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The failure by the government to move on the establishment of a franchise ombud is a “huge bone of contention”.
That’s according to Franchise Association of SA executive director Vera Valasis, who was speaking to City Press at the 21st International Franchise Expo in Durban this week.
“It’s a huge bone of contention … there’s no franchise ombud. You can get up in the morning and start selling franchises [with impunity],” said Valasis.
Less than one-fifth of franchise companies were registered with the industry body and moves to bring them into the fold had come to naught despite efforts in the past three years or more to do so.
This means small investors who sink their savings into a franchise have few places to turn to if they get a raw deal or the business goes belly up, which happens on a “fairly regular basis”.
Valasis said only 160 of South Africa’s estimated 865 franchisers were association members and there was no way to compel outsiders to abide by its code.
She said complaints “almost always” concerned non-members.
The National Consumer Commission (NCC) gazetted a notice in January 2016 calling for comment on the code.
The code creates a position for an ombud to settle disputes, which would give the association teeth.
However, it must first be accredited by Minister of Trade and Industry Rob Davies and, despite lobbying, this had not happened.
The NCC confirmed on Friday it had received “constructive” comments on the code and had included these in its submission to the trade and industry department.
It had been with the department for “quite a while”, said commission spokesperson Trevor Hattingh.
The department had not responded to requests for comment by the time of publication.
Like the rest of the economy, Valasis said the franchising sector was facing tough trading conditions.
“What concerns us is there are still [franchise] businesses that have not adapted or modernised their business model to today’s challenging economic climate,” said Valasis.
She believed fees and royalties were mostly market-related, but many franchisees were no longer able to pay.
“We are saying franchises must change,” said Valasis.
Up for review should be long-standing royalty and marketing contributions and built-in commissions on start-up costs and supplies, she said.
Billy Constantinou, a franchise broker specialising in restaurants, believed many of the bigger franchises were arrogant and dictated terms, while some of the smaller ones were “almost chasing short-term joining fees and royalties”.
Nevertheless, Constantinou remained “very much in favour” of franchises, particularly for newcomers lacking business skills.
The industry veteran offered a wry take on the sector and the franchisees who often became its biggest critics: “When a person is making money he thinks he is a hotshot. It burns his arse to pay royalties. But when things are doing badly they blame the franchiser. It’s almost a no-win position.”
One man to whom little of this applies is Kokstad petrol station owner Lucas Mtumi.
His business, a Shell franchise, has gone from strength to strength in the 25 years under his ownership.
He has expanded it twice, including an expansion completed last year, with financing from Ithala Development Finance Corporation, the KwaZulu-Natal organisation, which also sponsored the expo.
The station now has twice as many pumps and sales volumes are up more than a third.
The R9.5 million from Ithala also paid for a Spar Express store franchise at the station.
Does Mtumi resent paying royalties?
Not at all.
“You have to look at the value not the cost,” he said.
The franchise branding was an assurance of quality that attracted clients, he said.
He welcomed Spar’s scrutiny of his shop and found franchisee training especially useful.
“You are meeting other businesses … you are networking. You go to Sun City on conference ... then tomorrow you have a big shop.”
