Purchasing a franchise can be a great way to become an entrepreneur. Although quite costly, it offers a ready-made business model that requires only focus and attention to be successful. Now, purchasing a franchise is easy if you know what you want, but if you are still considering it, then it’s good to know which industries are best for franchise investment.
South Africa’s franchise sector generated an estimated R999 billion in annual turnover in 2023, contributing roughly 15% to the national GDP. Regulated through bodies like the Franchise Association of South Africa (FASA), the industry encompasses over 800 franchisor brands and more than 30 000 outlets, supporting approximately 500 000 jobs nationwide.
In this article, we look at the landscape of the franchising sector in South Africa and which industries are best for franchise investment.
Franchise Sector: Key Trends, Opportunities and Challenges
Retail and food service trends are shaped by convenience, affordability, technology integration, and sustainability. Also, retailers want to expand into underserved areas, scale in convenience formats, strengthen loyalty programmes, and partner with informal traders.
In food service, growth is driven by quick-service restaurants (QSR), fast food, and takeaway options, with reduced demand for traditional dine-in experiences. Chicken-based fast food is a key growth segment in South Africa and Africa.
With all these factors in play, it can be difficult to enter the market with a new business. This makes franchising a critical and proven pathway for entrepreneurs looking to enter the formal economy with reduced risk.
As African markets become increasingly interconnected, cross-border expansion is presenting new opportunities for franchise brands seeking growth beyond their home markets. According to McKinsey, Africa’s consumer class is projected to reach about 1.1 billion people by 2030, with the urbanisation rate in Sub-Saharan Africa among the fastest globally.
This demographic shift is expected to directly fuel growth in the franchise sector, which is already valued at nearly $94 billion.
The challenges come in various ways. Retail and food service sectors face interconnected economic, operational, and structural challenges. Rising input, food, and labour costs combined with economic volatility are constraining consumer spending and tightening margins. Ongoing supply chain disruptions, infrastructure limitations, and logistical inefficiencies further impact operations.
Franchising presents an opportunity to bypass these challenges and unlock inclusive growth across the country and the continent.
Best Franchising Industries in South Africa
Choosing which sector your franchise must be in is critical to selecting the right one. The best franchise industries in the country are:
1. Fast Food and Quick Service Restaurants (QSR)
The fast food and QSR segment dominates the franchise market, leading with roughly 19% to 26% market share. The most popular brands are McDonald’s, KFC, Chicken Licken and Hungry Lion. Let’s look at some examples.
McDonald’s
McDonald’s has over 370 franchises across the country. These only underline just how popular the brand is, which means it’s very profitable for franchisees.
To open your own McDonald’s franchise, you will need between R 4 million and R 6 million. Additionally, you will need an unencumbered cash contribution of 35% (between R 1,4 million and R 2,1 million).
Total investment in your McDonald’s franchise depends on location, store size, styling and pre-operation expenses.
KFC
KFC is one of the most popular franchises in South Africa and is a great option because it almost guarantees customers and profits. To purchase a KFC franchise, you will need R6 million in capital. The total amount of the franchise depends on factors such as location, store size and operational requirements.
2. Fuel Franchises
South Africa has many fuel franchises, including Shell, Elegant Fuels, Astron Energy, Engen, Sasol, and BP. Fuelling stations have evolved significantly, now becoming more than just fill-up stations. In most cities, fuelling stations also have fast-food restaurants and some even have full-service grocery stores.
For our example, let’s look at what is required to open an Astron Energy franchise.
Astron Energy requires franchisees to be highly qualified, deeply knowledgeable about business and committed to the franchise. This is important because you will be a full-time service station operator.
Other requirements are:
- Be a South African citizen
- Have three to five years of experience in operating a retail business
- Have mid-senior business management experience in a corporate environment
- Be financially sound
- Be customer-focused
- Have an entrepreneurial and Innovative mindset
- Be hands-on, detail-oriented and process-driven.
- Show leadership skills
- Be principled and have integrity
- Meet Astron Energy’s financial requirements.
When submitting your application form to Astron Energy, ensure the following is included:
- A copy of your ID
- Your CV
- Copies of all degrees, diplomas or certificates
- CIPC Legal Entity documents with share certificates and BBBEE certificates
- Current fiscal year-end financial statements for any privately held business in which you may have an interest.
- Financial information
- Proof of own funds contribution, not funding from a financial institution
The investment can cost you between R1,5 million and R20 million, depending on the location and station specifics. This calculation includes the cost of acquiring the property or land, the construction of the infrastructure (if it wasn’t an existing station), and the cost of equipment such as pumps.
Additionally, it includes the cost of branding, royalties, the franchise fee, salaries, utilities and other operational expenses.
3. Automotive and Car Service Franchises
Automotive and car service franchises are very beneficial for many reasons. Customers are more likely to trust a well-known brand, making it easier to get clients; many come with proven systems and operational processes, and some provide comprehensive training in both technical and business management.
The most popular car service franchises in South Africa include Midas, Kwik Fit, AutoZone and Car Service City.
Let’s look at what is required for a Car Service City franchise:
A Car Service City franchise requires a total estimated initial investment between R1,35 million and R2 million. Prior experience in the motor industry is helpful but not compulsory, as the company looks for strong business skills and provides full technical training and operational support.
Other requirements and fees include:
- Management services fee: 5% of turnover
- Marketing fee: 2,5% of turnover
- Agreement terms: Five-year initial contract with a five-year renewal option
- Staffing: Must employ trained technical staff to handle vehicle servicing and repairs
- Compliance: Adherence to Retail Motor Industry Organisation (RMI), Motor Industry Ombudsman (MIOSA), and Franchise Association of South Africa (FASA) standards
The above three industries are the best for franchising investment, but they are not the only successful ones. When researching which franchise to invest in, consider other factors like initial costs, skills requirements and the time needed to run one.
Once you have chosen a franchise, you must ensure that all your documents are in order. Ensure that your business registration and tax certificates are up-to-date, and ensure that you are compliant with whichever industry your franchise operates in.
