The franchise sector, while being able to stay financially afloat during 2019, but which has increasingly and rapidly come under a lot of strain as a result of the 21-day national lockdown in South Africa, requires government intervention as all small business and franchise owners do.
Their workforces are now also experiencing the “devastating economic impact” of the crisis, reports trade association, the Franchise Association of South Africa (Fasa).
According to Fasa’s 2019 Franchise Survey, the franchise sector contributed an estimated turnover of R734-billion, equivalent to 13.9% of the country’s gross domestic product through over 800 franchise systems, close to 48 000 franchised outlets and a workforce of close to 500 000.
Fasa predicts that the franchise sector will be hard hit during the 21-day lockdown with most sectors falling outside the designated essential services.
However, the organisation notes there are government interventions at hand to address this crisis immediately as major actions are needed to ensure businesses can keep employees and that they themselves can ride out the pandemic.
Nevertheless, Fasa says that while 2020 will be “vastly different” as a result of the impact of Covid-19, one of franchising sector’s biggest attributes is its ability to adapt and innovate.
At the start of the coronavirus threat, franchises from all sectors stepped up their efforts to adapt their businesses to comply with stricter hygiene and safety measures. Those in the restaurant and quick service sector in particular, began expanding and innovating to focus on takeaways and deliveries, states Fasa.
Fasa executive director Vera Valasis says it is important that assistance is given to franchisees so that they, in turn, can keep employees on the payroll and “ride the storm” to ensure they can expand when the pandemic passes.
“Having a franchisor who franchisees can rely on becomes even more critical during these times of unprecedented urgency and crisis, as has been noticed during the last few days.”
However, she also points out that most franchisors are resilient by nature and have taken strong leadership steps, kept their franchised system informed as and when developments and information are published by the government about the lockdown regulations, financial aid, and other funds that can be accessed for financial assistance.
Valasis adds that, more importantly, many franchisors have suspended royalty payments until the situation improves, including those in the fast food sector, automotive, do-it-yourself and business-to-business sectors.
“The list grows daily and we are delighted that so many franchisors are so responsive and stepping up so quickly to help their franchisees.”
With the lockdown now enforced, “things may become less frenetic” for businesses outside of the designated essential services, she says, adding that now may be the best time for franchisors and franchisees to take stock of their businesses.
Valasis highlights that many franchisors should use this downtime to refocus their businesses.
“Many business owners instinctively know which areas of their business they need to focus on, or look for solutions to problems, but probably have just not had the time to sit down and formulate a new strategy or look for expert input and advice. This is the time to [hit the] reset the button, address these concerns and look at the opportunities for the future.”
According to Fasa chairperson Akhona Qengqe, it is unfortunate that most of the franchise businesses in South Africa fall within the small, medium-sized and microenterprises (SMME) category. This results in them most likely bearing the most impact from the standstill in economic activity.
“This category is also responsible for job creation in a country that grapples with high unemployment.”
She says some of the “bold and positive” moves by the government through its various departments and agencies include the Department of Small Business Development and Small Enterprise Finance Agency's establishment of the SMME Fund.
“While we understand that this fund and others similar to it have to have certain criteria for businesses to be able to access them, it is our hope that the criteria are not as stringent as to exclude the very businesses that should benefit.”