It is likely that, at some point, you have fantasized about setting up a franchise for a well-known brand, even if you are not entirely clear about how they work. It is also likely that someone has told you about a success story or that you have experienced firsthand the success of a friend, acquaintance, or family member in franchising.
You may ask, “How does the franchise model work in Africa,” in this article, I will share the meaning of franchise, how it works, and some examples of franchise business in Africa.
What is a Franchise?
A franchise is a business model in which the owner sells the rights to exploit his brand, logo, corporate identity, and, ultimately, the business model to a third party.
The third-party can sell the products or services under the business owner’s name. The business owner is called the franchisor, while the third party is called the franchisee.
The franchisee will first pay the franchisor an initial start-up fee for using the brand’s name and other identity. Subsequently, the franchisee pays a licensing or or franchise fee which allows the continuance operation of the business under the franchisor’s brand’s identity.
Types of Franchise
There are several types of franchises in Africa. We could classify them into:
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Job franchise
Job franchises are usually home-based low-investment franchises set up as a side income. The franchise is run on a low level where the owner works for a company or franchisor as a supporting member in the business chain.
Examples include real estate service, travel agency, corporate event planning, etc.
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Business franchise
The business franchise is focused on providing certain goods and services by the franchisee. The franchisor has authorized the franchisee to produce goods or offer the services.
Hence, the entire operating system is based on the franchisee’s discretion, but the brand and trademark are that of the franchisor. Most retail outlets, fast food restaurants, fitness services, etc., fall under the business franchise.
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Commercial or distribution franchise
Commercial or distribution franchise allows the owner and the franchisee to sell the same products. There is a franchise agreement between the franchisee and the franchisor where the franchisee is saddled with distributing the franchisor’s products.
In this case, the agreement only partially allows the franchisee to own or produce the products or goods. Examples are soft drink manufacturers like Pepsi and Coca-Cola.
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Conversion franchise
Some independent businesses within the same industry are sometimes converted to franchise units. These independent businesses adopt the brand trademark of the franchisor and do everything according to the franchisor’s model, irrespective of how they have been operating before becoming a franchise unit.
Examples include real estate brokers, professional services companies, home services, etc.
How Does Franchise Work
Think of a franchisor as a man who has his stores. He owns the brand, which can be a person, a group of people, a company, or a group of companies. And he is the one who puts the franchising price and the minimum conditions and requirements.
On the other hand, the franchisee wants to open a franchise and is willing to pay for it.
The franchisee is a retailer who sees great potential in using the franchisor brand. The public popularly knows the franchisor brand, and it has proven commercial success.
The franchisee considers that the business in that specific sector (the franchisor sector) will do much better if he operates under the brand, its operational, or production processes.
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For example, can you imagine how difficult it must be to start a business selling sandwiches from scratch? Or have overwhelming success with a coffee shop or starting with a new clothing brand? Many retailers who want to work in these sectors while maintaining operational independence consider it a good idea to franchise brands in Africa, such as Shoprite, Mr. Biggs, or Domino’s Pizza.
On the other hand, you should remember a pivotal point in the franchise model-the franchisee is self-employed, not an employee of the franchisor. It’s an exciting formula if you’re looking for independence as an entrepreneur, but you don’t want to risk everything on your personal branding idea because you don’t know if it will work.
The franchisee pays royalties for the use of the brand, adheres to the policies that the franchisor deems appropriate or necessary to maintain its reputation and brand consistency, and must also invest in a stock at its own expense and keep the business running.
The franchisor, on his part, put everything necessary at the logistical level, the production level, the operational level, and at the marketing level. In this way, the franchising system works without the end customer perceiving any difference between the operation of a point of sale and a franchised point of sale.
The franchisor receives an initial payment as a business exploitation fee from the franchisee. Typically, this encompasses:
- Entrance fee.
- Training and qualification
- Start-up equipment.
- Supplies start-up equipment and ensure it is up and running.
Additionally, the franchisee has to pay an operating fee, usually calculated as a percentage of the franchise’s gross sales and paid monthly, quarterly, or annually. These fees are somewhat the basis of the agreement.
Still, the contracts may include other concepts, such as a minimum liquidity requirement that guarantees viability or contributions to advertising funds (from which the brand benefits globally).
The franchisor also requires that, in the case of opening a retail store of any type, a series of minimum requirements be met related to the minimum population in which the premises are opened, its location, minimum square meters, competition, the average income of the people, minimum distance from another franchisee, etc.
There is some control on the part of the franchisor to ensure that they have a homogeneous brand presence, policies, customer service, and products. Hence, for example, it requires that the same uniforms be used by all employees or the same decoration and signage be used in all the brand’s stores.
How Do I Find a Franchise?
Now that we are clear, we need to find a franchise. Where are the franchisors located? Where can you find out?
A franchising company doesn’t hide its business model. On its corporate websites, it is common to find a specific section in which the conditions are reported or, at least, a contact is offered.
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The internet is a solution when it comes to searching. There are complete portals that are similar to franchise search engines. These portals allow you to use filters to choose the sector, subsector, and range of investment. It will certainly make your research much more effortless.
Finally, you may also be interested in attending franchise fairs organized periodically in Africa.
The advantage of approaching them is that you can see and test the product to be franchised in detail, speak in person with the franchisor, and see many alternatives quickly. The Southern African International Trade Exhibition (SAITEX) is one of the largest.
Examples of Franchises in Africa
Several businesses in Africa operate on franchising. If we search by sector, we can find,
- Restaurants and food:Starbucks, Subway, Telepizza, and Shoprite
- Fashion:Zara, Kids Emporium, Benetton, and The T-shirt Warehouse,
- Car rentals: Bidvest, etc.
- Hairdressing: NS Style Salon, etc.
Conclusion
Franchising can be a good business model if you still determine whether or not your business idea can make you the desired income.
With franchising, you can access training and other professional support from your franchisor. This training and supports give you the skills and experiences you may need when you become an independent business.
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