Franchise Trade Mission heads into second day in South Africa

 

 

The U.S. Trade Mission to Sub-Saharan Africa began day two in Johannesburg, South Africa with the delegates ready for another action packed day.  After a promising day of one-on-one meetings with prospective candidates, the delegates began the day with a legal update from Eugene Honey, partner with Adams & Adams on the legal aspects of operating a franchise in South Africa.  Mr. Honey described Intellectual Property and trademarks  are similar to that of the U.S. The time frame tends to be about two years between application and the granting of the marks however the company marks are protected during that time. He described copyrights as slightly tricky in that the author of any work, for instance an ad agency writing copy or designing ads is the owner of the copy unless you get it in writing ahead of time that you would own the work at completion.  He commented that all franchise agreements must contain a ten day “cooling off” period where a franchisee can cancel the agreement and receive a full refund.  Agreements should also contain all authorized goods and services, the obligations of the franchisor and franchisee, description of the system, payments to the franchisor,  territorial rights, details of IP, training and duration of the contract.

He offered that master agreements tend to be ten years while single unit agreements tend to be five.  Also included should be details on the Marketing fund and how the funds are collected, handled and dispersed.  Mr. Honey reported that the Disclosure Document must be presented 14 days prior to signing any agreement.  It must also include the number of units, net profit and projections of sales, income and profits.  On the topic of Exchange Control, he reported that an application must be filed with the reserve bank which generally takes two months for a response and must be approved before you can receive any upfront fees.

The group then began their second day of one-on-one business meetings with their pre-screened candidates.

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The afternoon was filled with a session on Consumer Behavior and Urban Retail Profiles for South Africa. Dr. Dirk Prinslo, CEO of Urban Studies and Damian Hattingh, and consultant with McKinsey South Africa, provided some context on what lay ahead for the franchisors from a marketing and customer targeting standpoint.

Dirk reported that as of 2011, South Africa had a population of 51,700,000 with a breakdown of 80 percent – Black African; 9 percent – Colored; 8.5 percent – White; 2.5 percent – Indian/ Asian.

He described that the real opportunity is in the cities beginning with Johannesburg and then Durban and Cape Town.  He also described the migration of the populations to the cities.

Dirk explained that using the LSM – Living Standard Measurement, the growth was in the segment that captures the four to seven LSM which has more than four million people and growing yearly.  He also described the shopping center market as well developed in South Africa and that there are many options for franchisors and their master franchisees to locate in well performing centers for their intended markets.  He reported on the increase in car ownership for the general population which is increasing mobility and providing solid growth in the middle market for goods and services.  He also mentioned a number of international retailers entering the market including Zara and Top Shop which is proving that the people are interested in international brands. He also cautioned the delegates to understand the market and remember that their brands are currently unknown in the market and to match their product to the right centers for maximum market share.  He also stressed that identifying the right locations in the malls is key and to be prepared for the local competition that has been in the market and is very savvy.

Mr. Hattingh explained that the growth in Africa will come from consumer growth and not from resources as has been in the past.  He reported that real GDP growth in Africa is at 5.1 percent and is the second fastest in the world behind Asia.  He said the South Africa and Nigeria stand out as the two highest in consumption compared to the rest of Africa.

Damian also described Sub Saharan Africa as a young and optimistic population with an urban explosion of population – 40- percent growth in the cities.  These consumers are also looking for quality at the right price, highly digital savvy and with modern tastes.

He suggested that the keys to success in Sub Saharan Africa include:

Focus on the urban areas; anticipate explosive growth; deliver branded quality products; create a strong value proposition; understand changing media habits; understand alternative distribution channels; embrace the youth movement; and understand the art of hiring young talent.

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As the day wrapped up, the delegates re-united with the U.S. Commercial Service, IFA and Franchise Times for a press conference that brought more than ten different media personnel to the press conference to learn about the brands and to ask questions about their plans to launch their brands in South Africa.  Brent Omdahl led the press conference and introduced Scott Lehr from IFA and all of the franchisors.  The Wall Street Journal and The Global Post were among the media that attended and interviewed the franchisors after the event.

The evening ended with a fabulous steak dinner at a local favorite – Butcher’s Grill in Johannesburg.