The U.S. Trade Mission to Sub-Saharan Africa kicked off Sept. 26 in Johannesburg, South Africa. With stops here, Nairobi, Kenya and Lagos and Nigeria over the next week, the delegates were excited and anxious to get to work understanding the markets and meeting qualified prospects.
The trade mission, which is produced by the U.S. Commercial Service and is sponsored by the International Franchise Association and Franchise Times magazine, has become a true partnership with all the parties doing their part to create and deliver international development services to IFA franchisor members.
Participating franchisors on the mission include CKE Restaurants represented by Geoff Spear, vice president of International Relations; Curves represented by Clive Robinson; International Dairy Queen represented by Amir Kremer; Focus Brands Inc. which include Carvel, Cinnabon, Schlotzsky’s, Moe’s Southwest Grill and Auntie Anne’s Pretzels represented by Scott Chorna, director, International New Business Development; Global Franchise Group which include Great American Cookies, MaggieMoos, Marble Slab Creamery and Pretzelmaker represented by John Barber, chief development officer and John Peddar, executive director, International Business Development; Hertz Equipment Rental represented by David Riker, CFE, director, Global Franchise Development; Johnny Rockets represented by Duane Messerschmidt, director, International Sales and Support; Tutor Doctor represented by Frank Milner, CFE, CEO; and Wing Zone represented by Hair Parra, vice president, International Development.
The Global Franchising Team Leader for the U.S. Commercial Service, Jennifer Loffredo is responsible for overall coordination of the mission for the three stops. As sponsors of the event, both the IFA, represented by Scott Lehr, senior vice president, U.S. and International Development and Franchise Times represented by Nancy Weingartner, executive editor, provided initial marketing for the mission and support throughout the mission.
As with all trade missions, the goals are to help the participating franchisors understand the markets visited from a legal, demographic, real estate and development perspective but most importantly to get them face to face with qualified master and area development prospects for one-on-one discussions.
Deputy Senior Commercial Officer with the U.S. Commercial Service South Africa, Brent Omdahl welcomed the group to Johannesburg and introduced his team, Felicity Nagel, commercial specialist and Jean Claude Gelle who had been busy the last month setting up the qualified visits for the delegates. The country team briefing was led by Deputy Chief of the Mission, Virginia Palmer and Larry Harris, Commercial Counselor and Cory Pickelsimer, senior agriculture attaché.
South Africa, known by many as the gateway to Sub-Saharan Africa has strong financial markets and solid infrastructure which makes it an idea country for U.S. Franchisors to launch their African growth strategy. Seven of the 10 fastest growing cities in the world are in Africa. South Africa ranks 40th in the “ease of doing business” ranking, which is well above most of its neighbors. More than 400 U.S. companies are in South Africa and the two countries have $17 billion in bilateral trade. Top industries in South Africa include energy, healthcare, agriculture, technology, transportation and retail. Wal-Mart recently entered the market by purchasing a 51 percent interest in South Africa’s MassMart and the investment appears to be a paying off with strong growth. The unemployment rate is 25 percent although it is higher in some of the rural and poorer areas.
Some of the challenges for American companies in South Africa include finding skilled workers and the effects of organized labor on the cost of running a business. While supply chain challenges can still occur, South Africa is much more advanced than its northern neighbors in this area. For food franchisors, beef & poultry can generally be sourced in South Africa. Because of high duties on imported U.S. beef and poultry, it is advised to purchase locally. Sauces and condiments can also be sourced locally but duties are a more reasonable 10 percent from the U.S.
The general migration of the population in South Africa is heading to the large cities of Johannesburg, Durban and Cape Town. In fact it is estimated that more than 40 percent of the country’s GDP comes from the Johannesburg area which suggests that any entry into South Africa should begin in Johannesburg where the middle class is growing substantially.
Derek Smith, president of the Franchise Association of South Africa then provided the group with some statistics of growth of the market for franchising. He reported that franchising now has a legislated definition within the Consumer Protection Act and that FASA has drafted a code to submit to the National Consumer Commission and is offering to fill the role of Alternative Dispute Resolution for any complaints that may arise from the franchising sector. Mr. Smith also shared that franchising accounts for 9.7 percent of the GDP in South Africa and involves 17 different industries; 300,000 are employed directly in franchising with more than 30,000 SME’s in franchising. It was interesting to learn that of the 600 franchisors in South Africa, 90 percentare local. The largest category within the sector is the food and restaurant category which represents 22 percent of the total. Derek reported that 50 percent of their franchisor members had been in business for more than 12 years and 75 percent at least six years. He described a few of the challenges ahead for franchising in South Africa, which include finding the right franchisee that is qualified both financially and with the skills to grow the business; increased costs such as labor, utilities and fuel. It still appears that FASA’s members are optimistic – 88 percent expect growth this next year. He described a new jobs fund that the government is rolling out which could create 10,000 new jobs per year over the next nine years. With this fundmwhich will assist with training, mentorship and coaching, FASA hopes to create an additional 150-200 new franchised outlets which will create 2,000 new jobs in the next three years.
Of course the primary purpose of the Trade Mission is for the franchisors to meet with qualified master and areas development prospects previously set by the USCS staff. The group quickly ran off to their scheduled appointments for the afternoon.
Later in the day the delegates reconvened for a panel discussion of franchise best practices. Speakers included Peter Moyanga, McDonald’s Franchisee with eight locations; Eric Parker, CEO of consulting firm Franchising Plus and co-founder of Nandos and Salim Shermohammed, CEO of Impact Investments, a multi-unit Franchisee in the U.S. and now partner in new food brand in South Africa. Mr. Parker described the local franchise market as robust and dominated by some very strong players such as Famous Brands whose brands include Debonairs Pizza and Steers Burgers and Mug & Bean; Nandos; Chicken Lickin and Wimpy. He also cautioned the U.S. franchisors on finding the right partner and being willing to adapt to local flavors. He mentioned a number of U.S. franchisors that have entered the market and left. The speakers discussed an important measurement – LSM or Living Standard Measurement and stressed that U.S. Franchisors need to know where their market is and target it. They reported that the upper end of the LSM – six and above is already well serviced and that the real opportunity in South Africa is in the 4-6 range, keeping in mind that the average monthly salary is 2,500 rand (approximately $250 per month)
The evening was spent at the U.S. Commercial Counselor’s residence for a reception and dinner where the delegates met with other government and commercial contacts wrapping a very full first day in Johannesburg.