“Research and surveys are, on the face of it, all about the cold hard facts of statistics and the numbers – what’s the turnover, contribution to GDP and how many outlets make up this important business sector – but in reality the success that is being celebrated with the release of the franchise survey lies in the strength of the franchise system and the community behind the brands, the franchisees behind the businesses, offering their products and services.”

That insight, from Margaret Constantaras, researcher in chief at Research EQ, who oversaw the survey commissioned by the Franchise Association of South Africa, and sponsored by Absa, lies at the heart of the two surveys – one on the performance of the Franchisor Sector over the past four years, the other on the Franchisee Satisfaction Survey. The statistical outcomes are simply a reflection of the dedication and resilience of every single person that uses the ‘franchise formula’ to run their business and to show just how passionate and positive some of the franchisors interviewed were - here are some of their comments:

“Love your customer. Make their life easy. Have happy staff. Just keep people happy.”

Comment from a Franchisor in the Fast Food/QSR sector

“The key to getting through this is to do a lot of education with all franchisees- keeping them updated, compliant and delivering high standards.”

Comment from a Business-to-Business Franchisor

“The fact that we were able to recover quite a few key stores quickly is testament to the brand and the dedication of all the staff because everyone’s ‘all hands- on-deck’ working together.”

Comment from a Fast Food/QSR franchisor

“Load shedding has been financially devastating and brands are having to deal more and more with distressed units in their business mode and having to work harder to maintain viable businesses and keep them open across their network.”

Comments from a Retail franchisor

James Noble, Head: Wholesale, Retail & Franchise Business at Absa, the sponsors of the survey, agrees that the example that franchising has set on how to tackle the curveballs of the past four years is being reflected in the positive survey results. “As a bank with a dedicated franchise division, we have become part of the solution that franchisors and franchisees collectively identify – whether it’s in giving them stop-gap financing, advice on energy solutions or helping them cope with financial challenges.”

More ups than downs

With more upward than downward trends, the franchise survey results are a testament to the power of the ‘ubuntu’ collective that is the cornerstone of franchise success, as franchisors and franchisees work together to analyse challenges, find solutions that will not only benefit themselves but their staff, dependents and the consumers they serve.

• Optimism about the success of their businesses continues to strengthen among franchisors (81% in 2018; 89% in 2019 and 98% in 2023) despite the upheavals from 2020 to 2022 and the expectation that turnover will grow in the next financial year is almost unanimous.
  
  
• Time in business, namely the time that the franchise system has been operating since first signing their first agreement, showed that three in four franchises fell into the more experienced range of 10+ years, with the average age of the business being 21 years – proving the resilience and stability of the franchise sector in South Africa to provide long-term investment opportunities.
  
  
• The number of franchise systems dropped from 813 in 2019 to 727 in 2023 – clearly attributed to the disruptions of the past four years which put the break on new concepts coming on line and perhaps in the closing of smaller fledgling concepts that could not get off the ground during the pandemic.
  
  
• The number of franchise outlets was grossed up, due to the greater franchisor sample especially of large franchises with 200+ outlets, to represent 68 463 franchises, reflecting the increased number of large franchisors participating in the survey.
  
  
• As a result, the increase in the sector’s contribution to the country’s GDP rose from 13,9% to 15,0% of the total South African GDP of R6 660 billion in 2022 - indicating that those remaining systems were resilient and strengthened their market position.
  
  
• The estimated turnover generated for 2023 was R999 billion, a 36% increase over the 2019 figure of R734 billion, again reflecting the increased number of large franchisors participating in the survey. This amount does not include revenues from listed companies operating in the franchise market as these listed companies did not participate in the survey and are dealt with in a separate section of the report. An estimated turnover of R999 billion for the franchising industry as per the research is equivalent to 15,0% of the total South African GDP of R6 660 billion in 2022.
  
  
• Fluctuation in the number of business units showed the nett number of stores opened in 2023 is 2,9, which is the sum of 3,1 stores opened less 1,2 stores closed, with 1,4 stores relocated. The general feeling was that while turnover and revenue growth was sought across the board, store growth was not on the immediate radar for most franchisors during this turbulent time.
  
  
• Franchisor Ownership demographics showed an interesting trend, with the average percentage of system ownership by previously disadvantaged individuals improving significantly in the last four years from 20% in 2019 to 48% in 2023, with black ownership showing an increase of 10%, almost double what it was previously. Ownership by Indians and coloureds has tripled overall (7% to 18% and 2% to 9% respectively). A concomitant decrease though was noted among white franchisors – from 80% to 42% - perhaps a reflection of the reticence of in this entrepreneurial group to launch new systems amidst continued failed infrastructure.
  
  
• Franchisee Ownership has also changed significantly in the last four years in terms of the franchised outlets, with black ownership at 18%, Indian ownership at 17%, coloured ownership at 8% and white ownership at 57%.
  
  
• Female ownership remained steady at 30% in 2023, possibly due to the multiple roles women had to play over the past four years, especially during Covid which may have restricted their entrepreneurial ambitions.
  
  
• The franchise industry accounts for an estimated 4,7% of employment in the country, which translates into an estimated 471 233 employees. In 2023, based on figures provided by Stats SA regarding employment in the first quarter of 2023. Of those, 51% are black staff; 12% are coloured staff; 12% are Indian staff and 25% are white staff.
  
  
• In an average franchise system, 8,5% are franchise management, 38,3% are franchisor staff, 7,7% are franchisee management and 45,5% are franchisee staff.

Franchising, which contributes sizeably to the GDP of South Africa is made up of a range of around 12 business categories that make up the ‘franchising pie’. The retail and automotive products and services categories tend to be the larger franchises (at 17% & 10% of the pie respectively) whilst fast foods and QSR’s (at 19%) are more likely to fall into the medium category. Smaller franchises are more likely to be building, office and home services (12% of the pie), business-to-business (7%), childcare, education & training (at 7%)health & beauty (at 6% and dine-in restaurants (5%), real estate (5%), with personal services, construction & related and other at making up 2% of the franchise pie.

According to Fred Makgato, FASA’s CEO, franchising does not get enough credit for its contribution to the economic stability of the country by keeping the wheels of business turning. “This sector, whilst one of the most dynamic and visible due to its spread throughout the country through well-recognised brands in twelve different sectors, is not recognized enough by government for its entrepreneurial endeavours, offering viable business opportunities, training staff in a range of industries and creating both direct and indirect jobs. Measured for the first time this year 23% of franchises are now operating in townships which opens up a whole new untapped market but government needs to come to the party in terms of supporting and funding small businesses.”