Sharing the load

The franchising industry is poised to play an even bigger role in the SA economy

Sharing the load

$2.64 million – That’s how much, according to one estimate, a potential US franchisee would have to shell out as an investment to set up a McDonald’s franchise, and that excludes the royalties of up to 5% of gross takings.

Obviously, owning one of the world’s most successful franchises has its rewards – an average of $3.83 million in annual sales being chief among them.

But entrepreneurs starting out – anywhere in the world, not just in the US – are extremely unlikely to have that sort of money tucked away or the collateral needed to secure a business loan.

Back down to earth, in August, SME South Africa published a list of the least expensive franchises available in SA. They included a funeral service, with franchises starting at R1 million – plus an upfront fee of R200 350 and 7% in royalties; a small-scale shipping services franchise with a total investment of R500 000 and recommended working capital of R212 500; and a newly launched fast-food franchise with upfront fees from R50 000 to R75 000, depending on franchise size.

Franchise Association of South Africa (Fasa) CEO Fred Makgato says the costs involved depend ‘on the type of franchise, the sector it is in and how established the brand is’.

‘Franchisors offer a turn-key investment that includes the upfront fee, establishment cost and working capital to ensure the franchisee has covered all the bases. The franchisor oversees all aspects of the set-up, training, opening and ongoing support of that franchisee,’ he says.

Eric Parker, a founding member of Fasa, explains that franchising offers a lower-risk route to entrepreneurship, compared to starting an independent business. ‘Franchisees benefit from the established brand, proven business models, training and support from the franchisor,’ he says.

Parker says the franchising business model aligns well with SA’s national priorities of economic development and job creation.

‘Franchising has a significant multiplier effect on job creation. Each new franchise outlet not only creates direct employment opportunities but also stimulates indirect jobs in supply chains and related services. In a country where youth unemployment is a critical issue, franchising can provide young entrepreneurs with a structured pathway into business ownership and management,’ he says.

Fasa’s latest franchisor survey in 2023 indicates that while fewer franchisor systems are operating in SA compared to 2019 when the last survey was undertaken – 727 versus  813 – the total number of franchisees has risen to more than 68 000.

The industry accounts for about 4.7% of employment in SA, providing more than 470 000 jobs. The survey, which deals separately with listed companies that are active in the franchising industry, indicates estimated turnover reached R999 billion in 2023, a 36% increase since 2019. It represents a not insignificant 15% of SA’s GDP that year. By comparison, tourism contributes just less than 9%, according to Stats SA, and mining about 7.5%. And in the US, the franchising industry accounted for 3% of the GDP in 2024, according to the International Franchise Association.

The Fasa survey findings make a compelling case for franchising as an employment generator – each outlet employs on average 17 staff members and it is estimated that for every 14 direct jobs, another seven indirect jobs are created through the network of suppliers to the franchise sector. In addition, the survey showed that 23% of SA’s franchises operate in townships, opening up an untapped market.

Fasa, meanwhile, is also working to professionalise the franchising industry, with Makgato reporting that the Department of Trade, Industry and Competition has instructed the National Consumer Commission to start consultations with Fasa on drawing up a draft franchise industry code and securing accreditation for a franchise ombud. ‘The initial meeting is scheduled with Fasa representatives to prepare a project plan for the duration of 2025,’ he says, adding that the participation of Fasa members is necessary ‘for the successful implementation of the project’.

He adds that a professional franchise industry qualification is now accredited by the South African Qualifications Authority and administered by the Quality Council for Traders and Occupations.

Fasa is also finalising a memorandum of understanding (MoU) with the Department of Small Business Development following President Cyril Ramaphosa’s announcement, during his 2025 State of the Nation Address in February, of a R100 billion transformation fund to develop and uplift small, medium and micro businesses.

‘This MoU stands to benefit the industry by ensuring that potential and deserving franchisees are funded through the funding mechanism and structures developed by government for entrepreneurship development. Full co-operation from members is therefore crucial for the successful implementation of the terms of the said MoU.’

Makgato believes the significance of the franchising model is reflected in the fact that most major commercial banks have a franchising desk – Standard Bank, Absa, Nedbank and FNB, among others.

Karen Keylock, national retail services manager at Nedbank Commercial Banking, highlights the robustness of the franchising segment, quoting Fasa research that shows 89% of franchisees break even within the first year of operation.

‘This is remarkable, considering non-franchise businesses typically take two to three years to break even. This number also increased from 69% in 2019 – an extraordinary achievement given the extreme turbulence businesses have had to endure over the period.’

Makgato believes franchising has an even greater role to play in growing SA’s economy but needs government buy-in.

‘Fasa has, for the past 20 years of its 46-year existence, lobbied government to partner with the franchise sector to initiate and fund not only microenterprises but to also look at tandem and social franchising as a way of expanding business opportunities to the broader market.

‘Whether it is the man-in-a-van tradesman or government introducing the social franchising model to expand their service delivery programmes, franchising can play an important role in growing the economy through these innovative franchise models,’ he says. ‘While a few once-off initiatives have taken place since 2004, what is needed is a long-term and serious commitment from government to partner with Fasa to roll out meaningful initiatives.’

Microfranchising and social franchising are well-established global business models. A recent Forbes article describes micro-franchising as ‘smaller-scale, and even single-person franchises that distribute standardised branded products and services’. The barrier to entry is relaxed as start-up costs are lower. Social franchising, on the other hand, ‘uses the structure or distribution mechanism of commercial franchising to achieve social goals’.

The term ‘tandem franchising’ is relatively unique to South Africa, with the franchisor playing a much bigger role in supporting the growth of franchisees and, most importantly, funding them. It, therefore, addresses one of the biggest obstacles to starting a franchise – cost.

‘It offers franchisors the opportunity to grow their brand, retain initial majority control of the new franchise and share in its profits, all while working to empower communities in need of economic development,’ says Makgato.

‘The basic structure involves a joint venture arrangement between a franchisor, which acts as an appointed mentor, and a new franchisee, who may lack the business management experience to operate the business alone, operating the business in “tandem” with the experienced franchisor and mentor,’ he says.

And it is just like riding a (tandem) bike – the more experienced ‘steersman’ (franchisor) in the front steers the business, while the ‘stoker’ (franchisee) at the rear provides the pedal power. Eventually, the stoker will be promoted to steersman, and the cycle repeats itself.

In Johannesburg, one tandem franchise is intent on cleaning up the market. Established by Charlotte Khoza and Annemarie Mostert in 2012, Mila Cleaning Services set out to disrupt the structure of SA’s cleaning industry, which employs almost 100 000 people. Its goal was to develop the role of the cleaner into a career path opportunity with the end goal of their owning a sustainable and profitable business.

‘Mila provides back-room support for the tandem franchisees, ensuring they are always compliant with all laws and regulations of the land. We take people already in the industry and offer them the capital to start and the background support so they do not fail. We have been in this business for 13 years and have learnt the lessons we pass on to our franchisees,’ Khoza told IOL in 2024.

‘The impact of this model goes beyond business success; it changes lives. Many workers in this industry spend their entire lives in labour-intensive roles, only to retire with little to show for their years of hard work.’

Khoza gives the example of Veronica Shirinda, who worked as a cleaner for years before becoming one of the first tandem franchisees at Mila. As the owner of a successful cleaning franchise, she has secured her own future and is putting her employees on their path to financial freedom.

Khoza hopes the tandem franchise model can be rolled out to other industries. ‘For me, it does something for a person from a dignity point of view […] they become contributors to the society, to the economy […] That’s a win-win all round.’

By Robyn Leary
Image: Gallo/Getty Images

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