Thursday, May 13, 2010

Africa the Final Frontier for Franchisors

Many South African franchisors see opportunities in other African countries as they seek alternative growth markets.

JSE-listed fast food giant Famous Brands, which owns the likes of Steers and Wimpy, is now represented in 17 other African countries, while Yum! Foods (brands like KFC and Pizza Hut) is growing by more than 1 000 restaurants a year, many in emerging markets including China, India and Africa.

"Five years ago, South Africa was our only prospect in Africa. Today we are building on our rapidly growing South African 600-unit infrastructure and have just opened up in Nigeria, with more countries in the wings," said Yum! Foods CEO David Novak in the company's most recent annual report.

"With Debonairs, Nandos and Subway really pushing into the market, franchises are far more prevalent in the African market than two years ago and set to pick up,” says Chris Delport, chief risk officer at financing firm GroFin.

Riaan Fouche, who heads up the franchise solutions division of First National Bank (FNB), says more South African companies are looking to expand into Africa.

"In some instances you will see [established] South African franchisees approaching the franchisors in South Africa for the master licences in other African geographies."

GroFin investment analyst Dave Davies agrees that franchising in African markets is picking up.

He told "This is largely owing to the increase of shopping malls modelled on South African centres, and pioneered by South African developers. These centres, which were not common in African cities a few years ago, are modelled on the South African concept of 'anchor tenants', and host a number of well-known South African clothing stores such as Mr Price and Truworths."

He also pointed to the rapid growth in quick service restaurants in new shopping developments. In Nigeria, for example, this industry recorded an average real growth rate of 23% from 2003 to 2008.

"This rapid growth can be attributed to changes in lifestyle brought about by increasing urbanisation, fast-paced city life and a gradual increase in disposable income," said Davies.

GroFin has seen first-hand some of the successes in the sector. It was involved in financing the opening of two Chicken Republics (formerly Chicken Licken) and one Debonairs outlet in other African countries.

"This model offers the same advantages enjoyed by South African franchises in terms of franchising support, training, a proven business model and marketing support,” said Davies.

FNB did not consider perceived regulatory risks in Africa as a reason not to support franchise expansion onto the continent, said Fouche.

However, he said that would-be franchisees should ensure that they adopt a hands-on approach to managing the business.

"Owner-operated franchising is key and another important aspect to identify is what support the franchisor has to offer the franchisee [in a new country].”