Franchising in SA looks really good for 2016

The economy may be under pressure and consumers may be spending less, but the outlook for franchising remains strong for 2016.

This is due to increasing competition and the entry of new players such expected to offer franchisees new opportunities, according to Ethel Nyembe, Head of Small Enterprise at Standard Bank.

Nyembe believes that 2016 see increased activity within the franchise sector, particularly the fast food franchises.

This comes as international brands that announced their entry into the market this year look to establish operations around the country in the New Year.

Expanding market in 2016

For consumers this is great news, as their product choice will expand as competition increases.

Other international brands who have announced that they will be entering South Africa will also be measuring up their expansion opportunities.

Many American franchisors that are household names in the USA are set to become equally popular in South Africa, including brands selling food that varies from donuts to coffee, burgers and pizza.

Attracting new businesspeople

The most positive aspect of this international investment in South Africa will be the economic multiplier effects that will result.

New franchises featuring new products will attract a new breed of businesspeople to the franchising sector.

Instead of hesitating to acquire outlets in subsectors that already may have many traders; franchisees will be attracted to introducing new, novel concepts to buyers.

In the process, they will broaden offerings to consumers and also create new job opportunities.

Most significantly, in a market that is increasingly offering 24/7 service, effective operations will rely on creating more jobs than would be in the case of traditional ‘nine to five’ operations.

Market conditions

Sustained business interest in South Africa could be expected to continue despite present pressures on the local retail sector.

Leading brands would consider the opportunities for using operations in South Africa as a base for penetration of African markets.

Locally, they would rely on the fact that historically, retail growth over the last decade has averaged between three and five percent – attractive when international growth rates are considered.

Africa also offers access to a youthful market., translating into long-term opportunities, something that is to be considered when many major markets across the globe, and particularly in Europe, have aging populations.

Entering the market now also makes sense when the ruling rand/dollar rate is considered.

Challenges

The possible exception in growth prospects is in some rural areas that, prior to the economic downturn, were hubs for regional growth.

The decline in the overall prices of commodities has impacted negatively on the financial health of many rural communities where mining formed the backbone of local economies.

As retrenchments and closures have increased, so opportunities for franchise operations have decreased.

“Despite these factors the franchise sector will continue to play a positive role in the South African economy during 2016 and for some time to come,” Nyembe concludes.

By Vicky Sidler January 20, 2016

This article was published in partnership with Standard Bank.

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