Moving your franchise into Africa
Africa holds enormous potential for the growth for franchise operations and has succeeded in driving global franchise brands into the continent.
Many brands have made aggressive plans to further grow their African operations. “There is still much scope for growth if you’re thinking about moving into Africa. We can expect to see similar announcements from listed franchisors as well as their unlisted counterparts who are continuing to capitalise on rising consumer spending and development across our borders,” explains Morne Cronje, FNB Head of Franchise.
Cronje explains that a few factors need to be considered before taking that first continental plunge.
1. Know that you may not be welcome
“There is a lot of intercontinental rivalry. As a South African you are competing with many global brands and as a result may not be the preferred supplier in the market. In many instances a US or UK investor is much preferred,” says Grant Pattison, non-executive board member of Taste Holdings.
The barriers to entry are high and the competition is fierce. Business from West and East Africa are expanding with global players entering the market where many multinational and South African businesses are well-entrenched. There seems to be a natural patriotic tendency to prefer local brands and South African franchisors’ need to work especially hard to be adopted into these cultures. This makes selecting the right local partner critical. Cronje adds “Enabling local production, which brings with it investment and employment, is an important consideration. While the franchisor may make less money from selling finished goods, local production will enable franchisees to keep prices down, open more sites and make profits, which in turn means more royalties.”
2. Do your research on the country
South African franchisors are advised not to export a successful South African business model as is. Africa is not one homogenous market. Customer profiles between different countries vary hugely and concepts and products have to be adapted accordingly. It’s important to walk the streets (malls are hard to find) and find out what people really want and need “Brands are defined by customer needs and wants. This not only ensures that your brand will be successful but also services customer needs,” explains Cronje.
Only once you have done your research, should you start studying the foreign market you want to enter. The challenge is to be operationally flexible but nevertheless true to your core strategy and brand. In fast food franchises, menu choices will vary.
3. Start closer to home
“Don’t begin your expansion strategy in Nigeria. Start closer where you can manage your operation more carefully,” echoes Pattison.
As countries are vastly different it is important to weigh up country choices carefully. Africa is probably bigger than we think and these distances make managing territories difficult and expensive.
Pattison suggests that “businesses begin their growth strategies first in neighbouring countries – Lesotho and Swaziland followed by Namibia, then Mozambique and Zambia skipping past Zimbabwe. Then, if you succeed here consider East and then West Africa. On the upside, the worse the logistics challenges, the higher the margins.”
4. Chose the right advisors
South Africa has a highly developed financial services sector but the same is not true for most African countries. If you succeed in breaking even and making money in Africa, you may find it difficult to transfer it back to South Africa. Each country has a different exchange control and tax environment, which makes having the right advisory and banking partners essential. Exchange control, taxes and currency shortages aside, the fees charged for moving money across countries are also expensive. Besides banking, franchisors will need local expertise to navigate the regulatory, tax and legal environments. Before any decisions are made, franchisors are encouraged to cultivate good local networks as well as learn from other companies who have already paid the school fees.
“The current franchise landscape is competitive. We need to raise the profile of the industry and ensure its ability to be an effective lever of social empowerment and economic growth in Southern Africa and Africa for decades to come.” concludes Cronje.
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