Absa Business Banking - Smart Procurement World · Business vs. Product Franchise Format Business...
Transcript of Absa Business Banking - Smart Procurement World · Business vs. Product Franchise Format Business...
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Smart Procurement Conference
Absa Business Banking
10 September 2013James Noble
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IS FRANCHISING THE RIGHT BUSINESS FORMAT FOR YOU?
UNDERSTANDING THE FUEL RETAIL INDUSTRY…….
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WHAT IS A FRANCHISE?
A FRANCHISE IS AN AGREEMENT OR LICENSE ENTERED INTO BY TWO PARTIES, NAMELY THE FRANCHISOR
AND THE FRANCHISEE
BEING IN BUSINESS FOR YOURSELF BUT NOT BY YOURSELF
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Business vs. Product Franchise Format Business Format
• The franchisor has set up a business and has operated it profitably for a reasonable period.
• The market segment should be of reasonable size and show a sound potential for sustainable growth.
• Franchise Agreement, Disclosure Document & Operations Manual
• The franchisor is committed to ethical franchising and has a track record of creating win/win outcomes.
Product Format
• The franchisor offers (usually non-exclusive) territorial protection, product training and some branding but neither a comprehensive business system nor extensive operational assistance.
• This is increasingly seen as a weakness by both partners and has prompted many product franchises to convert to a comprehensive business format franchise format.
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Why financing a franchise ?
• It’s a proven concept with established systems, controls and processes
• The franchisor assists with selecting and securing a suitable premises
• The brand has already proven its viability and established a brand name
• Franchisees are given extensive initial and on-going training
• Franchisees are provided certain norms and benchmarks which supports financial forecasts
• A franchisor will continually analyse market trends and competitors to ensure that the brand maintains its competitive edge
• The failure rate of Franchise businesses in general is much lower than stand alone businesses
• As franchisee you are not alone and are continually supported by the franchisor
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Disadvantages of franchising
• Initial and ongoing fees are payable
• Franchise Fee, Advertising Fee, Joining Fee
• Set-up costs may be higher but this should be offset because break-even should be reached sooner
• Some individuals resent the fact that they are forced to operate within a clearly prescribed framework
• Regular upgrades and revamp of outlets to conform with franchise requirements putting strain on the cash flow
• Risk associated with the network’s overall performance
• Unethical franchisors – short term vs. long term relationship – you will have to do your homework well to avoid these franchise systems
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Ask yourself these questions
• Do I have excellent physical stamina?
• Do people think I’m a very straight forward person?
• Am I willing to do what it takes to make a lot of money?
• Do those close to me recognise that I'm very much a "people" type of person?
• Could I still meet my financial commitments if the franchise income was lower than expected?
• People who know me say I'm a natural salesman?
• Is my spouse or partner happy to share the risks involved in a franchise?
• In my franchise I would not have to wear a uniform at work?
• Given a bad situation, is my approach to see what good can come from it?
• Do you think you will have more free time to spend with family and friends?Source: www.whichfranchise.co.za
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Franchisee/ fuel retailer assessment
• Profile of the potential/ existing franchisee/ fuel retailer
• Business experience/ acumen
• Bank and credit record
• Personal asset & liability statement
• Current lifestyle & salary
• Own contribution (and source)
• Security
• Business plan
• Comprehensive and realistic cash flow projections
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Historical growth of franchised systems - SA
Source: Franchize Directions – Bendeta Gordon
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Franchised systems per business category
Comments
• Fuel Retail contributed 41% of total SA Franchise turnover in 2010
• General Retail contributed 34%
• Fast Food contributed 7%
• The franchise industry provides an important source of employment in South Africa and employed ±478,000 people in 2010 (Fuel Industry ±78,000)
Source: Franchize Directions – Bendeta Gordon
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Ownership transformation in the franchise industry
Comments
• There has been a consistent increase in the number of BEE franchisees over the years.
• The petroleum industry is ahead of the other franchises in terms of transformation
• There has also been a steady increase in the number of women franchisees
37%
63%
2010
Non BEE Owners
32%
68%
2008
BEE Ownership
BEE Franchise Ownership (including Petroleum )
11
33%
67%
2010
Non BEE Owners
25%
75%
2008
BEE Ownership
BEE Franchise Ownership (excluding Petroleum)
23%
77%
2010
Non BEE Owners
20%
80%
2008
BEE Ownership
Women Ownership
Source: Franchize Directions – Bendeta Gordon
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Fuel Industry Overview• South Africa utilise 26% (more than
600k bpd) of all fuel in Africa (2.4m bpd)
• R180bn turn over industry (retail) contributing close to 6% of SA GDP
• 4,500 to 4,800 fuel retailers with a total asset value of R25bn
• ± 52% of all sites are oil company owned and account for 57% of the retail fuel volumes
• CODO vs. DODO - no substantial risk
• World class facilities - Currently large focus on convenience and quick service restaurants
• Liquid Fuels Charter of 2000 – 40% of retail sites in PDA control – opportunity for BEE Finance proposals
26.0%
19.0%
14.7%
15.5%
14.8%
10.0%
Engen Shell Caltex
BP Total Sasol
Split of fuel utilization in AfricaSA 26%Egypt 18%Nigeria 15%Libya 12%Algeria 9%Morocco 8%Rest of Africa 12%
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Challenges in the Fuel Industry• Regulation (developing countries) vs. Deregulation (1st world countries) –
price of fuel more expensive in deregulated countries and loss of employment opportunities
• Fuel prices influenced by exchange rate as well as international oil prices determined in dollars
• Fuel shortages from time to time due to refinery shutdowns
• Fuel price influenced by local levies and taxes
• Sufficient working capital facilities to maintain wet stock orders from oil companies (pressure on cash flow)
• Remuneration model that lags and therefore retailer not always compensated for his efforts
• High capital investment required to purchase a service station
• Long process to be approved as fuel retailer at the oil company and to obtain retail licence from the Department of Energy
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Opportunities
• Liquid Fuels Charter of 2000 – 40% of retail sites in PDA control –opportunity for BEE Finance proposals
• Oil companies driving Black Economic Empowerment with strict policies to ensure that targets are met
• Finance packages from financial institutions with favourable conditions to ensure cost savings and repayment ability
• Oil company contributions i.e.
• rental relieve, consignment stock, joining fee waiver, deferred payment of purchase price, additional assistance with mentors and financial compliance programs
• Training Academy’s at Oil Companies to ensure pool of potential retailers
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Questions ?James NobleFuel Industry [email protected] 350 8332082 462 3163