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Researching a Franchise

Protecting Interests

Are you considering investing in a franchise? If so, we have good news for you.

Mark Rose

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Since the introduction of the CPA, every franchisor is legally obliged to issue serious prospects with a disclosure document and grant a cooling-off period. This should go a long way towards protecting those who are over-eager to get started from making a life-changing decision they may come to regret.

It is no exaggeration to say that the disclosure document is the prospective franchisee’s new best friend. It provides all the information needed to assess the franchise opportunity, warts and all. It follows that the decision to join a franchise brand will be based on facts rather than marketing hype.

FASA recognised the need for a disclosure document early on. Unfortunately, this organisation’s appeal to members to provide a disclosure document met with mixed success. Those who had nothing to hide complied willingly, others were less diligent. To tighten up on this vital requirement, FASA made it a condition of membership in 1994. The only problem was that FASA could not enforce the requirement. In any event, not every franchisor was a member of FASA, leaving a large portion of prospective franchisees open to misrepresentation and even fraud.

The introduction of the CPA put a stop to this. Whilst originally, having a disclosure document was a requirement imposed on franchisors who wanted FASA membership, non-members were unaffected and FASA’s ability to impose sanctions for non-compliance by members was limited to termination of membership. Now, making a disclosure document available to qualified franchise prospects and their professional advisors has become a legal obligation.

Prescribed Content

The Regulations to the CPA are fairly specific regarding the minimum information the disclosure document must contain. For example, the franchisor is obliged to:

  • Disclose the total number of franchised outlets in operation, the number of outlets franchised during the preceding year, turnover growth and net profit.
  • Provide a statement to the effect that the franchisor company’s financial status has not changed significantly since the date the most recent financial reports were drawn up by the franchisor’s accounting officer.
  • State that there are reasonable grounds to believe that it will be able to meet its financial obligations arising over the foreseeable future as they fall due.
  • Provide written projections stating the level of potential sales, income, gross or net profits for the franchised business. Alternatively, figures achieved by similar existing franchises of the network may be given but this must be disclosed, with full particulars of assumptions made.
  • Attach a certificate written on the official letterhead of the franchisor company’s accounting officer whereby the accounting officer certifies that:
  • The business is a going concern.
  • To the best of his/her knowledge the franchisor is able to meet its current and contingent liabilities.
  • The franchisor’s audited financial statements have been drawn up in accordance with accounting standards that are generally accepted in South Africa and reflect fairly the financial position of the franchisor for the period covered.

Prescribed Appendices

  • A complete list of current franchisees with full contact details and a statement to the effect that the prospect is entitled to contact any existing franchisee to assess the accuracy of the information contained in the disclosure document.
  • An organogram showing the franchisee support system that is in place within the franchisor’s operation.

Other Important Considerations

Cooling-off period
The CPA states that a qualified prospect must receive a disclosure document at least 14 days prior to the signing of a franchise agreement. This requirement should effectively put paid to the ‘sign now, regret later’ approach to entering into a franchise agreement.

Confidentiality requirements
Given the confidential nature of the information the disclosure document contains, franchisors are concerned that this information could fall into the wrong hands. This is understandable but not addressed by the CPA or the Regulations. However, legal practitioners believe that franchisors are entitled to demand the signing of a Secrecy Undertaking or similar document prior to handing over the disclosure document. Signing such a document must not obligate the prospect to anything beyond treating the information they are about to receive in the strictest confidence, and not using it for any purpose beyond assessing the viability of the specific opportunity. L

The Act and you
The CPA imposes an obligation on franchisors to make full disclosure of salient facts and grant prospects sufficient time to assess the viability of their offer. These are two very important steps towards ensuring ethical dealings in franchising. In this context, it is noteworthy that FASA’s disclosure requirements are stronger than the CPA’s minimum requirements. This means that prospects about to join a brand that is a FASA member enjoy double protection. The CPA ensures that the disclosure document provides specified minimum information and FASA’s Code of Ethics adds additional protection.

Mark Rose is the Head of New Business Development at Nedbank Business Banking. He holds a Masters in Business Administration (MBA) from the Oxford Brooks University, as well as various business qualifications from the Gordon Institute of Business Science (GIBS), the University of Stellenbosch Graduate School of Business, and the University of South Africa Graduate School of Business.

Mark Rose is the Head of New Business Development at Nedbank Business Banking. He holds a Masters in Business Administration (MBA) from the Oxford Brooks University, as well as various business qualifications from the Gordon Institute of Business Science (GIBS), the University of Stellenbosch Graduate School of Business, and the University of South Africa Graduate School of Business. Nedbank’s New Business Development unit develops customised industry specialised offerings to the medium sized business market, including Franchising, Agriculture, Professional – including Financial and Legal Practices, and the Medical Fraternity. This unit has also developed a unique Enterprise Development proposition. For specialist advice and more information on the Nedbank Franchising proposition visit the website or send an email to franchising@nedbank.co.za

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Researching a Franchise

The Future Of Franchising Looks Smaller (And Fancier)

Franchises are adding smaller locations and reduced menu options, as niche markets emerge, to attract the customer of the future.

Diana Albertyn

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As the owner of a thriving franchise, you’re well aware of the fact that fluctuations in the world economy has both negative and positive effects on business. When it comes to your successful franchise, tough times could mean adopting new trends or seizing gaps, potentially resulting in a new franchise concept you wouldn’t have otherwise thought of.

“The buzz word in global franchising is ‘flexibility and adaptability’,” according to the Franchise Association of South Africa (FASA). “Whether a result of a need to inject some life into stagnant franchise brands or as a result of the new world order brought about by the recession, franchising is embracing alternative and options in a big way.”

Related: As Consumers’ Tastes Change Can Your Franchise Keep Up?

You can do this by either devising innovative areas to franchise or allowing more flexible ways for franchisees to operate to help with their bottom line. FASA has earmarked these as some of the biggest franchising trends in 2018 and beyond:

Smaller, more cost-effective franchise models

When franchisees don’t have high franchise fees and start-up costs to worry about, they can focus more on what customers want, and deliver. The added benefit of smaller spaces include having fewer employees and reasonable rental.

Among the new frontiers in franchising are the food court losing its legacy as the preferred setting for food franchises, as service stations increase in popularity in the industry. A number of brands – like Steers, Debonairs and Mugg & Bean On-the-Go outlets – are co-locating with major fuel retailers to create fully-integrated accessible centres.

Niche markets are offering one-of-a-kind franchises

“The opportunity to get in on the ground floor of a new franchise trend is also on the rise,” notes FASA. This could be offering a unique gourmet food experience in your outlets or a ‘green’ space of energy saving technology in your operations.

“Consumers have gained control of what they want,” says Morné Cronjé, head of franchising at FNB Business. “It is no longer about what you have on the menu, but how your product or service can be tailor-made to what a customer really wants.”

Founded just five years ago (2013), RocoMamas boasts over 60 franchise outlets, clearly responding to the essence of this trend –allowing consumers to build their own burgers without having to pay for items they’d rather leave out.

Related: Key Franchising Trends To Consider For 2018

Stay ahead of the game

For long-term success, franchisors who want to expand their business should start exploring beyond present circumstances and current predictions.

“2018 will no doubt bring its challenges, however for every challenge there is a window of opportunity to explore. We are advising franchisors to scrutinise these trends carefully, it can definitely give them a boost for 2018,” says Cronjé.

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Researching a Franchise

As Consumers’ Tastes Change Can Your Franchise Keep Up?

More of your customers are eating in, and if you’re not packaging, portioning and pricing your food accordingly, they’re heading to a retailer that does.

Diana Albertyn

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It’s generally believed that it’s cheaper to cook your own breakfast, lunch or supper than to go out and pay a much higher price for the same food in your fridge at home. But today’s consumer’s live fast-paced lifestyles – so food is becoming more about convenience.

31% of 6 022 middle-to-high income South African earners surveyed by BusinessTech, put eating out and entertainment at the top of their list of things they’re most willing to cut their spending on in 2018 to save money. Research by supermarket giant Pick n Pay correlates, reporting an increase in customers buying quality convenience food, not just to entertain at home, but for dining at home.

Related: Driving Your Business Growth Towards More Customers

Consumers are empowered by variety

You’ve heard about the ‘fast casual generation’, aka Millennials? They are demanding healthy, affordable eating experiences. But do you know how this affects the future of the food industry, and your business in particular – because they’re not the only ones adapting their lifestyles.

An increasing number of food brands and chefs are compelled to create complete ranges of new, convenient meal options that are not only packaged, portioned and precooked attractively, but affordable too.

The fastest growing sector of retail foodservice for the past four years has been the convenience store sector. Non-traditional avenues of distribution are growing, gobbling market share while establishing new patterns of consumption, price points, and customer loyalty.

Shoppers are becoming value-focused

A savvy franchise would acknowledge that although pre-packaged and pre-cooked convenience food isn’t a new trend among consumers and supermarkets, it is gaining popularity. “Some of the most notable trends in 2017 were an increasing shift to convenience foods as customers looked for both value and convenience,” says Pick ‘n Pay’s Head of Marketing, John Bradshaw.

Related: 5 Techniques To Leave Customers Grinning And Vowing To Return

Value for money and healthier food choices will continue to be top of the convenience food list for consumer in 2018, as more shoppers cut down on luxuries.

“We’ve seen significant growth in the number of customers looking for an easy way to enjoy a good meal without the cost of eating out,” says Bradshaw.

But he cautions that South African shoppers have always been value-focused, and while the most significant shift Pick ‘n Pay has seen is how all its shoppers, no matter what their income levels, are watching their budgets.

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Researching a Franchise

Maximise Your Social Media Reach This Holiday Season

Quick and cost-effective, social media is your best tool to reach target markets when it matters most – during the holidays.

Diana Albertyn

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It’s not just the end of the year that can be lucrative for businesses. School holidays and other major breaks during the year present consumers with more time to spend shopping. Why not ensure money is spent at your franchise by capitalising on the minimal cost and maximum exposure of social media?

You don’t have to create entirely new deals or promotions from what you may already have running on your store, but find a way to make it special for your social media followers, suggests Kelly Mason, marketer at Customer Paradigm.

Holiday campaigns on Twitter, benefitting from popular hashtags, streaming live content, and receiving information instead of just distributing it via social media are just some of the ways to stay ahead of the competition.

Related: Why Your Business’ Social Media Marketing Strategy Is Probably Wrong

Know your customers well

The first step to attracting customers and getting them to complete a sale is understanding their customer journey.

“Being able to document where they spend their time online, which social channels they use most, and what they’re reading or watching on those channels is a huge plus. Finding that crucial information is fairly easy to do, thanks to modern-day marketing tools and resources,” advises Paul Herman, ‎VP: Product and Solutions Enablement Group, at Sprinklr, a unified customer experience management platform for enterprises.

The better you understand your customers, the easier it is to reach them through a campaign optimised for their interests.

Master social listening

You could be using social media all wrong in the run up to all your holiday campaigns. Perhaps it’s time you used this platform to listen to your customers?

“Through social listening, marketers can identify major trends and product keywords in their industries,” says Herman. “For instance, knowing those keywords can help marketers identify which social platforms are more popular for a target audience. With that information, they can make smarter decisions about where to spend their money and which products or services to promote on each platform.”

Related: 10 Laws Of Social Media Marketing

Use the information gathered to determine what customers like about your product, what they dislike about it, and how you can improve upon it so they can buy more of it. The more of this data you collect, the better and more effective your interactions with customers will be.

Try something new

50% of consumers look for a video of the product they want to buy before going to an ecommerce store to buy it, according to a 2016 Google survey. “Video can be an extremely effective way to get your customers to take action – in this case, to make a purchase with your store,” adds Mason.

Video adverts are often used as an experimental tool in social marketing and switching it up on platforms such as Facebook Live, Instagram Live, Instagram Stories, or Snapchat – depending on your brand’s activity and your audiences’ interests – can help attract customers during seasonal periods.

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