Bruce Whitfield:
Some interesting numbers coming out today on the scale of the franchising sector in South Africa and you can’t go anywhere without tripping over a franchise of some kind it would seem.

The MD of Franchize Directions, Bendeta Gordon, you have been doing some research into the whole of the franchise sector and what seems to be happening is enormous, enormous growth.

Bendeta Gordon:
Yes, it is the sixth time we have done a census like the Standard Bank franchise sector and I am actually amazed at the growth in the last two years.

Bruce Whitfield:
How much is that growth? I see 49 percent growth in operating franchise systems, but I don’t speak franchise, can you translate that into English.

Bendeta Gordon:
Well, a franchise system would be a brand that then operates a number of franchise stores underneath it, for example, Nandos Chickenland would be one, and KFC would be one. So there are roughly 470 that we have identified.

Bruce Whitfield:
So there has been a 49 percent growth in brand new franchise systems coming into the country then, or is this an extension of what existed already?

Bendeta Gordon:
Except 2004, we reported that there were 381 systems, but between then and now, 65 of those systems are no longer franchising. So there are 154 new systems that have come into the market and that is the 49 percent increase, which is a big increase and it is just showing that more and more companies are using the franchise mechanism as a method of expansion.

Bruce Whitfield:
Because so many of us, and myself included, see franchises as fastfood, perhaps some restaurants as well, but there are just so many franchise opportunities in the market, although food is the biggest segment of it probably. There are other opportunities as well.

Bendeta Gordon:
Absolutely. Look, fastfood and restaurants are still a very big player, but one cannot negate the contribution and the size of the other business categories and we are seeing it from automotive products and services, building office and home services right through to the telecommunications industry and the financial services sector.

And in fact, the mind boggles you and one has this preconceived idea, really that it is only the fastfood and some retail. But it stands a number of business categories and in fact, there are notable gaps, when we compare it to the industries and business categories in more developed countries.

Bruce Whitfield:
How important is the franchise sector to the South African economy? More and more people seem to be getting involved, it is a growth area in terms of jobs as well. How important is it?

Bendeta Gordon:
I think it is exceptionally important in terms of just the basic contributors to the economy in terms of employment, in terms of contribution to GDP and we are seeing sustainability of those individual franchises and still, it is bringing wealth creation right down to a base level.

An owner invests money, he employs people, he creates wealth and he can make a capital gain. One only has to look other small businesses in the economy and small businesses can give the economy great momentum and take advantage of this momentum as well, and that we are certainly seeing in South Africa.

Bruce Whitfield:
Many people do think that franchising is a far easier way to make a living than either having a job or starting out you own business from scratch. But if you look at the statistics you mentioned a moment ago, success is not guaranteed in franchising.

Bendeta Gordon:
Absolutely, you are 100 percent. I think people are quite naïve to think that it is. We always say that 60 percent of the success of a particular franchise operation is largely due to efforts of the franchisee and the balance the intellectual property and support of the franchisor.

But, I must say we have seen a very low failure rate of established franchisors in terms of store closing and less than one per franchise system. But one needs to look at that in context of where the economy has come from in the last two years.

So the economy has boded well for franchisees, but I am quite bullish that I think the growth is going to be sustainable and I think franchisee will even be able to bear the increase in interest rates. And we are going to continue to see consumer support in franchise out there.

Bruce Whitfield:
As we get used to spending, of course, the franchises will do well. Bendeta Gordon, thank you for talking us this evening. The latest research on franchises and she is the MD of Franchize Directions.