partnering with other brands to provide added value
- Communication to township consumers’ needs to be focused and tailored to specific individuals
How does franchising fit into it all?
- Franchise Sector
- According to 2017 FASA survey results the franchise industry currently employs approximately 343,592 people (franchisor and franchisee level) and contributes 13,3% to South African GDP
- A ‘business-in-a-box’ solution that provides a system to run a small business and earn an income with a low investment requirement
- Micro-franchising can be implemented when the person does not have access to finance and is usually aided with financial assistance from donors or financial institutions
- This can be used in markets that lack certain products or services
- This model creates social and economic value
- Charges the consumer for products and services even if prices are subsidized at times
- Established franchise networks can develop a micro-version of their brand to ensure sustainability in these markets
- Has a social purpose i.e. reducing poverty and unemployment whilst empowering individuals and expanding an existing footprint
- Example of such an initiative: Naspers developed a distribution model for The Daily Sun and other media titles and products. This is a low entry cost micro-franchise that provides entrepreneurs an opportunity as well as securing motivated township distributors and valuable development.
- Social franchising
- A franchise system which uses the structure of commercial franchise to achieve social goals
- Usually run by an NGO or NPO
- The model does not generate profit but enables a cause/initiative/purpose
- End users do not pay for services
- Donor funding is crucial for execution of the model
- Example of such initiatives in townships include: Unjani clinics, Danone Clover Daniladies, Amandla EduFootball, etc
New experiences, formats and trends, underpinned by business advances to interact with consumers on a different level/platform combined with a willingness to adapt and change will ensure new opportunities in townships. Businesses which disregard township economies as a future market will in the long-term open themselves up to the high possibility of stagnation.