A Guide to Fast Food Franchising in South Africa

1st ,June, 2023
SME Guides
Introduction

Fast food franchising in South Africa presents many opportunities ranging from hamburger chains and pizza places, to fried chicken restaurants. Given the ever-increasing popularity of fast food, it comes as no surprise that the largest franchises in the country are restaurant- and fast food brands. Moreover this popular industry ranks among the top three sectors that attract franchisees, constituting a significant 26% of the overall franchising landscape.

Current market size and growth trends

South Africa has a well-established and healthy franchising system that has established itself as a key player in the country’s economy. According to an IOL report, it’s estimated that there are 845 franchisors and over 40,000 franchisees operating in the sector. In 2019 the franchising sector contributed 13.9% to the country’s GDP (R734 billion). Notably, franchising makes a meaningful contribution towards solving South Africa’s most pressing problems – unemployment and poverty by creating job opportunities and fostering wealth creation. A research study conducted by Allied Market Research further highlights the growth potential of the sector, projecting the sector to reach an estimated $4.9 billion by 2026.

While franchising in South Africa presents lucrative opportunities, it also faces several challenges that hinder its growth and potential. Namely, slow economic growth, worsened by the lasting impact of Covid-19 lockdowns, which significantly impacted the industry as a whole.

Currently, the most pressing setback is load shedding which has led to substantial wastage and disruptions along the critical value chain. Franchisees, in particular, have been heavily impacted, as persistent power cuts have escalated the cost of doing business. They are now compelled to invest in alternative power sources to ensure their operations can continue uninterrupted.

Despite the strain that many businesses in the sector are taking, the sector is expected to experience considerable growth. This can be attributed to changing consumer preferences and eating habits and an increase in demand for different types of fast food products from consumers. BusinessTech reports that there are a number of reasons for this. Firstly, more South African households are choosing quick and convenient meal options because of today’s more “fast-paced lifestyle and busy work schedules”. Moreover, the rise of delivery services has made it easier than ever for consumers to enjoy fast food in the comfort of their own homes. Lastly, consumers today have more options than ever before as international fast-food chains enter the market and local businesses adopt the fast-food model.

Read: Starting a Business in South Africa

The Benefits Of Fast Food Franchising

Fast-food franchising offers many advantages to individuals looking to go into business. While the sector is known for big players like KFC, Nando’s and Chicken Licken, that charge in the millions for a new store; there are also great opportunities for smaller and upcoming businesses because of the low set-up costs.

Besides its cost effectiveness, the franchise system is a proven business model that provides added security to business owners. Franchise brands often have well-established products and services known to the market. This means the brand often comes with an already established brand name, brand recognition and customer base. Business owners can also avoid the struggles associated with starting a business as most brands come with a turnkey operation in place.

The biggest advantage franchising has to offer, however, is the formal training business owners receive, as well as the ongoing support in a franchise system. This support should include, among others:

  • Operational system – administrative system with which they manage their business
  • An operations manual
  • Marketing assistance
  • Training of the entrepreneur and their staff
  • General ongoing support
Financing Options For Fast Food Franchises

There are a number of sources of financing available for entrepreneurs interested in owning a franchise, including loans, grants, and investment options

To start, financial planning is required to secure funding for franchise acquisition. Below are some of the costs business owners will need to plan for, according to the article ‘What You Need to Own a Fast Food Franchise’:

  • Set-up costs: the set-up costs for a fast food franchise range from between R800,000 to R2,7-million. The costs are dependent on the brand.
  • Funding: According to FASA, most franchisors will insist that you fund between 30 –50% of the complete investment from your own resources. FASA warns that large repayments will place strain on your new business’ cash flow.
  • Monthly fees: Franchisees must expect ongoing fees like monthly royalty fees, marketing fees (as a percentage of turnover) and often a volume-based fee.
  • Monthly operational costs include staffing, and equipment and vehicle hire.
Setup And Equipment

Your start up costs will include the expense of setting up your restaurant. According to the Entrepreneur Mag, the basic equipment you’ll need for a restaurant include:

  • Shop fitting
  • Kitchen equipment
  • Refrigeration
  • Storage
  • Dining area (tables, chairs, high chairs etc)
  • Crockery, cutlery, linens, and all the kitchen tools
  • Signage
  • Sound and Lighting
  • Internet service
  • A POS system
  • TVs (if you go that direction)
  • Point of Sale (POS) system