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Franchise: A key tool for the SMME sector

In the entrepreneurial field franchising is like an elephant - it's all over the place and is hard to overlook - but how big, potent and valuable/dangerous is it really ? These are some of the questions The Business Bulletin intends to address in a number of editions henceforth, starting off with this edition.

History
Franchising can possibly be traced as far back as 200 BC when the chain store concept for distributing name brand food products was introduced by a Chinese businessman, Los Kass. Regardless of when it started, franchising as we know it today began in 1863 by the Singer Sewing Machine Company in the United States. Coca-Cola sold its first franchise in 1899, next came motor car dealers and then petroleum dealers were quick to follow in 1910. However, the real growth in franchising did not occur until the late 1950s.
Today, the franchise method of distribution accounts for more than 35% of all retail sales in the United States and the growth of franchising has been just as successful in most other developed countries, including Canada, the United Kingdom, Germany and Japan. Developing countries such as Mexico, Indonesia and Malaysia are also finding that franchising is an effective way of creating new businesses and increasing employment opportunities.

Definition
Franchising is a marketing system which is used as a method for increasing the distribution of goods and services to consumers. Franchising involves two levels of business people: the franchisor and the franchisee. The franchisor is the person who develops a system of doing business, a business format system, and who offers his name, trademark and " know-how" for other business owners to use. The franchisee is the person who purchases the right to operate the business under the franchisor's name or trademark and has agreed to follow the business format system which has been developed by the franchisor. Amongst the host of industries today being franchised, are food, beverages, hotels, building products and services, hospitals, pharmacies, hair care, auto repair and in some countries public services such as post offices and telephone outlets.

South Africa
In SA today it is estimated that the total turnover generated per annum by franchised establishments and franchisors, excluding petroleum retail figures, is some R15 billion. If the turnover generated by petroleum retailers is included, the turnover increases to R25 billion, representing some 12% of adjusted private consumption per annum. These are only estimated figures and stand to be verified. In our next edition more detailed and verified figures will be given.