By Eric Parker
I was recently asked the question “Why are there not more formal franchises in the townships”?
That is a particularly good question and created a good debate inside Franchising Plus. So, let’s give you some of our thoughts and as usual, we welcome your input.
A good place to start is to review the “Township Market”.
There is huge unemployment in the townships and consumers/families are under financial stress. Fortunately, there is a spirit of “ubuntu” in the townships which results in those who are employed to share with the unemployed e.g., if I have a loaf of bread, I will share it with my neighbours. This spirit is going a long way to the survival of township life. This survival mode results in consumers buying today for their daily needs and searching for value. Customers are well aware of the best deals available.
In terms of competition, the township market is dominated by the informal sector. Due to their low overheads, they are able to offer reasonably quality goods and services at value prices. Unless you have a major brand, e.g., KFC, it is difficult to construct a formal outlet with remarkably high set up costs and monthly expenses and still compete with the informal market.
The informal market is active in all business categories e.g., hawkers, backyard mechanics, hairdressers/barbers, spaza store, venders etc. The bottom line is, a consumer can purchase a popular township street meal; a quarter loaf of bread hollowed out and filled again (Kota) from a vender at a much cheaper price than a burger from a formal outlet.
So, what can the franchisor do to penetrate the township with their brand?
The franchisor must adapt their model to add value to the informal sector at a low cost, low overhead point of presence. i.e.,
- Could we set up a hawker to sell a branded pizza at a value price or a branded nail bar under a well-branded canopy?
- Could we extend these offerings to more sophisticated mobile units or container outlets?
What do you think?
Please give us your ideas to penetrate the extremely lucrative township market. We believe the informal sector is equivalent to online sales in the formal market. Convenience and value are key drivers for success in the informal market.