Small Franchises In South Africa A Less-Risky ‘Investment Opportunity’

Small Franchises In South Africa A Less-Risky ‘Investment Opportunity’

As financing sources dwindle, South Africa is seeing a growing number of small, more affordable restaurant and service industry franchises, according to a report in BusinessDayLive.

For example, fish and chips franchises have increased substantially in the past few years, says Gerrie van Biljon, executive director of South African risk finance company Business Partners Limited.

“Such franchises tend to be more affordable than the large multimillion-rand investments required by the big-name sit-down restaurants,” he said. “For both the franchisee and the franchisor, the risk is more evenly spread between a number of smaller outlets.”

Franchises are also increasing in the service industry, he said. “Franchise concepts in the childcare, education and training industry are growing, which is positive as there is an increasing need for these services.”

The move towards smaller franchises is probably driven by the fact that financing available for buying franchises has decreased as the economy struggled over the last few years, the report said.

Still considered immature in South Africa, the franchising industry has shown resilience during the economic downturn and contributed 11.8 percent to the economy from 2008-2010, BusinessDayLive reports.

Franchises outperformed some of the South Africa’s other dominant sectors and are estimated to provide jobs for close to a half million people.

“Only 17 franchise classification categories of the local economy have a significant presence of franchising,” van Biljon said. “This is in comparison to the almost 50 franchise classification categories in countries such as Canada.”

By 2020, he said he expects franchising to outpace the slower economic growth expected from the rest of the economy.

South Africa has more than 400 franchise systems and about 23,000 franchise outlets, according to Franchise South Africa. It’s an attractive investment opportunity for entrepreneurs, the report said.