Fast Food franchising in South Africa
The fast food and restaurant sector has traditionally been the largest and most prominent franchise industry locally as well as internationally.
A survey by Ernest & Young’s retail and consumer products sector on what influences purchasing behaviour has revealed that in today’s market consumers are harder to define, understand and please than ever before. “Growth and development of this sector is largely driven by changes in consumer behaviour and there spending habits. In South Africa the sector has become more sophisticated and very much in line with international standards,” says Morne Cronje, Head of Franchising at FNB.
Consumers are now equipped with product, price and stock information and can simply bypass retailers that don’t compete. These new empowered customers are influenced by various purchasing decisions and want a greater say in how they experience service in various markets.
Brands have to constantly review, re-design and re engineer their concepts without sacrificing the look and feel of the brand “There are huge opportunities for organisations that can harness digital consumers through closer “community” vehicles, such as social media and other digital channels. Technology is vital to small and medium businesses and we find that more and more franchises are using new technology to enhance and promote their businesses, “explains Cronje.
While access to credit remains a challenge to many potential franchisees wanting to enter the franchise sector, franchising remains a solid investment. This can largely be attributed to the fact that franchising offers a strong foundation in training and support structures which, in adverse times, serves as a buffer and gives stability both in good and bad times.
One of the stumbling blocks to the advancement of franchising during the past five years had been access to funding, which was severely curtailed by the downturn in the economy. With rising rentals and other escalating costs, there is increasing focus on smaller, more cost-effective, low-entry franchises. For this reason the emergence of smaller restaurant franchise concepts with lower start-up costs is one of the strongest trends in the local market.
There are more affordable concepts that are opening up the market to potential franchisees. Cronje explains that “These concepts offer more simplistic business models, have limited product ranges and are focused on a specific niche market. In South Africa, smaller niche brands and concepts tend to be very localised and only have strong representation in a specific geographical area such as the Western Cape, for example. As a result, those concepts which do not have the necessary infrastructure and support systems in place and that does not make adequate investment in people, training facilities, etc., will fall by the wayside,” he explains.
It is not that easy to expand nationally as the franchise company has to make an investment upfront in terms of securing regional offices, property experts and support staff. Therefore the chance of success is greater for larger, established franchise companies that have the resources to smooth the way for regional expansion. “The local franchise restaurant industry is influenced by international trends. Globalisation and the use of technology is enhancing the effectiveness of communication between the franchisors and franchisees all over the world. This influence however requires local franchises to be more innovative and creative as well as have an understanding on the current market trends,” concludes Cronje.
