A Guide to Fast Food Franchising in South Africa
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Table of content
Introduction
Current Market Size and Growth Trends for Fast Food Franchising
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 that was 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 several 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 AfricaSME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.
SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.
Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.
The Benefits of Fast Food Franchising
- 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
SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.
SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.
Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.
Legal and Regulatory Considerations
Compliance for Fast-Food Franchising
To start, your business needs to be registered with the Companies and Intellectual Property Commission (CIPC) and be in possession of all the necessary business licences or permits or registrations required before trading in South Africa.Health and Safety standards
Fast-food franchises fall in the food service industry which means there are certain standards that businesses need to adhere to. According to the Businesses Act, a business licence is required for any business “selling or supplying any foodstuff in the form of meals for consumption on or off the business premises, or any perishable foodstuff”. Read: A Guide to Business Licences in South Africa Additional regulations that businesses in the food service sector have to comply with are being in possession of health and safety permits, licences for the selling of liquor and tobacco, as well as zoning permits to operate in certain locations. Read: Licensing And Permits For The Food IndustryTax
The three types of taxes that franchise businesses pay, depending on their size, are corporate or turnover tax, employee taxes (PAYE, UIF and SDL) and VAT (value-added tax). Franchise owners need to know what type of small business tax they qualify for. Your business can qualify for turnover tax if it generates less than R 1 million per year or trades as either a sole proprietor, a partnership, a close corporation, a co-operative, or a company. Businesses can also qualify for taxation as a small business corporation (SBC) by SARS, if they meet the following criteria: business turnover is less than R20 million per year, all shareholders in the business are natural persons and the business owner only owns one business. If your franchise is registered as a private company, it is required to pay Corporate Income Tax on its profits twice a year at a rate of 27%. Taxable profit is defined as gross income generated minus related tax-deductible expenses. According to SARS, in addition to annual tax returns, every company is required to submit provisional tax returns (IRP6). The first of these returns are required to be submitted six months from the start of the year, and the second at year-end, and must both contain an estimate of the total taxable income earned or to be earned for the full year. See also: Find Out If Your Business Needs A Trade LicenseValue Added Tax (VAT)
When your small business is registered as a VAT vendor, you will need to charge VAT on all of the goods and services you sell to your customers. The VAT charge, or output tax, is 15% of your goods and services sale price. Although, certain goods are zero-rated, or exempt from VAT. Businesses with a turnover exceeding R1 million in any consecutive twelve-month period must register for VAT. If your small business is required to or has chosen to, register for VAT, you will need to submit VAT returns and payments every four months. These returns are due on the last days of June, October, and February. Read: Small Business VAT RegistrationEmployee Tax
Fast food franchises often operate with a sizable workforce, requiring the payment of various employee taxes. These include unemployment Insurance Fund (UIF), Pay-as-you-earn (PAYE) and Skills Development Levy (SDL). UIF gives short-term relief to workers when they become unemployed or are unable to work because of maternity, adoption parental leave, or illness. It also provides relief to the dependents of a deceased contributor. Read: How to Register Employees for UIF Businesses must also register for SDL which is a levy imposed to encourage learning and development in South Africa and is determined by an employer’s salary bill. The funds are to be used to develop and improve the skills of employees. Moreover, employers are also required by law to deduct PAYE which is income tax from an employee’s taxable salary or wages. All businesses are required to maintain accurate financial records throughout each year of assessment to ensure the accuracy of taxes declared and paid by your company.Franchise Agreements and Disclosure Documents
The Franchising Association of South Africa (F)ASA explains franchise agreements as legal documents that set out all the obligations for both parties and provide a guideline for how a franchisee will run a business. This agreement, according to Which Franchise, typically deals with the following issues: “intellectual and commercial property issues, operational details, financial arrangements and the initial and ongoing rights and obligations of franchisor and franchisee respectively”. The agreement also specifies what is to happen once the arrangement ends. Below are additional documents business owners may encounter when buying a franchise:- Disclosure profile document as part of the due diligence process
- Approval letter from the franchisor
- Secrecy undertaking or non-disclosure agreement (NDA) signed by the franchisee before receiving detailed information on the franchise
- Operations manual
- Lease agreement over premises
- Funding agreements
SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.
SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.
Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.
Financing Options for Fast Food Franchises
- Set-up costs: the set-up costs for a fast food franchise range from between R 800 000 to R 2 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, equipment and vehicle hire.
SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.
SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.
Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.
Set-up and Equipment
- 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
SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.
SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.
Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.