In late 2013 South Africa had in excess of 700 franchised concepts across 17 sectors, which could make it more challenging for prospective franchisees to find the right fit.
We’ve rounded up the best stories of 2014 from established and successful franchises to give you insight into what makes a profitable and enduring brand. If the one you’re investigating has these qualities, you’re likely to be on to a good investment.
Walking the talk
Franchisors will tell you a lot of the useful information you need to know before investing, but one of the best places to find ‘real deal’ information is by speaking to existing franchisees. Over the course of 2014 Franchise Zone interviewed a number of local franchisees about their experiences. Here’s a round-up of their top advice.
An ‘everyone wins’ model
There’s a mental block many have, that a charity can’t be run like a business and a business run like a charity isn’t a place for wealth creation. But Sport For All is breaking barriers by proving a social franchise is the perfect blend of a commercial business with positive social impact as its primary focus. And it’s paving the way for social franchises to follow.
American born Kelli Givens, Sport For All CEO, explains: “When I opened my first McDonald’s franchise in Harlem, I proved that social impact and a commercial model could hang together. I’d put a spin on the upsell ‘Would you like fries with that?’ to include empowering things like, ‘Have you registered to vote?’ and give free fries if they had. It improved sales and empowered the community.”
Fast forward to 2004, Givens took the reins of Sport For All that had recently been converted to a social franchise model by its founders and True North Franchising.
How it works
“Sport For All uses the methods of commercial franchising to achieve social goals while also creating profit,” explains Givens. This is how it works:
Area of impact #1: Sport For All members
Sport For All franchisees offer communities sports like soccer, netball, handball, cricket, indigenous games, agility, bootcamps, and running or walking through partnership with Run/Walk for Life. Participants who can afford it pay a monthly subscription, while those who can’t are sponsored by local companies.
Area of impact #2: Local companies
Sport For All is a Level 3 BEE contributor, meaning local companies are incentivised to sponsor the company, its franchisees and members. The model and correct registration encourages corporate social responsibility, with large and small businesses earning up to 20 BEE scorecard points.
Area of impact #3: The franchisees
Because Sport For All mostly targets disadvantaged communities, prospective franchisees often lack capital to buy a business.
Through Enterprise Development funding, Sport For All is able to identify ideal candidates and provide a funding structure that spans three years and culminates in 100% franchisee ownership. What’s more, all training is SAQA accredited so they are recognised further down the line, creating greater business empowerment.
Area of impact #4: The community
Job creation and skills development is critical in South Africa. Members of the community are recruited and trained through Sport For All to be coaches, and for many it’s their first job and work reference – a valuable stepping stone.
Each franchisee employs between three and six coaches with flexible timetables to accommodate their needs and positively impact the community.
What to look for in a brand
If your aim is to create lasting social change while running a commercially viable business, investigate how the model is able to generate profit while doing good.
- Is it BEE accredited?
- Are there tangible results?
- Is there sufficient brand awareness to gain traction and buy-in from local companies and community members?
Carefully research all aspects of your intended brand to see exactly where benefits emerge and that it’s not all talk.
- Brand: Harley Davidson,
- Player: Fanie Haarhoff, Licencee
- Former life: Midas MD
- Opened: 2009
Advice: “Becoming a Harley Davidson licencee spoke directly to my background and skills, but incorporated my passion for Harley Davidson. To apply for my licence I needed to prove I had the business background and financial understanding of the industry, because once the licence is approved there’s no support from the franchise. There’s no royalty fee and it’s up to you to make the most of the arrangement. Cape Town head office ensures standards are met and my marketing strategy aligns with the brand’s global marketing campaign so that I can leverage off what they’re doing.”
When you think of Cash Converters, you think of a second-hand goods retailer that’s been in operation in South Africa for 20 years. It’s a place you feel comfortable taking the family shopping, and if you’re in need of a loan, they can offer you that too. It’s not by chance that this is the perception you have of the brand, and that’s because of an important lesson the master franchisors for South Africa learnt early on: Laser focus.
Back in 1994 when Cash Converters was launched in South Africa, master franchisors Richard Mukheibir and Peter Forshaw had ambitions of building a multi-brand holding company in the non-food industry.
“Our holding company, True North Holdings, loosely existed and we’d bought the rights for US PostNet in South Africa, and purchased Multiserv when it liquidated.
We’d never been franchisees before, and being the owners of a Cash Converters was a steep learning curve that took a lot of our time and attention.
We soon realised that we were diffusing our senior management team too much and wanted to focus our attention on building the Cash Converters brand for the next five years.”
The result was a sell-off of Multiserv and PostNet. Come 2001, with Cash Converters steadily growing in both footprint and reputation, attention returned to the loosely formed True North Holdings.
“In the years after the sell-out, we were the first to introduce a multiple application device (MAD), which is a point of sale device like a bank terminal that sells everything from pre-paid airtime to electricity.”
Trouble was, developing the tech took up enormous time and resources, and being the early 2000s it was a little ahead of its time for South Africa.
“We’d also taken on an NGO called Sport For All and were converting it to a franchise model. It was the perfect organisation for MADs to be implemented, but again we found ourselves too stretched in terms of time and resources.”
So in 2010, Sport For All was given the opportunity to buy back their 33% shares and focus fell squarely back on Cash Converters, where it’s remained ever since. Today the brand has a 65 pan-Southern Africa footprint and is continually growing.
What to look for in a brand
When researching a franchise to invest in, thoroughly investigate the operations team for experience and ask the franchisor what other brands they have, or intend to have in their stable. A multi-brand franchisor needs to have the necessary staff contingent, infrastructure and resources to properly support franchisees and a number of brands.
- Brand: Placecol
- Player: Giggitte Phiri
- Former life: Retail human resources
- Opened: May 2014
Advice: “Be prepared for things to take longer than you anticipate. I had saved up about 90% of the required capital to open my store which really helped because the wheels at the bank can take a long time. In my case, I was opening in a mall that was under construction and it took the developers a long time to provide the bank with the necessary paperwork to process my loan application. The mall construction itself also took longer than expected. Completion was meant to be by April 2014;it was only 50% complete by the time I took occupation the following month. It severely affected foot traffic and consequently my turnover, so with the backing of my franchisor we negotiated a lower rental, mall marketing fee and annual escalation. In all things, be prepared to negotiate.”
A pervasive challenge for many would-be entrepreneurs and franchisees is the seeming lack of funding available.
With a start-up you can often begin with a few thousand rand and bootstrap your way to success, but with franchising, because you’re buying the rights to use a successful brand and a proven model, the initial capital required is substantially higher, not to mention the unencumbered capital requirement of between 50% and 60%.
With this in mind, socially minded Hot Dog Caféhas created models and financial partnerships to facilitate job creation and nurturing of South African entrepreneurs. Here’s what makes them a stand-out brand raising the bar for meaningful change through business.
A change ahead
Hot Dog Café franchisor, Derek Smith, identified an inherent problem with the 1998 brand’s model. While its existing cart model – which was company-owned – had the potential for almost unlimited growth if properly operated, the diner – that was franchisee owned – would have limited growth.
“There’s no question that the inherent strengths of the franchise format, with its built-in skills and transfer mechanisms, support structures and benchmarking, can contribute to creating entrepreneurs and sustainable jobs, but the model would need to be tweaked to maximise all-round gain.”
To make this happen, Hot Dog Café has teamed up with a number of funding and mentor partners to get entrepreneurs started with food carts. These include the IDC, Seda, National Empowerment Fund, The Masisizane Fund, Massmart Umsobomvu Youth Fund, NYDA, Public Investment Corporation, and the Black Business Supplier Development Programme.
Having been awarded the Jobs Fund allocation of R17 million in August 2013, and matched by R18 million by the Masisizane Fund and Public Investment Corporation, Hot Dog Café has been able to train and mentor qualifying candidates around the country as well as purchase the London Pie brand.
“Merging the two brands brings the group’s total footprint to 200 outlets and a dual offering is great for customers and franchisees who benefit from more varied training.”
The programme and funding will also offer 300 individuals the opportunity to become franchisees over the course of three years.
“At the end of the programme of mentoring and training, cadets will either enter gainful employment or, for around 60 of the top graduates, become owners of their own Hot Dog Café franchises that will be gradually handed over.”
What to look for in a brand
Franchisee support is of the utmost importance for business success. Look at your prospective franchisor to see what initial and ongoing training programmes they’re able to offer franchisees and their staff.
Investigate what funding options are also available to assist qualifying franchisees who lack funds for initial payments. If your franchisor does not require previous industry experience, ensure they can properly support you.
- Brand: Cubaña Latino Caffé
- Player: Cobus van Zyl
- Former life: Various roles in the hospitality industry
- Opened: January 2013
Advice: “Although a franchise has its own systems, processes and marketing, you have to do your own local area marketing to make the business a success. My franchisor understands that each unit should cater to its customers, so once I was open for business and the initial novelty of a new café wore off, I ensured that each night had a different theme to attract different customers. We support local musicians and DJs, host foreign dignitaries as parliament is nearby, sports stars and celebs. This is important to build the café’s reputation and attract customers. I also do a lot of social media marketing as my target market tends to be on social media.”
In most industries, particularly the food and beverage industry, trends rise and fall, and tastes and consumer spending change. Back in 1991 Jimmy Christelis fell in love with the relaxed, social atmosphere of eating peri-peri prawn platters in Mozambique that sharply contrasted their luxury, fine-dining status in South Africa at the time. So he opened the first of the hit restaurant Jimmy’s Killer Prawns.
“In 2008 though, it became clear the business model would need to change. Along with the effects of the global economic downturn, we also had to contend with spiralling costs. It was becoming too expensive to set up new stores, electricity costs were soaring, and the rental fees were increasing rapidly. Operating a profitable new restaurant had simply become too expensive to be worthwhile for many prospective franchisees. We needed a new concept to exist alongside our existing brand that would enable us to grow the business,” says Christelis.
His answer was the launch of three other offerings in the Jimmy’s Killer stable, namely: Jimmy’s Killer Fish &Chips, Killer Grill and Killer Pizza.
Compared to the expense of a Killer Prawn restaurant which would result in slower business growth, the Killer Grill concept starts from R625 000 excl. Vat, a Killer Fish &Chip store from R510 000 excl. Vat, and Killer Pizza from R350 000 excl. Vat.
The greater affordability of these models, their follow through of the Jimmy’s Killer brand values, and leveraging of changing consumer tastes and spend, have ensured the business as a whole remains sufficiently profitable and successful to support all its franchisees.
What to look for in a brand
Speak to existing franchisees of the brand you’re researching to hear their praises and complaints about the franchisor. Is head office listening to the challenges experienced by its franchisees? How is the brand
adapting to the ever-changing market, competition and consumer spend to the benefit of franchisees? Is the holding company growing sufficiently to ensure cash flow and budget to grow and market the brand?
Kauai’s philosophy of ‘eat better, live better’, has resulted in vigorous growth for the brand, thanks to healthy eating and living gaining traction in South Africa. But it hasn’t achieved its nationwide footprint of 140 and counting by rigidly sticking to what works;rather it’s branched out to three different models that target different people with wholesome food in common.
Kauai has 56 retail stores across the country and 82 Kauai In Motion outlets as part of its partnership with Virgin Active gyms. The latest head-turning model is its Kauai@School stores, with five in operation so far. Here’s how the different models have benefitted the brand and consumers.
Different strokes for different folks
Kauai first opened its doors in Cape Town in 1996 as a fast-casual restaurant providing the nutritious fare that’s grown a large customer following. But as times have changed, so has the brand.
“We created a symbiotic alliance with Virgin Active South Africa as they needed a food and beverage provider that could offer a reliable and quality product, and we gained access to health conscious consumers looking for healthy food choices at gym,” says Hendrik Coetsee, CEO of Kauai.
But this wasn’t just a copy and paste of their successful fast-casual concept. “We adapted the menu for In Motion outlets to fit in with the health club environment and complement health conscious individuals’ workouts.
“The outlets also had to tie in with the size and location of the gym so, for example, a small gym in a small city would have a limited food offering that is pre-made and shipped to the outlet, with coffees and smoothies made fresh onsite;versus an exclusive Virgin Active in Melrose Arch that has our gourmet café, Kohu, serving premium health foods for the high end of the market.”
Another market opportunity opened itself up in 2007 with the launch of the Kauai@School concept.
“One of the biggest unaddressed needs in schools is healthy meal options and Kauai@School is in line with our vision to be the leading healthy, convenience and fast food brand in the country,” says Coetsee.
Again, this was a carefully tweaked adaptation to help educate children about the benefits of healthy eating, create the right sized portions, and make it more appealing and affordable for learners.
What makes Kauai@School a home-run success is its appeal to franchisees as much as to consumers:
“The concept works really well because a franchisee is able to leverage the brand which helps create repeat customers quickly, and most schools have a tuck shop on the premises. Converting it to a shop is cost-effective as infrastructure costs are lower than in a mall, for example. Furthermore, we want franchisees who are engaged with their school community, which means it’s a good business opportunity for lifestyle entrepreneurs who want to earn a good living that’s financially rewarding, and that ties in with school hours and terms.”
What to look for in a brand
Carefully research your intended brand to see what models they’re able to offer prospective franchisees. Buying a full restaurant is likely to cost millions, incur high rental and overheads, and require long work hours and weeks. Industry experience is also often required to run front and back of house. A mobile food cart on the other hand can be a much cheaper alternative, is not as site dependent as a fixed store, can be moved to follow customers, and is better suited to lifestyle entrepreneurs who will need little to no industry experience.
- Brand: Kumon
- Player: Diane Skinner
- Former life: IT manager in banking
- Opened: August 2013
Advice: “The key to a successful franchise is preparation and balance. I prepared financially for the new business by saving and downsizing from a Mercedes C190 to a Ford Figo with Kumon branding on it, for example. Once running, proper preparation includes balancing efficient administration while allowing for the unexpected — like parents wanting meetings — and preparing each student’s folders for the day and month ahead, and ensuring that the classes are well balanced according to student needs. For example, early learners require more resources and attention, while independent learners don’t. A well balanced class can keep staff numbers low and increase centre capacity.”
When you’ve been in business for 52 years, grown during a property market slump and global recession, and have a collection of happy and profitable franchisees in a highly competitive market, you must be doing something right. For the franchisors of Huizemark it comes down to systems, support and innovation.
Franchisors André Hamman and Bryan Biehler both worked their way up the property industry ladder, starting as assistants to experienced agents in the 80s. They then became agents and finally managers of their own Huizemark branches in Randburg and Sandton before purchasing the Huizemark company from Hamman’s father in 1994.
“We bring very different things to the table, which we believe has really helped to grow the brand,” says Biehler. Hamman’s focus is on creating systems and tools that take away the admin and paperwork and free up agents’ time to focus on sales. My strengths and focus lie in marketing,” says Biehler.
Over and above running his own office, he assists his agents in all their listings, negotiations and even sitting show-houses if need be.
“We’ve never wanted head office to sit in an ivory tower and dictate policies and procedures without fully understanding the market and its needs. It’s precisely why André and I maintained our own offices (which were later merged under the leadership of Hamman), so we wouldn’t be divorced from the coalface.”
Because of their systems focus, Huizemark embraces entrepreneurially-minded individuals with three different models.
“These models cater for different degrees of entrepreneurial freedom and one example of it at work is our franchisee Kobus du Plessis, who has grown into a multi-unit franchisee with monthly turnover in excess of R50 million because of his entrepreneurial initiative of developing a virtual office, and our willingness to support him.”
What to look for in a brand
What exactly are your needs as a prospective franchisee? Do you need a lot of head office support, do you want to be left to your own devices, do you want the freedom to develop your own systems and products, or strict guidelines to follow? Take a close look at the brand you’re investigating to determine how hands on they are with their franchisees, what support they can offer, whether they’ve got their fingers on the brand and industry’s pulse, and how accommodating they are to franchisee innovation.
- Brand: Wimpy
- Player: Charles Ngobeni
- Former life: High school teacher and taxi business owner
- Opened: 1996
Advice: “If you have ambitions to grow multiple units, choose a brand that has solid systems and can ‘operate itself.’ When you have more than one store you can’t be in all places at the same time, so the system has to be able to run itself with a good manager in place while you visit your other stores. Then consider the cost differences of building a new store versus an existing unit. An existing unit will be more expensive because it has a proven history you can work with. To identify a good location for a new store is a risk because there’s no track record, so it takes time and experience to get right.”