Bank sees wealth in fastfood franchising

The fastfood and restaurant sectors of South Africa’s franchising industry are among those which offer the best wealth and job creation potential.
This is the view of Standard Bank which is developing an enterprise development and mentorship programme to support less experienced first-time players. However, it has also warned of potential problems investors may face – particularly in the food retailing franchise sector.
Previous experience in retail or in managing related ventures is a critical success factor for prospective entrepreneurs who want to crack it in the R100-billion-plus food retail franchising business, says Standard Bank’s head of franchising, Thabiso Ramasike.
Ramasike says although this business is lucrative and has a minimal failure rate, it is however a difficult environment that requires newcomers to have huge amounts of business management experience, patience, capital and a willingness to learn.
The food retail, fastfood and restaurant sectors are three of the five sectors that Standard Bank believes need financial, entrepreneurial and mentorship support in order to improve the success rate of franchisees and growth in employment opportunities.
Telecommunications and fuel are the other two sectors with strong franchising and job creation potential, and in which Standard Bank is closely involved.
Ramasike says entering the food retail sector is made more difficult by the fact that it is among the most expensive franchise sectors. He says a small retailer franchise sells for nothing less than R5-million, while category “A” super brands go for anything up to R45-million.
As a result, franchisors and banks usually insist on newcomers having prior experience or expect them to be prepared to go through “a very steep learning curve”. He says prospective players should always consider starting small, and then graduating into the big league over a period of time.
“Food retail is a very tough sector; margins are very low, ranging between 5% and 7%. It is a complex environment and it would be very helpful and a huge advantage if franchise owners have experience in the broader FMCG (fast moving consumer goods) sector. This is because food retailing has many moving parts, such as perishables and inventories. The typical retail outlet has easily more than 500 different products, and owners need to have some knowledge about sourcing, logistics, supply chain management and inventory management,” he says.
In addition to these factors, prospective entrepreneurs need to understand that there is intense competition in the industry. Ramasike says this competition is not just among the food retailers, but it also comes from retailers in other sectors like fastfoods.
He says Standard Bank has been developing an enterprise development and mentorship programme to support less experienced first-time players.
“Standard Bank’s view is that expansion will continue, especially in rural areas and many other townships. Another area that provides scope for further expansion for franchisors is the liquor business. According to reports, the highest number of new applicants for liquor licences comes from food retailers,” he says.

Simply Asia is one of South Afric’as fast-growing restaurant franchise brands. Pictured above is the store in the Verdi shopping centre which was featured in Hotel & Restaruant earlier this year and was the 21st in the chain to open.