While brands in South Africa are not immune to the risks and challenges associated with a recession, their established reputations and relationships with customers means that customers will still favour big name brands – even when spending is curtailed in line with falling disposable income.
Henk Botha from Absa, shares his thoughts on Quick Service Restaurants and the food industry in general.
In the debate of local versus international brands, both come with their fair share of benefits and challenges. The trick for those deciding to make the move into franchising in South Africa, and the rest of the continent, is to thoroughly research both.
The international benchmark
International brands come with the major advantage of being established and therefore well-known and trusted. This presents considerable security in a time when many businesses are forced to close doors due to the effects of a strained economic climate.
While these brands are not immune to the risks and challenges associated with a recession, their established reputations and relationships with customers means that customers will still favour big name brands – even when spending is curtailed in line with falling disposable income.
The little guy can win too
Potential franchisees should not ignore local brands, though. A local brand is often considered more trustworthy and desirable; especially given that not everyone has travelled the world and is aware of a particular international brand. Another plus for local brands is the additional layer of security in knowing that the model has been perfected through years of experience in the market.
Perhaps this is the biggest advantage that local brands have: their ingrained knowledge of the market. This knowledge encapsulates factors from the regulatory environment to infrastructural challenges and right across to local culture and regional variations in taste – Gauteng, for instance, may differ vastly from the Western Cape.
Building this kind of knowledge takes years as well as extensive investment. For this reason, international brands often do not achieve the same margins as local brands until they are more deeply entrenched in the market. A case in point is McDonald’s, which has had a footprint in South Africa for 20 years; the brand is therefore well established with local market knowledge at their disposal.
For newer entrants, however, it takes dedication and capital to develop the kind of goodwill and brand strength that will make them strong competitors. Local brands place their reputations as their core priority. They face exceptional reputational risk if consumers turn against the brand, so franchisees entering the network have the franchisor’s reassurance that the brand and its name will be protected at all costs.
What’s more, a volatile and fluctuating exchange rate will likely result in higher set-up costs for international brands. Combined with the hidden costs that are part and parcel of starting and running a business (such as the need to source a certain percentage of products and services locally) growth may be more muted than expected, particularly in the early years as the brand fights to develop goodwill and gain market share.
Essentially, the choice of whether to take a dip in the franchising pool with a local or international brand is a complex one. The truth is that the franchisees already working in the sector are the most effective weapon there can be in the decision-making arsenal. They have inside knowledge of the risks and returns – and whether those returns justify the risk – as well as act as brand ambassadors. Franchisees have to believe in the brand they are selling. If they are passionate about their brand, be it local or international, that is generally a positive start.
No one will argue that there are hazards and rewards associated with any business. In the current economic climate where brands and businesses across the spectrum have to work for every win and success, it ultimately boils down to whether the individual is prepared to work hard to succeed.
Source: Preshan Segers – FleishmanHillard