Power Crisis: Franchise Sector on Thin Ice
It’s a bleak outlook for the franchise industry in South Africa, as the power crisis exacerbates an already challenging operating environment. Freddy Makgato, CEO of the Franchise Association of South Africa (Fasa), has raised the alarm, warning that the current state of affairs, plagued by electricity woes, is less than hospitable for conducting business.
A variety of categories make up the South African franchise sector, including fast food and restaurants, retail, and home and office building services. However, the sector has not been spared from the impact of power cuts enforced by Eskom, the state electricity provider. This was evident last December when KFC had to temporarily shutter some of its outlets in the country due to supplier issues arising from these power cuts.
Eskom’s Dire Warning
In more unsettling news, Eskom warned earlier this week of the potential for Stage 8 load shedding this winter. The increasing demand for electricity, spurred by cold weather, has strained the power supply. Stage 8 power cuts could necessitate shedding up to 8,000 megawatts from the national grid, translating into even longer periods without electricity. Needless to say, this is an enormous concern for franchisors and franchisees alike.
While bigger businesses have managed to invest in alternative power solutions to mitigate the electricity crisis, these solutions come with a hefty price tag. Smaller businesses and start-ups, lacking the financial muscle of their larger counterparts, are left in a precarious position. Similarly, within the franchise sector, established businesses are faring better, while newcomers struggle to gain traction.
Fasa CEO’s Commentary on the Power Crisis
Reflecting on the power crisis’s impact on the franchise sector, Fasa’s Makgato pointed out that the industry, a mainstay since the 1960s, has managed to grow despite socio-political and economic adversities. With a significant contribution of 14% to the country’s GDP—surpassing sectors like agriculture, mining, and manufacturing—franchising is integral to South Africa’s economy. Its role as a catalyst for entrepreneurship, skills development, and job creation cannot be overstated. But these accomplishments, Makgato warns, are now at risk due to the inhospitable business environment, courtesy of the power crisis.
Cash Converters MD Shares Concerns
Richard Mukeibir, Managing Director of Cash Converters, shares similar concerns, describing load shedding as another hurdle in the path of starting a new business, spelling potential disaster for the country’s economic growth. He suggests that the various stages of load shedding affect different franchises depending on their stage of development—from fledgling to established.
While more established stores may have financial cushions to bear the burden of extra costs, newer businesses find themselves stretched thin trying to manage unexpected, significant expenditures. Ignoring alternative power solutions isn’t an option either, given the inconsistent power supply from Eskom. These alternatives come with high costs, further eating into business profits.
OBC Better Butchery’s MD Speaks Out
Another business owner feeling the pinch is Tony da Fonseca, MD of OBC Better Butchery. He laments that the higher stages of rolling blackouts are financially debilitating. To keep their operations running, brands have had to contend with distressed units and invest significantly in generators, fuel costs for which range between R10,000 for smaller businesses to a staggering R500,000 per store per month for larger supermarket groups.
Struggling Businesses Amid Economic Woes
Da Fonseca noted that signs of struggling businesses were everywhere. Already grappling with a depressed economy and the aftermath of the Covid-19 national shutdown, many businesses were nearing their breaking point under the weight of load shedding. He expressed his concern about the knock-on effects of a declining economy and how it would impact new equipment manufacturers in the future.
Need for Self-Reliance and Government Pressure
Da Fonseca concluded that the franchise sector needs to realize its predicament, with little aid expected from the government. “We must become less reliant on the state to provide basic services. We have to invest in these ourselves in any way we can. Of course, we have to be more vocal than ever in insisting that our leadership applies the haste they say they have in resolving these issues,” he advised.
The power crisis poses a formidable challenge to the franchise sector, threatening its survival amid already difficult circumstances. As the sector grapples with this crisis, it remains to be seen how it will weather the storm.