A Guide to Franchising in South Africa

Franchising has long been a popular route to business success in South Africa. It’s no surprise that this well-established model is behind some of the country’s most iconic and successful brands in the country, including Spur, Pick n Pay and Nandos. In South Africa, there are more than 800 franchise systems with 48,000 outlets, as reported by FASA. The sector is significant for the local economy. It employs approximately 500,000 people and contributes 14% of the GDP. This information is based on the latest FASA survey. From Nandos to RocoMamas and Candi & Co. Here is a list of 100% South African franchises that aspiring entrepreneurs can look into. See the full list HERE. Franchising is incredibly diverse and is represented in around 14 different business sectors. The largest is the fast foods and restaurants, which makes up 26% of the franchising sector. Other popular sectors where we find franchises are the consumer services sector, beauty and wellness, childcare and training, the FMCG sector, and the automotive and fuel sectors. The business model is not showing any signs of slowing down, with new franchise brands being established to meet changing consumer needs.  

Franchising attracts people because it offers a proven and secure system for running a business. Franchising is less likely to fail compared to independent businesses, as shown by various studies. What’s more, owners benefit from network support from their franchisors which in many cases includes operational system (administrative system with which they manage their business), and an operations manual. Other advantages are access to market knowledge, customer training programmes, and access to suppliers. Franchisees also receive ongoing support and marketing assistance.

High start-up costs is the first significant obstacle that prospective franchise owners will encounter when looking at a franchise business, particularly if they have their sights set on more established and well-known brands. Other disadvantages that can discourage prospective franchisees with this model is limited business control and lower profits in comparison to operating an independent businesses.  

While there are many advantages with franchising it’s still important that potential franchisees know what they are getting themselves into before signing on the dotted line. There are three important factors that prospective franchisees should consider, says Grant Smee, MD of the Only Realty property franchise – the financial make up of a business, ¬the amount of debt that can be borrowed or invested in a business to make it financially viable, and whether your skills set can be matched with what is required by the franchise. Jeremy Lang, regional general manager of Business Partners Limited, provides additional considerations that prospective franchisees must do before entering a franchise agreement. ● Know the industry. ● Choose a franchise within your budget. ● Review the franchisor. ● Speak to franchisees and ex-franchisees. ● Investigate the location. ● Get the value calculation right.

To apply to become a franchise owner you will be required to secure financing to cover the franchise costs upfront. This typically includes the store set-up costs and joining fees. Business owners should also budget for on-going fees such as royalty and marketing fees.

How to get a loan for a franchise

To secure a franchise you will need between 40 and 50% of the total franchise investment in cash or similar unencumbered funds. Most prospective franchisees will need debt financing to fund the balance. With franchise financing, the options are relatively limited and include banks, private lenders and government funding. Most entrepreneurs, however, rely on banks for financing, many of which offer specialised franchise loans.

Types of franchise loans available

You can apply for loans to cover each business need, such as start-up costs, running costs or fees. Some of the most common loans franchise owners will need throughout running their business are:

• Term loans – a lump sum of cash up front, which is repaid with interest in monthly instalments over a set period, for example, 60 months.
• Working capital funding – to boost working capital in a business.
• Inventory loan –This helps businesses to buy stock.

To apply for a loan, you will be required to supply the following information:

• Written confirmation from the franchisor that you have been approved as a franchisee.
• A copy of your ID.
• Your balance sheet, showing your assets and liabilities.
• Information relating to your background, similar to a CV.
• Proof of the origin of your unencumbered deposit.
• A comprehensive business plan.
• A copy of the lease agreement.
• A copy of the franchise agreement.
• A copy of the signed agreement of sale, stipulating the conditions of sale.
• A breakdown of equipment to be financed, including rand value per article.
• Applicable CIPRO registration certificates.
• Signed financial statements and a 12-month cash flow projection. If the financial statements are older than six months, up-to-date management accounts will be required.
• Six-months’ bank statements of the business trading account.

While franchising can be expensive, there are some low-cost franchise options. Below are some of the most affordable options in South Africa.

Fish & Chip Co

The Fish & Chip Co specialises in fish and chips and is one of the fastest-growing and most popular fast food brands with locations across the country, except the Western and Northern Cape.. The Fish & Chip Co claims to be “ one of the market leaders within the fish QSR (Quick Service Restaurants) category in terms of product, brand awareness, store footprint and consumer preference”. Considered to be one of the most affordable franchise opportunities in the country, the minimum initial investment for a Fish & Chip Co franchise is R645,000 starting cost plus R4400 monthly payment. The set-up fee includes costs, equipment, joining fee and training.

King Pie

King Pie is the country’s biggest pie franchise with over 300 outlets in South Africa and African countries like Mozambique, Namibia and Swaziland. The stores can be found in shopping centres and high street locations and other areas with high foot traffic. The joining fee for a new franchisee is R60,000 (Excl. VAT), with an estimated set up cost of R525 000. King Pie also requires a design fee of R13,500, starting royalty fee of R5,000 and a marketing fee of R1,500. All equipment and shop fitment is included in the investment price.

Zebro’s Chicken

Banking on South Africans’ love for a delicious braai, Zebro’s Chicken offers chicken and chips prepared using the traditional braai method. The franchise also sells burgers, Russian-style sausages and a variety of salads. Zebro’s Chicken has one of the lowest new-store establishment costs in its category. The average set up cost is R949 900 incl. VAT plus 4% of monthly turnover. There is a joining fee of R190 000 which is included in the initial set up cost.

H20 International

H2O| BWT International SA offer over 450 products for home, office, the hospitality and agriculture industries. Their range of products includes water purifiers, hot and cold water dispensers, ice machines, water conditioners, water fountains, and both commercial and industrial filtration systems. Today the brand has over 65 franchises and stockists. Depending on the type of franchise, the location and the quality of the source of the water to be bottled the set up costs range from R500,000 to R1,000,000 excluding VAT. This fee is inclusive of the franchise fee from R125 000 ex VAT. They charge new franchisees a management franchise fee of 6% of turnover and a marketing fee of 3% of turnover.

Dream Nails

Dream Nails Beauty specialises in nail enhancements and beauty services. They have over 31 branches nationwide with stores primarily located in shopping centres with high foot traffic. Dream Nails franchisees receive a “complete turnkey solution”. The set-up costs is roughly R600,000 to establish a new store. Additionally, there is a initial licensing fee of R100,000 and marketing and management fees of 6% of monthly turnover. Together with stock, franchise fees, and other expenses, franchisees can expect to pay approximately R765,800, excluding VAT, lease, and working capital.

PostNet

PostNet is South Africa’s largest franchise operating in the document and parcel industry. According to Postnet, they have over 434 stores across South Africa and serve in excess of over 1.7 million customers per month. PostNet provides business services, including courier, copy and print, stationery, digital and mailbox services. To buy a franchise you must pay a franchise fee of R95,000 which is included in the total investment of roughly R805,000. The franchisor requires that 50% of this is available as unencumbered cash.

3@1 Business Centre

3@1 stores provide business or home office needs and services through their over 90 trading franchises in South Africa. The stores are also equipped with Kodak photo printing and customers can order digital and canvas prints. 3@1 requires franchisees to pay a franchise sign on fee of R75,000. The set up fees for a turnkey kiosk is approximately R850,000. Other costs include a kiosk vehicle with a signage cost of R260,000, and working capital of R200,000 per month. There is no management service fee or advertising or marketing fee contribution.

Tutor Doctor

Tutor Doctor is a global franchise with a footprint in South Africa. The company provides private in-home tutoring services. Each franchisee manages a team of professional tutors who are matched with students to help them meet their academic goals. Tutor Doctor prides itself on its “low overhead business model”. A new franchise costs R30,000 to establish and a local territory license costs R495,000, they also recommend starting with working capital of R50,000, bringing the initial total investment amount to approximately R550,000.

Just Property

The Just Property real estate brand is focussed on property rentals and management and has over 98 offices across South Africa and Namibia. Their onboarding programme for franchisees includes training, marketing, financial management and mentorship. The total investment amount for a new franchise ranges between R475, 000 and R1,000,000. It includes an initial fee in the range of R75,000 to R150,000. The set-up costs start at R150, 000 to R350, 000. Franchisees are required to pay a 6% royalty fee and a 2% marketing fee of 2%. Additionally, they have to cover the cost of training of R895 per month.

Battery Centre

Battery Centre is a popular battery company with 160 branches in cities and towns across sub-Saharan Africa. The brand is a prominent non-food franchise in South Africa with over 130 Battery Centre stores across the country.. A Battery Centre franchise requires an initial fee of R150,000 and an estimated R500,000 establishment cost. The franchise recommends starting with a working capital of R233,495. The total investment cost is R993,875 incl. VAT. Find out more: 8 Best And Cheapest Courier Services In South Africa