Despite global and domestic markets putting pressure on consumer spending, the franchising industry is still making headway with continued investment from international brands into Africa as new players enter the emerging market.
According to Ethel Nyembe, Head of Small Enterprise at Standard Bank 2016 will show increased activity within the franchise sector.
“Particularly the fast food franchises, as international brands which announced their entry into the market this year look to establish operations around the country in the New Year,” said Nyembe.
He adds: “One only has to look at major shopping centres to see that competition in the quick service restaurant subsector is gearing up. There is a concerted effort by new entrants to establish outlets close to those of existing competitors.”
This only works in favour of the consumer as it allows for more choice as competition increases.
“There is no doubt that 2016 will be a year in which consumers will be spoilt for choice in a market where competitors will be doing all they can to offer quality products and services, whilst keeping prices in check as much as they can,” said Nyembe.
These already established American household names are penetrating the South African market at a fast pace with names such as Starbucks, Krispy Kreme, Burger King and other fast food products and according to Nyembe within the next 12 months these brands will be adopted just as well by locals.
“The fact that they may be new to South Africans will not deter franchisors moving aggressively to establish presence in local business centres,” he said.
The most positive aspect of this international investment in our country 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.
“Sustained business interest in South Africa could be expected to continue despite present pressures on the local retail sector.”
Rationale for entrance into Africa’s most advanced economy for these international brands will be to leverage onto the opportunity to find an entry point onto the rest of the continent to better expand their establishments.
“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,” said Nyembe.
Aside from the potential of a younger market compared to aging populations around the globe, Nyembe suggests that entering the market now makes sense considering the rand/dollar rate.
“Investing now means having a head start and being rewarded for being an ‘early initiator’ rather than a ‘late adopter’.”
These international brands also find reassurance from retailers that have recently entered the country and shown success, for example Woolworths introducing Australia’s David Jones and Spain’s Zara – as they look towards South Africa as a “brand conscious” market.
“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,” said Nyembe.
Mainly the challenge Nyembe states for franchisers entering the market this year will be pressures on disposable household income.
Stating however that, “These pressures will be compensated for to an extent by the need for franchises-particularly those in the food sector- to remain competitive.”
As well as offering more variety to the consumer, an added benefit would be the creation of more job opportunities in the country.