Most franchises in SA are in the fast food or restaurant sector. Picture: SUNDAY TIMES
Most franchises in SA are in the fast food or restaurant sector. Picture: SUNDAY TIMES

The government is taking steps to further professionalise SA’s struggling franchising sector amid uncertainty about its future due to the Covid-19 crisis.

The department of trade and industry recently published a discussion document relating to the Franchise Association of SA (Fasa) industry code, which aims to improve the functioning of the sector, as well as enhance dispute resolution mechanisms.  

SA’s franchise sector mainly comprises fast food outlets and restaurants, making up a quarter of the overall industry. It is closely followed by the retail sector at 15%, while education is also growing in popularity. The sector in SA contributes about R720bn or 14% to the country’s GDP, and employs close to 400,000 people.

The industry has long called for the code, saying there should be strict requirements, and checks and balances in place before a business can be marketed and sold as a franchise — in the same way that there are strict requirements in place before one can practise as a doctor, dentist or lawyer. Fasa says the current definition of a franchise, according to the Consumer Protection Act (CPA), is very wide and provides a gap for unscrupulous business owners to present or sell themselves as franchises when they are not.

The move by the government to introduce a code is a rare piece of good news for the sector in the midst of the health crisis that has pushed many players in the industry to the brink of collapse.

Vera Valasis, executive director of Fasa, says that, for many years, the association has identified the need in the SA franchise industry for an effective, alternative dispute resolution process, the intention being to provide both franchisers and franchisees an opportunity to resolve disputes between them in a consistent, effective and efficient manner.

Ethics and dispute resolution

A group of Fasa members subsequently combined to develop an alternative dispute resolution process that became a part of the proposed industry code. The draft code was accepted by the National Consumer Commission and was subsequently published for comment in the government gazette.

According to Eugene Honey of law firm Adams & Adams, who is Fasa’s legal adviser and heading the team responsible for lobbying the government, one of the main objectives of the association is to develop and support ethical franchising.

The code consists of two main areas: an alternative dispute resolution mechanism for disputes among franchisees and franchisers; and a code of conduct aimed at regulating behaviour within the franchise industry, and providing for certain matters not dealt with by the CPA.

A franchise industry ombud, a non-profit company, has already been established.

The code aims to, among other measures, ensure that franchisers provide the franchisees with training, supervision and assistance in the operation and conduct of the franchise business throughout the life of a franchise agreement. Franchisees, according to the proposed code, must devote their best endeavours to the maintenance and growth of the franchise business, and supply the franchiser with verifiable operating data, and allow the franchiser access to the premises.

Meanwhile, Valasis says many of the players in the franchise sector are battling to survive the Covid-19 crisis.

“The longer the lockdown measures are applied across the board, the deeper the loss will be,” she said, adding that 80% of respondents to a survey conducted by the association believed that they will not be able to maintain their businesses beyond July, unless they can be allowed to trade normally.

Said Valasis, “The future of the franchise sector, which contributes almost 14% to the country’s GDP, is in the balance.”

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