Wanting to start a business? A franchise may be the answer!

To tackle unemployment, Government has identified the SME sector as a promising platform for job creation. Fair enough, but an unacceptably high percentage of new SMEs fail, often within the first or second year of their existence. Business failures are a toxic mix of broken dreams, lost jobs and significant financial losses but fortunately, there is a better way. Investing in a franchise gives new entrepreneurs access to a tried and tested business model and increased chances for success. Unfortunately, not all franchises are created equal, posing the question, “what makes a good franchise?” We decided to find out.

What makes a successful franchise?
Text books on franchising will tell you that a franchise needs to be based on a product or service that satisfies a proven need by a growing market. The founder of the business should optimise product design, operations, marketing and sales channel development, systems and procedures before considering expansion via the franchise route. Several other aspects come into the equation as well, with the following standing out:
  • Profitability
A franchise is essentially a “blueprint to business success”. As business success is generally equated with profitability, a business cannot be considered ready to be franchised unless it can generate profits for the franchisor and its future franchisees alike.
  • Staying power
Franchise arrangements require high levels of investment by the franchisor and its franchisees alike. They should be seen as long-term arrangements. This means that demand for the product or service should be sustainable, preferably growing. Fads do not form a viable basis for a franchise.
  • Culture fit
Expanding a business via the franchise route means a change of focus. The franchisor must shift its attention from operating the core business to putting others into business and helping them to become successful. There is also the reality that franchisees will typically make a substantial investment and work in their own businesses. They deserve respect and the opportunity to have a say in the direction the brand takes. Seen from the franchisor’s viewpoint, this requires a very special mindset.

Franchising in practice
Rather than continuing this theoretical treatise on franchising, we decided to find out how a franchisor with a proven track record actually does it. We couldn’t think of a better person than Tony da Fonseca, the Managing Director of OBC Chicken and Meat, among South Africa’s most dynamic retail chains. Tony is also a long-serving member of FASA’s Exco and currently chairs the organisation.

OBC has a track record spanning over more than 30 years and the brand is much-loved by members of its target market, namely LSM 3 to 6. It remains almost unaffected by the ups and downs of the economy, simply because people have to eat. OBC stores offer them access to daily essentials of good quality in an attractive environment and at realistic prices.

Tony told us that whilst OBC Chicken and Meat may be a bona fide franchisor now, this hasn’t always been the case. Following a few years of operating branches, OBC’s founders decided to offer a franchise of sorts. Although it was reasonably successful, it wasn’t much more than a buying organisation. The turning point came after a change in ownership and Tony’s appointment as MD in 2007.

Tony was quick to recognise that to make a real impact, the OBC Group needed to become a streamlined franchise organisation. He assembled a small but enthusiastic Head Office Team, overhauled logistics, tightened up on supplier relations and reworked internal systems and procedures. He then offered existing franchisees the option to grow with the brand. Those who resisted change were given the option to leave the group without incurring penalties.
Those who accepted the challenge were given all the assistance they needed to evolve into future-proof retailers and were soon reaping the rewards. Case in point: Franchisees who remodelled their stores experienced increases in sales ranging from 20% to 50% during the first year after adopting the new corporate image. This was achieved during a period when others were blaming the economy for poor business performance.

Expansion continues
The OBC Group currently operates through a network of over 50 stores and firm plans are in place to grow this number to over 80 by the year 2020. OBC’s track record confirms that this ambitious growth target is achievable.
  • Earlier this year, a new store was opened in Soshanguve South View.
OBC Chicken and Meat store Soshanguve

OBC Chicken and Meat store Soshanguve – store interior

OBC Chicken and Meat store Soshanguve – interior view. This picture shows the inviting and customer-friendly layout of an OBC Chicken and Meat store
  • Currently, stores in Middelburg, Tzaneen and Atteridgeville (Saulsville station) are getting ready to open their doors for business. Sites have been secured to open stores in Mamelodi (Mums Corner), Nasrec (Nasrec Corner) and Acornhoek before the end of the year.
  • Expansion into neighbouring states and beyond is also underway. OBC’s first international store will open shortly in Nhlango, Swaziland, to be followed by a store in Malkerns around mid-2019.
In preparation for further expansion, OBC commissioned the erection of a state-of-the-art distribution centre in Midrand and took possession of it just the other day. This fully automated facility enhances OBC’s ability to purchase goods in bulk when the price is right and distribute them according to JIT (just in time) principles.

OBC DC Front of building. The picture above shows OBC’s new building which contains a state-of-the-art distribution centre, a training centre for franchisees and head office premises all under one roof.

OBC DC Birds eye view. The picture above illustrates the overall size of the property. It was created with the help of a drone.

OBC DC rows of shelving. The shelving in OBC’s new distribution centre is mounted on rails. This results in dramatic space-saving because access routes are created only where they are needed.

Franchisees benefit greatly because they have access to a one-stop supplier. They can order mixed loads of goods at highly competitive prices without being forced to carry excessive stock. However, franchisees are not forced to purchase exclusively from the OBC Distribution Centre. Rather, OBC Head Office sends out weekly special offers and effectively competes with third-party suppliers for franchisees’ business.

External recognition
The OBC Group’s performance as a franchisor has not gone unnoticed:
  • Several franchisees have acquired second or third outlets operating under the OBC brand and the trend continues. Having franchisees investing in additional units is a supreme vote of confidence into the brand and the people who manage it.
  • The year the OBC Group entered the FASA Awards for Excellence in Franchising for the first time, they won the prestigious title of ‘Franchisor of the Year’. They repeated this achievement the following year and secured other honours as well.
Tony da Fonseca pictured in front or an assortment of OBC-branded items
  • The South African Portuguese Chamber of Commerce named the OBC Group ‘Large Business of the Year’, also twice in a row.
Readers wishing to find out more about an OBC Chicken and Meat franchise should contact OBC Group’s Marketing and Business Development Manager Robbie Capazorio – robbie@obcgroup.co.za – or phone him on 082 3377747.

To sum up

Turning back to the franchise scene in general, the 2017 survey into franchising commissioned by FASA with financial support by Sanlam revealed that two in three established franchisors have been in business for more than 10 years and a further 17% for more than 6 years. Moreover, franchising’s contribution to GDP rose from 9.7% in 2014 to 13.3% in 2017. For 2017, this translates into sales through the franchise channel (excluding motorcar and fuel sales) of R587 billion. This underlines the staying power of the franchise sector during a period of political turmoil and economic uncertainty.

Franchising is no longer just about fast food either. 845 brands are offering franchise opportunities in a vast range of business sectors from automotive to retail, training to home repairs and just about everything in-between.

At the consumer level, franchised brands are represented by over 40,000 franchisees who employ more than 340,000 people. Many of these employees are semi-skilled individuals who would otherwise find it difficult to secure employment.

With FASA celebrating its 40th anniversary next year, readers can look forward to a series of events to take place during 2019 that will further cement franchising’s standing as the route to “being in business for yourself but not by yourselves.”