Franchising opportunities in Africa
05 Apr 2015, 12:00
Head of Franchising, Rest of Africa for Standard Bank, Philip Myburgh discusses the franchising opportunities that Africa affords business owners and why Africa is ready for franchising brands to enter the market.
Taking your franchise to Africa: Your recipe for success
If your franchise is ready to take the next step and expand into Africa there are some important considerations before you make the big cross-border leap.
Related: Retail & wholesale opportunities in Africa
First off, you need to look at which country would be best suited to your franchise. Remember that every single country in Africa is very different from one other, from their difference in culture to taste preferences and even differing supply chains.
“What you will find is that some South African brands might be very strong locally, but not particularly strong when you cross our borders,” says Phillip Myburgh, Head of Franchising, Business Banking, Rest of Africa.
“What support can you expect in each country? Do the products match the consumer market and economy?”
Myburgh advises that you need to keep these points in mind when you decide which brand you want to take into which country in Africa.
“Different brands in South Africa are also at different stages and different strategies with regards to expansion in Africa.
"It’s important that you talk to your franchisor to understand the strategies that they have. Some of them are mature when it comes to developing their brand footprint within the SADC countries and are quite mature in their thoughts around going into West Africa and East Africa.”
Expanding into Africa versus expanding locally
According to Myburgh the African market brings a lot of opportunity for customers looking to expand across South Africa’s borders. “With the South African market being quite saturated and the economy subdued, it’s a logical place to look across our borders,” he says.
“Many countries in Africa offer large growth opportunities, with a healthy growth from an emerging market perspective. Some of the markets are still small, yes, but then you have bigger countries as well, such as Nigeria, who is showing fundamental growth.”
Related: Manufacturing opportunities in Africa
The SADC countries closer to home are easier to do business in while still offering healthy growth, but as you move further north you’ll find higher risks, coupled with larger opportunities and rewards, says Myburgh.
“The infrastructure may be more limited, but that in itself brings big opportunity.
“Infrastructure development is underway, the young population is getting older, wealth is being created, technological advances are happening and when you combine all these aspects, it’s a great growth frontier for those willing to take the risk.”
Franchises that fail in Africa
There are a number of reasons why brands fail in Africa:
1. Viewing Africa as one country
The second reason is that brands in South Africa often see the rest of Africa as one country.
“This is one of the biggest mistakes that anyone can make,” he warns. “The African continent has many different countries and they all have different cultures; they have unique challenges, different markets, the people have different tastes, different practices and so on.
“If you don’t adapt your offering to that particular market, your brand will fail. The franchisors and the brands that have done well within those countries are the ones that have recognised the nuances of each country and have adapted their offering to make it a better experience specifically for that market. “
2. Lack of a solid supply chain
Many brands don’t understand the supply chain challenges that some of these countries bring, explains Myburgh.
“If you want to give a consistent customer experience, you need to make sure that the product that you put in front of the customer is exactly the same every single time; to do that you need a very predictable and solid supply chain. With the infrastructure and agricultural challenges that some of these countries face, it’s often a massive challenge for brands in Africa to consistently deliver a product, through the supply chain to the customer.”
Take for example a quick service restaurant that offers chicken to its customers: “If they’re doing business in South Africa they have a large JSE-listed chicken business that offers its customers the required product, at the right quality and quantity, on a consistent basis. As you move across our borders to some of our neighbouring countries you’ll still experience the same quality because the local supply chain can offer a similar experience.”
However, once they move further north, you’re now reliant on the in-country ability to offer that quality of chicken in the quick service restaurant. “This becomes a massive challenge as many of these countries only have subsistence farming”, says Myburgh.
“Because commercial farming is limited in these countries, the ability for one customer or one farmer to provide a franchise customer with all the chicken required for that big business is nearly impossible.”
This means you now need a whole bunch of different suppliers. Automatically, your pricing and quality become issues and your business becomes a lot more complicated.
To counter this supply chain challenge he advises, successful brands in these countries have gone out of their way from a franchisor perspective to understand the local challenges and assist the franchisee with many of these intricacies. This is just one reason why choosing to partner with the right brand is so important.
Related: Considerations for expanding your business into Africa
“In addition to that, when partnering with a bank like Standard Bank you must remember that many of the businesses that are suppliers for the franchises that you’re looking to open are also our clients, Myburgh explains.
”We bank large commercial businesses and large agricultural businesses in those countries, and so one of our value adds is that we connect these customers to each other. We thereby ensure that our big agricultural customers can be linked up to the big franchises to ensure that we make the supply chain link a little bit easier for everyone, giving our agricultural customers take-off for their product at the same time.”
Assistance from Standard Bank
“Standard Bank is obviously the biggest bank in Africa when you look at the size of our asset book," Myburgh describes.
“This also comes with a fundamental footprint across the continent. We have retail operations in 14 countries outside of South Africa’s borders on the continent and with that comes a lot of experience and knowledge of various markets.”
When a customer comes to Standard Bank looking to expand into Africa, the bank has got teams within 14 other countries that know that market and can assist the customer in expanding his operation there. Also, the Johannesburg head office has a team of experienced bankers that spend a lot of time in those countries that also guide the process from South Africa.
“We’ve got a franchising unit for South Africa and then a franchising unit for the rest of Africa that specifically looks at the needs of franchising customers who are looking to expand their businesses into the rest of Africa.”
The most important fact of all is that you have to have the right attitude. “Africa is not for the fainthearted - you’ve got to go in with the right mind set to tackle what Africa brings to the table, which is a significant opportunity but also a big challenge working in tough environments,” says Myburgh.
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