Broad-based SA retail franchising operations will weather the 2015 economic storm

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South Africa’s retail franchising sector is currently enduring the country’s economic downturn and performing strongly, mainly due to the widespread franchising opportunities that penetrate virtually all sectors of the economy. This strong performance is expected to continue in 2015 and beyond, predicts Standard Bank.

Although many South Africans automatically associate franchising with accessible, quick-service restaurant brands, the vast retail sector has several sub-divisions in which franchising is active. They range from the delivery of personal services to convenience stores, grocery outlets, clothing and even the delivery of professional services such as optometry, says Simone Cooper, Head of Franchising and Enterprise Development at Standard Bank.

“The primary strength of the South African franchise industry lies in this diversification. It gives the sector the ability to rise above the increases in the cost of living and energy, rising interest rates and changing patterns of consumer spending. As one retail area dips because of economically related pressures, others that serve consumers in different segments continue to prosper.”

“In times of household budget stress, one of the most obvious changes is the uptick experienced by home improvement stores and outlets selling basic household necessities and food. The one exception to focused consumer spending at retail franchises is the traditional holiday seasons, when consumers tend to up spending on non-essential items, despite pressure on their income.”

The ability to adjust to market conditions, as well as the future retail potential in South Africa, can also be measured through the international vote of confidence in the country by leading brands.

“International retail franchise operations are increasingly entering the market,” says Ms Cooper. “Leading brands from Europe, the USA and even Australia are now available in major centres. Their interest has been spurred by the growth in retail spending in South Africa that has averaged between 3% and 5% per year over the last decade.

“This is phenomenal growth when compared against other international markets. Thus, there is no doubt that South Africa, as well as the emerging markets of Africa, will continue to attract attention into 2015 and beyond.”

Recently, decentralisation driven by the opening of major infrastructure projects in rural areas has seen retail franchises expanding into regions such as the Northern Cape. In these areas, says Ms Cooper, franchise operations are encouraged by local commercial growth and the increasing spending power of professionals. The franchise presence is being strengthened by the fact that major retail franchises are regarded as key anchor tenants for shopping centres and malls that are becoming a focus for local citizens.

For potential franchisees in metropolitan and rural areas, the appeal for franchising continues to be driven by high levels of training, replication of proven business models and support offered by major franchisors.

“Added to this is the wide range of opportunities available in the franchise industry, which enable franchisees to match their personal passions with an activity to which they can commit,” says Ms Cooper. “As an industry that is renowned for rapid responses to changing consumer patterns and identifying opportunities, the spectrum of prospects is constantly increasing, making franchising  attractive to those seeking to start their own businesses.

“As the franchise sector becomes more competitive and spreads with the current demographic shifts, traditional trading will rapidly expand into the area of e-trading. Major franchise brands in South Africa are already active in the e-commerce arena, using technology to extend trading hours, reduce operating and distribution costs and to keep prices competitive.”

As South Africa enters 2015, a year that is widely forecast to be characterised by pressure on consumer spending and rising interest rates, it is predicted that the upward trend in retail franchising will continue.

“This growth will be fuelled by several factors. These include the ongoing growth in the black middle class, technology which sees rapid changes in electronic consumer goods and spurs demand for them, and increasing acceptance of ‘green’ products,” concludes Ms Cooper.

Press release by Magna-Carta.

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