How much it costs to open a top franchise in SA (and how much you can earn)
The Franchise Association of South Africa (FASA), in association with Sanlam, has released its annual franchisor/franchisee surveys for 2017.
South Africa has over 845 franchised systems with 40,528 stores. The survey interviewed over 300 franchise-owners around the country, covering a number of topics including start-up costs, growth areas, and challenges in their particular sector.
25% of the franchisees came from the fast foods and restaurants sector; 26% were in retailing; and 16% were in the health, body and beauty culture sector.
The total value of the franchise industry amounts to R587 billion, or 13.3% of the country’s GDP.
Speaking at the launch of the results in Sandton last week, FASA’s Margaret Constantaras said that, on average, the franchisees interviewed had spent 7.8 years in businesses – indicating a relatively stable sector.
Of the franchisees interviewed, almost a third (30%) found that they were in a successful stage of their business, while very few of the owners found themselves in an early or “take-off” stage.
Jut one in eight were international brands, indicating a strong local franchise market.
Below you can find a complete breakdown of South Africa’s franchise sector – including costs, challenges and turnover for the average South African franchise owner.
The following figures are not representative of the exact franchise make-up in South Africa but should provide a clear idea of popularity, size and pricing. Click on images to enlarge.
The highest proportion of turnover generated is by the fast food and restaurants sector (29%), which is not surprising given that it is the largest sector.
Three sectors share a further 43% of the estimated turnover in similar proportions – building, office and home services; retailing; and business-to-business services.
38% of franchisees have business units/stores in shopping centres/malls, and 35% are located in high streets, where most passing trade occurs.
The survey noted a significant increase in the number of businesses situated on high streets, with an accompanying decline in the number of businesses in shopping centres/malls.
Time in business
over 40% of franchisees have been in business for more than ten years, with an average of 10.3 years.
Initial working capital required
The number of franchisors who believe that it takes more than a year for a new franchisee to break even has increased markedly from 26% to 40%.
A year ago, 73% of franchisors estimated that it would take less than a year for a new business to break even.
Roughly 25% of franchisees claimed that they owned the property on which the business is situated. A similar number were unable, or refused to give the amount of the deposit paid.
Among the balance, the average deposit paid was R45,724 – or 1.8 months of rental.
Size and cost per square metre
The average rental paid per square metre is R167 and the average number of square metres occupied is 391 square metres.
The annual escalation percentage for rental averages out at 8.5%.
Payments made to franchise owner
For the upfront franchise fee, the average amount paid is R467,000, where the fast food and restaurants and personal services franchisees appear to have to pay the highest upfront fees.
The average management services fee was calculated at 6.3% of turnover. These fees are highest in the childcare, education and training sector and lowest in the retailing sector.
Marketing and advertising levies would cost a franchisee 2.6% of turnover, on average, with the figure rising to 7.0% in the health beauty and body culture sector and dropping to 1.7% in the automotive products and services category.
Roughly a third of franchise owners claimed to make more than 100 payments and/or collections on a monthly basis to the franchise head office and franchised outlets.
The main challenges facing franchisees are finding the right staff, being able to offer consistently good service, and the poor economy.
Secondary challenges are growing the business with new customers, running costs and keeping prices competitive.
The number of franchisees (79%) who are optimistic about the future of their businesses has remained stable; however, more uncertainty and negativity are shown this year than last year.
The median annual turnover claimed is R2,680,000, while the average net profit claimed is 9% in the last financial year.
Within the first year of operations, 46% of franchisees expect to break even; however, a downward trend is noted for breaking even in the first six months. This is in contrast to the three in four franchisors (60%) who make the same claim.
Time taken to break even
Approximately one in six franchisees make in excess of 100 payments and/or collections on a monthly basis to and from the franchise head office and to and from the franchise outlet.
Usage of banks among franchisees is fairly evenly spread among First National Bank, ABAS/Barclays and Standard Bank with Nedbank in fourth position.
Brand performance by sector