Buying into a franchise store is an appealing investment which has both positive and negative aspects.  Franchise stores have branding which is already known in the market, tried and tested business systems and normally a good track record. For this reason potential investors are more likely to open a franchise store than to start up a new business that requires years of hard work in building a reputation and brand.

Mark Souris, managing director of Periscopic Masingita, a leading commercial, industrial and retail property development and management Company explains “The costs of opening a franchise store are relatively low in comparison to that of starting a new business.  When investors buy into a franchise store, they are buying a successful business model which comes with all the necessary equipment, shop fittings, the IT infrastructure and the point of sale systems.  Franchisors also undertake to fully train the franchisee and the staff as well as assist with the marketing and branding of the franchise store.  With all these plans and processes in place, the franchisee is not required to reinvent the wheel and that is why franchise stores work so well in South Africa.”

Souris cautions though, “the rapid expansion of franchise outlets is becoming a problem for some franchise owners and the retail sector,  not all franchisor’s guarantee that they will not open the same franchise store within a 5km radius.  If a franchisor intends to open another outlet within close proximity, they sometimes offer the existing franchise owner right of first refusal.  If this is declined, the store is offered to another investor.”

Of course simply opening outlets does not necessarily increase the size of the market, so existing outlets can find a decrease in turn over and struggle to meet their margins.  “What we have noticed, as a result of this expansion, that many franchises are either closing down or are looking at maintaining their current location but wish to change the branding.  To do this, the franchisee needs to approach the landlord of the centre that they are currently occupying.  This becomes problematic for the landlord as it is in his best interest to retain the known brand and the greater security offered by a Franchisor.  However, we have noticed positive and welcomed trends towards new franchise businesses opening up particularly in the fast food sector, some of which are new concepts which do not necessarily negatively impact existing market segments.”

“As it is imperative for the franchisor to maintain the good name of the brand, opening more than one franchise in a small area of operation can result in failures and thus can damage reputation of the franchise.  As many of our retail malls are in areas at some distance from supply hubs we often see that consideration for supply chain capability is overlooked placing further pressure on the viability of the business.”

“Having exercised due consideration of the market, there is no doubt that the expansion of franchise stores can be successful if done properly and responsibly,”   Souris concludes.