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Africa is on the radar these days for many Indian brands who wish to take their business across borders. We spoke to franchise experts in African trade to know about the galore of opportunities that the land offers to investors.
Africa has been the second fastest growing region in the world over the past ten years with an average annual growth of 5.1 per cent over the past decade. Private consumption, according to the Rise of the African Consumer report by McKinsey Africa, Consumer Insight Centre rose by R5 trillion ($568 billion) between 2000 and 2012. This is higher than in India and Russia and is expected to grow by a further R3.5 trillion ($400 billion) by 2020. Consumers who will make this possible according to the report are brand conscious, preferring formal shops and buying products based on price point and quality. Apparel, consumer goods and food were expected to account for 45 per cent of the estimated growth. This is more than consumers do on an average in India, Brazil and Russia. Well known brand Apollo Tyres had also entered South Africa in 2006. The company also announced that Apollo Tyres Africa Proprietary, a wholly-owned step subsidiary of the company in South Africa, has voluntarily initiated business rescue proceedings. It has appointed a specialist to re-structure its operations and to secure best value for all stakeholders. The evaluation by such specialist will decide the future course of action for the company in South Africa.
Potential for Franchising
Franchising has the potential to be a successful propellant in supporting the continued economic growth in Africa. Peter Moyanga, South African entrepreneur and past Chairman of the Franchise Association of South Africa (FASA) says: “South African companies in particular are ideally placed to establish and dominate the franchise footprint in Africa. But Africa is not homogeneous. Being successful in Africa requires an entrepreneurial attitude and a willingness to help create the market and infrastructure around the business venture, rather than just entering a country. Operating in Africa may entail investment in the wider environment, such as the supply chain, distribution channels and in the workforce, in terms of training and healthcare as well as investment in basic services such as provision of potable water, electricity and even sewerage systems. Building any successful business in Africa goes hand in hand with addressing the challenges the continent offers. Franchise companies entering Africa, have in the past failed for reasons that should not have occurred had these challenges been addressed prior to entering a country.” These challenges are:
- Market research- Obtaining market information on consumer attitudes, trends, and other relevant data is essential. Gathering market information is largely dependent on face-to-face interviews.
- Culture- Africa is a mosaic of cultures. Understanding cultural differences are vital when deciding on the correct marketing approach for a particular country. Imposing a single cultural based belief on a multicultural situation must be avoided.
- Management - Finding the right talent or partner for a particular franchise is a problem for franchise companies entering Africa. A thorough and well designed selection process is needed. In addition, steps must also be taken to ensure that management skills are developed and maintained.
Brands from all over
One of the most loved gifting brand, Archies also has more than 21 overseas units and plans to expand in Africa now via franchising. Leading men’s wear brand, Classic Polo already has its outlets in Dubai and Singapore and soon plans to foray into African market. Ferns N Petals opened its first overseas unit in Kathmandu and is now eyeing African land too. Anil Sharma, Vice President, Retail, Ferns N Petals said: “Who wouldn’t want international exposure and as a brand if we can share emotions via flowers, why not make a bridge between Africa to India and vice a versa. Why not share our expertise with them and they can teach us something from their market. It can be a great move.”
Yum! Brands that operate Pizza Hut, Taco Bell and KFC globally have also included South Africa into its top 25 markets- stores for the year end 2013. Till then the brand had 736 KFC in Africa. Besides India, franchise brands from Europe and the USA have also noticed the potential of Africa and are particularly active in North Africa with quality brands such as Subway Sandwiches, Guess, Haagen-Dazs, ZARA, Radio Shack, Fuji – photographic shops, and KFC. According to U.S. Department of Commerce there are more than 200 international franchise brands currently operating in Africa. There are also local brands in numerous African countries that have the undeniable potential to pursue the franchise route. These are in countries such as Egypt, Nigeria, Ethiopia and others where the basic franchise concept is beginning to make in-roads.
New trends
There is a new trend for entrepreneurs emerging in the developing world that runs parallel with the basic franchise model. It is a model successfully applied in countries/markets where the economic numbers are too small to allow business systems to be adapted from developed countries/markets. Moyanga informs: “This model is referred to as the Micro-Franchise model that has proved extremely successful in creating jobs and wealth in poverty stricken areas in countries such as India, Mexico, Brazil and in the past few years also in Africa. Whilst the basic franchise model concentrates on the middle income market, the micro franchise model is aligned to the rural and low income areas. Micro-Franchises are very small businesses that seek to maximise profit and return on investment. It is a way to distribute products and services through a business that is of a size of a micro enterprise. It is co-operative entrepreneurship where cost, risk and profit are shared between a parent company and a local business partner based on a mutually profitable contractual relationship.”
Conclusion
In Africa there is a fast growing demand for every type of consumer goods and services and entrepreneurial businesses across the continent are responding to these needs successfully. There can be no doubt that Africa is rising. Indian brands have immense potential in the African land. Both the basic franchise and micro franchise models can be successfully adapted and developed in Africa.
