AFRICA MONEY-Franchises target Africa with fashion, food and fitness
Fri Sep 7, 2012 12:58pm GMT
By Tosin Sulaiman
JOHANNESBURG, Sept 7 (Reuters) - From fried chicken to ice cream and
body-building supplements, international franchises are making inroads into
Africa, tapping into consumers' hunger for their brands as developed markets
stagnate.
Hilton Hotels, owned by asset manager Blackstone, Yum Brands' Kentucky Fried
Chicken and the fashion retailer Mango are some of the companies driving the
growth of franchising in Africa. Others in the fast food, automotive and
education sectors are also expanding into the continent.
Franchising creates opportunities for African entrepreneurs and provides
jobs in the formal sector, while for brands it is a chance to enter a new
market at a lower cost and with a business partner who is familiar with the
terrain.
"It's an inexpensive means to expand using the money of others," said Kendal
Tyre, editor of a new book on franchising in Africa. "You have a franchisee
who is coming in and paying a franchise fee to have access to your system
that you've developed over some period of time."
However, weak judicial systems, corruption and poor infrastructure are still
deterrents for potential franchisors. The repatriation of profits from some
African countries can also be difficult and there are concerns about the
protection of intellectual property.
Until recently, franchising in Africa had only taken hold in the continent's
more advanced economies, such as South Africa and Egypt. South Africa's 300
billion rand ($36 billion) franchise sector accounts for 12 percent of GDP,
according to Standard Bank.
The industry employs around 500,000 people directly. Nearly 700 brands
operate franchises, including KFC and McDonald's, and home-grown businesses
such as Nando's, a chicken restaurant.
But as Western brands face slowing growth at home they are paying closer
attention to the rest of Africa, encouraged by legal and economic reforms
and governments keen to spur the growth of small businesses, said Tyre, who
edited Franchising in Africa: Legal and Business Considerations.
Countries such as Nigeria, Kenya and Zimbabwe have established franchise
associations, which can provide a code of ethics and standards and also
assist in disputes. The African Development Bank (AfDB) is also helping
Senegal, Tanzania and Ethiopia set up their own associations.
As more Africans enter the middle class, franchisors also hope to benefit
from pent-up demand for their products. By 2020, Africa's consumer spending
will amount to $1.4 trillion and 128 million households on the continent
will have discretionary income, according to McKinsey.
"There's a growing middle class that is really eager for a lot of goods and
services that aren't currently available," said Tyre. "And it's not simply
fast food. It's automotive, beauty, clothing stores, professional services,
childcare."
NIGERIAN ALLURE
Franchising in Nigeria, whose 160 million people have an almost insatiable
desire for imported goods, is still in its infancy but firms see it as too
big to ignore, said Anayo Agu, a commercial specialist at the U.S. consulate
in Lagos.
"In the last two years we've noticed tremendous interest in Nigeria," he
said. "If you can access Nigeria you actually have the whole of Africa to
tap into."
KFC, which entered Nigeria in 2009, is the most well-known international
franchise. Spanish fashion retailer Mango also has three stores in the
country, adding to its five in South Africa.
Two major fast food retailers are due to set up franchises before the end of
the year, said Agu, declining to name them. He added that an ice cream
retailer was also looking to move in.
Other U.S. firms that have signed deals include Crestcom International,
which provides management training, Precision Tune Auto Care and IN2IT, a
nutrition and fitness franchise which offers kickboxing and pilates classes,
along with muscle building pills and protein shakes.
Agu believes franchising may be the best way of limiting Nigeria's huge
informal sector as it gives entrepreneurs a template for running a business.
"The biggest problem is getting people to understand that the only way you
can run a business and grow it is if it is system-driven," he said. "Once
you have a system like that you can't avoid tax. You must play by the
rules."
Many countries have made progress in the areas of intellectual property
protection and repatriation of profits, but franchisors often find it
difficult to seek legal redress for problems because of inefficient legal
systems, according to the AfDB, which is planning its first conference on
franchising in Africa next year.
Perhaps the biggest sign of progress would be the proliferation of
McDonald's restaurants throughout Africa. It is only in a handful of
countries, like South Africa, Mauritius and Egypt, suggesting others do not
meet its stringent rules and standards.
"It gives you a good indication of whether or not there's something
important missing," said Robert Zegers, chief investment officer at the
AfDB. ($1 = 8.2 rand)
C Thomson Reuters 2012 All rights reserved
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Received on Fri Sep 07 2012 - 18:18:54 EDT
