FRANCHISORS who are considering empowerment issues need to bear in mind three critical success factors, says Frank Orchard, head of the Specialist Support Unit at Standard Bank.

The first is to ensure that empowerment deals do not compromise the quality and price of their products and services. Brand integrity must be maintained. While franchisors should recognise that improvements are required in empowerment compliance, these must add overall value to the organisation to be completely viable.

The second is training and mentorship on compliance for franchisees. This can be managed inhouse or outsourced. Orchard says most franchisors have comprehensive support structures for their franchisees, and should simply build extra services into the structures that deal specifically with transformation.

The third is transferring the skills that franchisors have gained in setting up joint ventures and partnerships in their businesses, to franchisees.

A franchise system that Orchard presents as an empowerment success story is Hot Dog Café, which launched about nine years ago and has more than 130 outlets.

The franchise engaged with government, business, the Small Enterprise Development Agency, and financial institutions at the start, and has developed a successful low-cost model that is empowerment compliant.

In 2004 and 2005, it was a finalist of the Leading Developer of Emerging Entrepreneurs, and in 2006, it won this award.

“When unpacking the new codes promulgated in the Government Gazette in February this year, we identified the need to engage franchisors in a practical forum that would offer opportunities for interactive discussion and learning, which is why Standard Bank, in conjunction with the Franchising Association of SA, recently sponsored workshops.”

The workshops provided a forum for a review of empowerment codes, and their effect on franchising industry.

Franchisors who have successfully embraced empowerment were able to share their success stories. Opportunities for franchisors to increase empowerment across their franchisee base were highlighted, and empowerment-compliant procurement was addressed.

“At this stage,” Orchard says, “empowerment-compliant procurement is not high on the franchising industry’s list of priorities. In most cases in the franchising industry, there is no driving force to change buying patterns as consumers are more concerned with quality and price than with how good are procure.

“The competitive and enterprising nature of the franchising industry has seen it make an effort towards transformation in certain sectors,” says Orchard. “For instance, many retailers and fast-food outlets have identified opportunities for growth in townships. In many cases, franchisors and franchisees have recognised the benefits of linking up with partners from within the communities in which they are choosing to operate. This has contributed to the sector’s empowerment compliance.”

Orchard says that while the franchising industry has been fairly proactive in embracing transformation — the industry’s transformation level is about 32% — there are pockets of inactivity that need encouragement to comply.

Sectors in this industry that have not made great strides in transformation include the motor vehicle industry. Although it has shown a 23% increase in turnover since 2004, only 22% of its franchisees are empowerment investors.

While franchisees are responsible in their own right for their empowerment compliance, they invariably look to their franchisors for guidance. This places the franchisors in a strong position to put clear and easy-to-use systems in place to enable franchisees to become compliant.

This article was drawn up by Standard Bank’s Specialist Support Unit. It is a sponsored column.