Franchising could play a key role in helping to solve South Africa's employment crisis if the government establishes an incentive plan to encourage corporates to recognise the viability of the business model.
According to Eric Parker, co-founder of Nando's and CEO of Franchising Plus, who was speaking at a round table on franchising hosted by Nedbank, the current failure rate for small businesses in South Africa runs as high as 70 or 80%, whilst the failure rate for franchises is just 5%.
"Franchises are a proven, stable business model. Whilst the government is not in a position to be able simply to create new jobs, it could incentivise others to do so by providing incentives to companies to establish franchises that would be able to employ those people who are actively looking for work, but are without formal training or employment."
He said that these incentives could involve tax breaks, such as making the profits accrued within the franchise tax free or enabling the company to benefit from additional BEE points. "In addition, these franchises would also secure a distribution channel for the company to sell its products and services to its customers.
"We estimate that if this concept was successfully rolled out, it could easily produce around 700 franchises and 6000 jobs in Gauteng alone within three years. This could also be repeated in Cape Town and KwaZulu-Natal, creating thousands more job opportunities across the country."
Parker noted that of the 53 million people currently residing in South Africa, only 8.9 million are formally employed, whilst between 8 and 10 million are actively looking for work. "The 8 million people who are looking for work can already do a number of jobs, such as painting, plastering, gardening or even running spaza stores."
Corporations such as Plascon or Lasher could then help to train these people to become skilled painters or gardeners, before branding the service and franchising it. "It would not only provide an additional revenue stream to the company, but would also provide an innovative way to create jobs on a sustainable basis," said Parker.
"Furthermore, when you provide people with sustainable jobs, the likelihood is that some of these people will then step up to take on more responsibility - eventually becoming the franchisee, enabling them to build the business to a point at which it can employ others."
Slow uptake in SA
He said that franchising has proven to be a very successful business model around the world, with a penetration rate of 54% of retail sales in the US and 32% in Australia. This compares with just 12% penetration in South Africa.
"There is a common misperception about franchising that it is largely for fast food retail outlets. However, this actually only accounts for about 30% of franchises; there is a huge opportunity to exploit other forms of services.
"The reality is that we cannot help millions of people without formal employment or skills suddenly to be trained in scarce skills, such as engineering or medicine. Something has to be done now to assist these people and one of the ways to create viable employment opportunities is to create sustainable franchises," said Parker.