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Possible Disadvantages of Franchising in South Africa

possible-disadvantages of franchising

There are several areas in franchising that can considered disadvantages if not fully understood. These fall into three categories:

1. Limitations on independence

An important feature of franchising is that every aspect of the business format is defined and each unit conforms. Not everyone will be happy to operate a business under such constraints and you need to do some soul searching here. While you do, keep in mind that in the SME environment, and indeed in any business, “independence” is a relative term. No matter what business you are in, and even if you operate it independently, market realities, including the whims of major customers, can – and often will – influence the way you operate.

Discipline

Being a franchisee requires a great deal of self-discipline.

On the one hand, you are the boss and nobody will control your routine movements. You need to be able to put in the required hours and the necessary enthusiasm to ensure the success of the business.

On the other hand, you are working within a system in which there is little scope for creativity. Almost every aspect of operating the business is laid down in the operations and procedures manual. To exacerbate matters, franchisor representatives can be relied upon to ensure that you adhere to the proven guidelines.

This is not necessarily a bad thing. It protects you against rushing into decisions you may regret later. Moreover, recent developments, especially in the USA, point towards a move away from the concept of “the franchisee as a blind follower”, towards “the franchisee as the regional developer of the brand”. If this trend hasn’t taken root in South Africa already, it will only be a matter of time until it does. Once this happens, networks that go this route will offer franchisees who can demonstrate commitment to the brand almost limitless opportunities for growth.

It all goes back to selection. You need to identify a system that offers you a good culture fit and is prepared to accommodate your abilities as well as your aims and ambitions.

Monitoring by the franchisor

While initially, almost every franchisee welcomes visits by the franchisor’s field service representatives, some soon begin to see them as unnecessary interference. After all, they reason, “I am now able to do my own trouble-shooting, so what do I need this person to come into my business and criticise the way I run it?”

Admittedly, this is human nature, but shortsighted nonetheless. You invest in a franchise precisely because it functions like the proverbial well-oiled machine. Isn’t it fair and reasonable, then, that the franchisor expects you to stick to the network’s proven systems and procedures once you are a franchisee?

Several issues are at stake:

  • The franchisor supplies you with a blueprint for business success. Unless you use the blueprint as intended, its efficacy becomes suspect.
  • The brand’s followers – your customers – do business with you precisely because of the perceived brand promise. Any deviation from the network’s standards puts this promise into question. Not only would this impact negatively on the business performance of your own unit but also would impact negatively on the reputation of other members of the network.
  • Having made a substantial investment into their business units, other members of the network expect the franchisor to protect their business interests. They would revolt, should the franchisor stand idly by while you damage the reputation of the brand.

Franchise fees

During the early stages of the franchise relationship, the franchisee depends on the franchisor’s assistance and usually does not mind paying ongoing fees. As time goes on, however, the franchisee is likely to become more self-sufficient. Eventually, he may resent paying these fees.

Research has shown that franchisees go through cycles ranging from total dependency to co-operation, with several stages in-between. This phenomenon has become known as the Franchisee lifecycle syndrome.

Reputation

Each outlet operating under the network’s brand, regardless of whether it is operated by the franchisor or a franchisee, has the capacity to affect the reputation of the whole system. If there is a wide disparity in service quality from one outlet to the next, it will harm the reputation of the brand. This can affect the business performance of your unit and you have little power to change it.

2. Inflexibility

Responding to the market

In certain circumstances, franchising can be an inflexible method of doing business. As a franchisee, you are bound by the franchise contract to operate the business in a carefully prescribed manner. Although the franchisor will have reserved the right to respond to changes in the market, this is unlikely to happen without a process of consultation. This tends to make the introduction of changes to the system, for example changes to the business format, the corporate identity or the product range, a slow process. It can be frustrating for individual franchisees not to be able to respond swiftly to the emergence of new trends in the local market, or the arrival of a local competitor.

On the positive side, it protects you against responding to fads that lack staying power. This prevents you from implementing “knee-jerk reactions” which could upset suppliers, staff and long-standing customers for no good reason and may be costly to rectify.

The daily work routine

What may seem an exciting challenge when you look in from the outside could soon turn into a boring routine. It is important, therefore, that you have passion for the product your franchise offers. And if it is your goal to grow the business, you need to ensure that your territory offers realistic potential. Once again, careful selection is the key!

3. Risks arising from poor franchisor performance

Presenting something as a franchise does not automatically turn it into a successful concept. Unfortunately, not all franchises are soundly based or well run. When you sign the franchise agreement, you are formally binding yourself to a specific network, so beware. It is vital to select one that is competent and ethical.