a proposed theoretical model for successful implementation of ...

A PROPOSED THEORETICAL MODEL FOR SUCCESSFUL

IMPLEMENTATION OF FRANCHISING IN THE SOUTH

AFRICAN CHICKEN-BASED FAST FOOD INDUSTRY

E. E. G. I. EKOSSE

A PROPOSED THEORETICAL MODEL FOR SUCCESSFUL IMPLEMENTATION

OF FRANCHISING IN THE SOUTH AFRICAN CHICKEN-BASED FAST FOOD

INDUSTRY

EMMANUEL G. I. E. EKOSSE

Submitted in partial fulfilment of the requirements for the degree of

MASTERS IN BUSINESS ADMINISTRATION

in the Faculty of Business and Economic Sciences

at the Graduate School of Business at Nelson Mandela University

DECEMBER 2017

SUPERVISOR: PROFESSOR CHRISTIAN ADENDORFF

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DECLARATION BY STUDENT

Name: Emmanuel Georges Ivo Ekosse Ekosse

Student number: 212415131

Qualification: Masters in Business Administration

TITLE OF PROJECT: A PROPOSED THEORETICAL MODEL FOR

SUCCESSFUL IMPLEMENTATION OF FRANCHISING IN THE SOUTH AFRICAN

CHICKEN-BASED FAST FOOD INDUSTRY

In submitting this research treatise electronically, I, Emmanuel G. I. E. Ekosse

hereby declare that:

This work has not been previously submitted in full or partial fulfilment of the

requirement for candidature of any other academic qualification;

This treatise is being submitted in partial fulfilment of the requirements for the

degree of Masters in Business Administration;

This treatise is the result of my independent original work and investigation. I

am the owner and copyright holder thereof (unless to the extent explicitly

stated otherwise). All the sources used are documented in the attached

reference list and duly acknowledged; and

I hereby give consent for my treatise, if accepted, to be available as a library

resource and for interlibrary loan purposes.

Emmanuel G. I. E. Ekosse

JANUARY 2017

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DEDICATION

This research treatise is dedicated firstly and foremost to Jehovah Adonai, I am

because He is!

Furthermore it is also dedicated to my grandparents, whose inspirational legacy of

principled living positively impacted countless individuals to live holistic and

meaningful lives. I discovered purposeful living through them before I knew of the

word purpose.

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ACKNOWLEDGEMENTS

The people we surround ourselves with are stakeholders and contributors to our

success or failure. In my case there are more of the former; for which I am truly

grateful. I would like to thank and acknowledge just a few such individuals who have

been instrumental in the completion of this research study:

My Father, for a worthy benchmark of excellence. My Mother, your sacrifices

will not go unrewarded. My Brother, your advice is always welcome. I thank

you all for your unwavering support. Indeed I am blessed to belong in the

Ekosse family;

Julie Ikome, a virtuous, God-sent confidant; your unwavering commitment to

my success is deeply appreciated;

My supervisor Professor Chris Adendorff, you gave me room to figure things

out and develop critical thinking. You cleared any doubts and with just a few

words removed the stigma I had concerning research, thank you Sir;

My unnamed respondent, I am honoured you shared your almost three

decades of franchising knowledge and wisdom with me;

Dr Dennis Ring, your technical assistance was invaluable in the completion of

this work, thank you for the nostalgic excursion to the principles of grammar;

The various staff at the NMU business school who have been patient and

have been instrumental in the completion of my studies, thank you all;

My original and subsequent MBA cohorts, our interactions were a

kaleidoscope of ideas and culminated in an even broader worldview, may

your ventures yield immeasurable profit always;

Dr P. Tondi, Sir I thank you for your belief in my ability; and

Ntate Nkholise, Sis Martha, Ntate Majoro, your support and constant egging

me on was sometimes shunned but always welcomed.

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ABSTRACT

Purpose – The purpose of this case study research effort was to develop and

propose a theoretical model for the successful implementation of franchising in the

South African chicken-based fast food industry.

Design/Methodology/Approach - A single case with embedded units of a

franchisor and a franchisee was initially adopted, but inaccessibility to respondents

resulted in the adaptation of the study into a single holistic case. This is justified as

the case serves a revelatory and explanatory purpose (Yin, 1994, p. 44).

Practical Implications - The case provided insight into the implementation

processes of franchising in the South African chicken-based fast food industry;

where franchised chicken-based concepts are leading the industry.

Limitation to the Study – The inaccessibility to original target respondents

considered a limitation in the original research design. The limited contextual

knowledge of the transcriber, and inexperience resulted in a sub-par transcript which

slightly limited the interpretation of the data.

Originality/Value – The case study examines the current implementation of

franchising in the South African chicken-based fast food industry; with particular

focus on the chicken-based fast food franchise systems which have consistently

outperformed other types of fast food franchise systems.

The proposed theoretical model can be applied in any industry or geographical

location with an adjustment of the model‟s contextual considerations.

Research type: - Case Study

Keywords – Chicken fast food, Critical success factors, Fast food Industry,

Franchising, South Africa, Quick service restaurants.

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TABLE OF CONTENTS

DECLARATION BY STUDENT .............................................................................................. i

DEDICATION .........................................................................................................................ii

ACKNOWLEDGEMENTS ..................................................................................................... iii

ABSTRACT ........................................................................................................................... iv

TABLE OF CONTENTS ........................................................................................................ v

LIST OF TABLES ................................................................................................................ viii

LIST OF FIGURES ............................................................................................................... ix

LIST OF ACRONYMS AND ABBREVIATIONS ..................................................................... x

CHAPTER ONE .................................................................................................................... 1

1 INTRODUCTION TO THE STUDY ................................................................................. 1

1.1 INTRODUCTION .................................................................................................................. 1

1.2 THE RESEARCH PROBLEM ............................................................................................. 4

1.3 RESEARCH QUESTIONS .................................................................................................. 6

1.4 OBJECTIVES OF THE STUDY ......................................................................................... 7

1.5 CONCEPTUAL RESEARCH FRAMEWORK................................................................... 7

1.6 DELIMITATION OF THE RESEARCH .............................................................................. 8

1.6.1 Chicken-based Fast food ............................................................................................ 8

1.6.2 Geographic Demarcation ............................................................................................ 8

1.7 RESEARCH METHODOLOGY .......................................................................................... 9

1.7.1 Literature study ............................................................................................................. 9

1.7.2 In-depth Interview ......................................................................................................... 9

1.7.3 Case Study .................................................................................................................... 9

1.7.4 Case Study Propositions ........................................................................................... 10

1.8 DEFINITION OF CONCEPTS .......................................................................................... 11

1.8.1 Entrepreneurship ........................................................................................................ 11

1.8.2 Franchising .................................................................................................................. 12

1.8.3 Chicken-based fast food industry ............................................................................ 12

1.9 SIGNIFICANCE OF THE RESEARCH ........................................................................... 12

1.10 ASSUMPTIONS ................................................................................................................. 13

1.11 RESEARCH OUTLINE ...................................................................................................... 13

1.12 SUMMARY .......................................................................................................................... 14

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CHAPTER TWO ................................................................................................................. 15

2 LITERATURE REVIEW ............................................................................................... 15

2.1 INTRODUCTION ................................................................................................................ 15

2.2 BACKGROUND OF FRANCHISING ............................................................................... 16

2.2.1 The Advent of Modern-Day Franchising ................................................................. 17

2.3 FRANCHISING ................................................................................................................... 19

2.3.1 Definitions .................................................................................................................... 19

2.3.2 Theoretical Underpinnings ........................................................................................ 21

2.3.3 Types/Classification ................................................................................................... 22

2.3.4 Advantages and Disadvantages .............................................................................. 25

2.4 IMPLEMENTATION ........................................................................................................... 32

2.4.1 Motivators of the franchising decision ..................................................................... 32

2.4.2 Critical Success Factors – Is the business franchisable? .................................... 32

2.4.3 The Implementation Process .................................................................................... 35

2.4.4 Becoming a franchisor: Prerequisites ..................................................................... 38

2.4.5 Becoming a Franchisee: Prerequisites ................................................................... 39

2.5 PREVALANCE OF FRANCHSING .................................................................................. 41

2.5.1 Conduciveness of a Country for the Development of its Franchising Sector .... 41

2.5.2 Developed Countries‟ Snapshots ............................................................................ 43

2.5.3 Developing Countries‟ Snapshots ............................................................................ 45

2.5.4 Franchising in South Africa ....................................................................................... 46

2.6 FAST FOOD FRANCHISING ........................................................................................... 51

2.6.1 Fast Food Franchising in South Africa .................................................................... 52

2.7 SUMMARY .......................................................................................................................... 54

CHAPTER THREE ............................................................................................................. 56

3 RESEARCH METHODOLOGY .................................................................................... 56

3.1 INTRODUCTION ................................................................................................................ 56

3.2 CASE STUDY RESEARCH APPROACH ...................................................................... 57

3.3 CASE STUDY RESEARCH DESIGN ............................................................................. 58

3.3.1 Case Study Questions ............................................................................................... 59

3.3.2 Case Study proposition ............................................................................................. 61

3.3.3 Unit of Analysis ........................................................................................................... 62

3.3.4 Validity .......................................................................................................................... 63

3.3.5 Reliability ..................................................................................................................... 63

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3.4 THE LOGIC LINKING THE DATA TO THE PROPOSITION ....................................... 64

3.5 SUMMARY .......................................................................................................................... 64

CHAPTER FOUR ............................................................................................................... 65

4 DATA ANALYSIS AND FINDINGS ............................................................................. 65

4.1 INTRODUCTION ................................................................................................................ 65

4.2 CRITERIA FOR INTERPRETING THE FINDINGS ...................................................... 66

4.2.1 Respondent Profile ..................................................................................................... 68

4.2.2 Interview Responses.................................................................................................. 68

4.3 PATTERN MATCHING...................................................................................................... 94

4.3.1 Linking the Data to the Proposition .......................................................................... 94

4.4 SUMMARY .......................................................................................................................... 95

CHAPTER FIVE .................................................................................................................. 96

5 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ........................................ 96

5.1 INTRODUCTION ................................................................................................................ 96

5.2 SUMMARY OF THE RESEARCH ................................................................................... 97

5.3 CONCLUSION FROM THE RESEARCH METHODOLOGY ...................................... 99

5.4 INTERPRETATIONS OF THE RESEARCH PROBLEM AND QUESTIONS WITH

CONCLUSIONS ........................................................................................................................... 100

5.4.1 Propensity for franchising ........................................................................................ 102

5.4.2 Franchisability ........................................................................................................... 102

5.4.3 Implementation process .......................................................................................... 103

5.4.4 South Africa specific considerations ...................................................................... 103

5.4.5 Fast food industry specific considerations ............................................................ 104

5.5 THE DEPENDENT VARIABLE: SUCCESSFUL IMPLEMENTATION OF

FRANCHISING SOUTH AFRICAN CHICKEN-BASED FAST FOOD.................................. 104

5.6 SUGGESTIONS FOR FUTURE RESEARCH ............................................................. 105

5.7 GENERAL CONCLUSDING REMARKS ...................................................................... 106

References ............................................................................................................................ I

ANNEXURE 1: Cover Letter for interview ............................................................................ VII

ANNEXURE 2: Interview Questions ................................................................................... VIII

ANNEXURE 3: Ethical clearance form ............................................................................... XIII

ANNEXURE 4: Turnitin report ............................................................................................ XV

ANNEXURE 5: Intention to submit form ............................................................................ XVI

ANNEXURE 6: Permission to submit for assessment ..................................................... XVIII

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LIST OF TABLES

Table 1.1: Ancillary research questions ...................................................................... 6

Table 1.2: Ancillary Research Objectives ................................................................... 7

Table 2.1: Franchisor and Franchisee Duties ........................................................... 21

Table 3.1: Conditions for Various Research Methods .............................................. 58

Table 4.1: Linking the data to the propositions ......................................................... 95

Table 5.1: Ancillary Research Objectives Achieved ................................................. 98

Table 5.2: Ancillary research questions answered ................................................. 101

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LIST OF FIGURES

Figure 1.1: GEM Key Indicators of Entrepreneurial Activity in Selected SADC

countries ..................................................................................................................... 2

Figure 1.2: Layout of chapter one .............................................................................. 4

Figure 1.3: Conceptual research framework .............................................................. 8

Figure 1.4: Propositions influencing the successful implementation of franchising in

South African chicken-based fast food industry ....................................................... 11

Figure 1.5: Layout of all chapters ............................................................................ 14

Figure 2.1: Layout of chapter two ............................................................................. 15

Figure 2.2: Timeline Illustrating the Background of Franchising ............................... 18

Figure 2.3: US Franchise business growth by year, 2009-2016, January 2016

forecast .................................................................................................................... 44

Figure 2.4: South Africa growth in franchise systems .............................................. 47

Figure 2.5: Composition of South Africa‟s franchise sector ...................................... 48

Figure 2.6: Percentage franchise ownership by previously disadvantaged Individuals

................................................................................................................................. 49

Figure 2.7: Main challenges faced by South African franchisors .............................. 50

Figure 2.8: South Africa Fast Food Franchise Types ............................................... 52

Figure 3.1: Layout of chapter three .......................................................................... 57

Figure 4.1: Layout of chapter four ............................................................................ 66

Figure 5.1: layout of chapter five .............................................................................. 97

Figure 5.2: Relationships of propositions influencing successful implementation of

franchising .............................................................................................................. 100

Figure 5.3: A Proposed theoretical model for the successful implementation of

franchising in the South African chicken-based fast food industry. ........................ 105

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LIST OF ACRONYMS AND ABBREVIATIONS

GEM Global Entrepreneurship Monitor

TEA Total Early-Stage Entrepreneurial Activity

NDP National Development Plan

NPC National Planning Commission

FASA Franchise Association of South Africa

GDP Gross Domestic Product

SMME Small, Micro and Medium Enterprises

PDI Previously Disadvantaged Individuals

IPO Initial Public Offering

IFA International Franchising Association

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CHAPTER ONE

1 INTRODUCTION TO THE STUDY

1.1 INTRODUCTION

Globally entrepreneurship has been widely touted in popular, as well as academic

literature by various stakeholders as a viable and key source of sustainable long

term growth (Acs, 2006, p.97; FNB, 2009; Acs, Åstebro, Audretsch, & Robinson;

2016 p.2;). Entrepreneurs perform a crucial role in any economy, through enterprise

they are able to create employment opportunities; in addition they commercialise

innovations facilitating socioeconomic development.

Therefore entrepreneurialism should be nurtured in South Africa given the

socioeconomic challenges faced by the nation such as low levels of education

(Qonde, 2015), high unemployment, 25.3% in the third quarter of 2010, energy

constraints and a widening gap between rich and poor.

A recent Global Entrepreneurship Monitor report (Herrington, Kew, & Kew, 2015)

shows that the rating of South Africa‟s entrepreneurial eco-system is quite lacking

and the conditions that enhance or hinder new business creation are not overly

favourable. The biggest reasons for the decline are the country's poor ratings on

government programmes, primary education, restricted and inhibiting regulatory

environment and restrictive labour laws.

Herrington et al. (2015) discuss the entrepreneurial landscape of South Africa

further, stating the following: “Entrepreneurial activity in South Africa, although very

low, has increased marginally over the last 10 years, but in 2014 dropped by a

staggering 34%”. South Africans‟ propensity for start-up businesses remains

alarmingly low compared to other sub-Saharan African countries.

South Africa exhibits the lowest Total Early-Stage Entrepreneurial Activity (TEA)

rates in the region Herrington et al. (2015) which are coupled with low attitudes

towards entrepreneurs, entrepreneurship, with higher than average fear of failure,

low levels of opportunity and capability perceptions, and the lowest intention levels

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among the Sub-Saharan African countries, and more specifically Angola, Botswana,

Namibia, Malawi and Zambia as demonstrated in Figure 1.1 below. South Africa also

reports the lowest established business ownership rates.

Figure 1.1: GEM Key Indicators of Entrepreneurial Activity in Selected SADC countries

Source: Researcher‟s own construct (2016) as adapted from Herrington et al. (2015)

The National Development Plan (NDP) aims at creating 11million new jobs by 2030

(NPC); this ambitious goal can however only be realised through sustained

accelerated growth of the economy.

A recent Franchise Association of South Africa (FASA) survey, paints a somewhat

rosy picture of the South African franchising state of affairs (FASA Admin, 2015).

Several relevant factors highlighted include: 60% of franchisees had been in

business for more than six years, and 39% of franchisees were in operation for

longer than 12 years. The survey also presented important data on the geographic

spread of the business units with Gauteng Province having the lion‟s share, followed

Total Early StageEntreprenuerial Activity

Established BusinessOwnership

Perceived Opportunities

Percieved Capabilities

Entrepreneuerial Intention

Fear of Failure

Global Entrepreneurship Monitor Key Indicators of Entreprenuerial Activity in Select SADC economies

South Afica Angola Botswana Malawi Namibia Zambia

Entrepreneurial intention Entrepreneurial intention

Total Early Stage

Entrepreneurial Activity

Total Early Stage

Entrepreneurial Activity

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by Western Cape and Kwazulu-Natal Provinces. The potential for growth in the

franchising industry is strong. This is especially evident in the relatively

underdeveloped areas of the country such as Eastern & Northern Cape as well as

Limpopo Provinces.

Thulo (2015) comments on the afore-mentioned FASA survey, highlighting the failure

rate of independent busineses which is 90% and that of franchising is which is less

than 30%. Noteworthy is the net growth of the sector as opposed to the net loss of

businesses not utilising the franchising model. Although there is lack of consensus

regarding figures of the success rates of franchised businesses versus independent

businesses, the latest FASA survey points to positive longevity in franchised

businesses. Despite the unfavourable economic environment this sector has

continued to enjoy growth rates above that of GDP.

South Africa‟s GDP for 2014 was 3 727.5 billion Rand. The estimated turnover for

the franchise market is 465.27 billion Rand, which is 12.5% of the South African

GDP. (FASA Admin, 2015). This shows a substantial contribution to the South

African economy. However several commentators including FASA‟s chairperson

suggest there is unrealised potential within the sector. In the USA, Canada and

Australia, Thulo (2015) reports that franchising is found in up to 75 business sectors

compared to South Africa where the franchising model has been implemented in

only 17 business sectors.

The literature discussed depicts the country‟s economy to be in need of stimulus

through enterprise creation and sustainable growth; however there exist some

debilitating constraints such as inadequately educated workforce, high levels of

structural unemployment, inefficient government bureaucracy, and more. Franchising

has proven to mitigate these issues and to contribute substantially to socioeconomic

development; therefore South Africa‟s franchising ecosystem holds potential for

considerable growth.

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1.2 THE RESEARCH PROBLEM

Franchising is important to the development of the Small, Micro and Medium

Enterprises (SMME) sector (Sanghavi, 1998). It is a means for entrepreneurs to

grow their enterprises with a relatively low capital investment in comparison to other

organic growth options. Additional options to be available such as alliances,

mergers, going online, diversification, targeting additional markets, franchising,

licensing and opening up additional locations (Sadi & Henderson, 2011). Out of all

the above-mentioned options franchising is the quickest at creating scale due to its

relatively low capital requirements and systemised approach.

Figure 1.2: Layout of chapter one Figure 1.2: Layout of chapter one

1.2THE RESEARCH PROBLEM

1.1 Introduction 1.1 Introduction

1.11 RESEARCH OUTLINE 1.11 RESEARCH OUTLINE

1.5 CONCEPTUAL RESEARCH FRAMEWORK

1.10 ASSUMPTIONS 1.10 ASSUMPTIONS 1.7 RESEARCH METHODOLOGY 1.7 RESEARCH

METHODOLOGY

1.6 DELIMITATION OF THE RESEARCH

1.3 RESEARCH QUESTIONS 1.3 RESEARCH QUESTIONS

1.9 SIGNIFICANCE OF THE RESEARCH

1.4 OBJECTIVES OF THE STUDY

1.12 SUMMARY 1.12 SUMMARY

1.8 DEFINITION OF CONCEPTS

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In the USA, where franchising is believed to have been pioneered, there are 909,253

franchised business establishments, resulting in 21 million jobs and $2.31 trillion of

annual output (IHS Economics, 2015). Evidently franchising holds immense potential

for South Africa‟s economy. This is particularly of key interest given the magnitude of

the socioeconomic challenges facing the nation.

In South Africa franchising is under-utilised and should be credited for its active role

in job creation and boosting economic growth (Barry, 2015). It is an option that

normally does not receive as much consideration due to seeming complexity in

implementing the franchising concept. The benefits and challenges associated with

adopting the franchising concept are not fully understood forcing entrepreneurs

considering franchising to base their decisions on incomplete knowledge.

Opting for a franchise business model instead of a more traditional operating model

entails a different orientation and approach to business, especially in the case of

entrepreneurs who have not been operating as a franchise from the inception of their

enterprise. Entrepreneurs can employ the services of consultants or attempt the

process of franchising themselves with the guidance of „best practices‟ (Parker &

Illetschko, 2007, p. 185). There are many guides available on the implementation of

the franchising concept, some credible and others not; however these do not take

into account the context of the entrepreneurial concept to be franchised. The

challenge is particularly magnified in an area where such a business concept has not

been franchised before and no benchmark exists in the industry wherein said

business operates.

Several critical success factors are discussed in the literature for consideration by

the business owner considering implementing the franchising business model. These

critical success factors can be used to determine the franchisability of an

entrepreneurial concept and subsequently an implementation process initiated to

facilitate the effective implementation of the franchising business model. It is

therefore imperative that a model presenting the critical success factors, challenges

and benefits of implementing the franchising business concept be developed to ease

the process. Such a framework could be used as a guideline for future

implementation, even by other entrepreneurs in other industries with some

adjustments to ensure context-specific relevancy.

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Entrepreneurs desirous to grow their enterprises are often daunted by the process of

franchising and although being partially aware of the benefits, the implementation of

the franchise concept deters most from adopting this growth and expansion means.

In view of the challenges experienced by entrepreneurs with the implementation of

the franchise model, an opportunity for research on the successful implementation of

the franchise concept by entrepreneurs emerged.

To make the research effort manageable, the enquiry was limited to an example of

franchising which the literature showed to be performing quite well. It is theorised

that an understanding of this sector of franchising and how it was implemented

would allow for the development of the proposed model. This sector was found to be

chicken-based franchising, as will be seen in section 2.6.

Against this background the main research problem was formulated as follows: As a

result of inherent potential in the budding franchising sector in South Africa,

prospective franchisors are facing the problem of how to successfully

franchise a chicken-based fast food concept.

Based on this main research problem, this study will develop a proposed model for

the successful implementation of franchising in the South African chicken-based fast

food industry. It will guide entrepreneurs on how to effectively implement franchising

for successful operation of chicken-based fast food franchise systems. This

introduces the main research question of the study:

RQM: How can a model for the implementation of franchising be developed for

the South African chicken-based fast food industry.

1.3 RESEARCH QUESTIONS

The main research question is underpinned by the ancillary research questions as

presented in Table 1.1 below.

Table 1.1: Ancillary research questions

Ancillary research questions

RQ1 Can the franchise model be used to develop an entrepreneurial concept into a multiple unit franchise system?

RQ2 What benefits and challenges exist in the implementation of the franchise model?

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RQ3 What are the requirements and characteristics of successful franchise system implementation?

RQ4 What South Africa specific contextual considerations need to be factored in the implementation of franchising in the chicken-based fast food industry?

RQ5 How can the propositions be validated by the empirical research findings?

RQ6 What interpretations and conclusions can be drawn from the empirical findings?

Source: Researcher‟s own construct 2016

1.4 OBJECTIVES OF THE STUDY

The main objective of this study is:

ROM: to develop a proposed theoretical model for successful implementation

of franchising in the South African chicken-based fast food industry.

The main research objective is underpinned by the ancillary research objectives as

presented in Table 1-2 below.

Table 1.2: Ancillary Research Objectives

Ancillary research objectives

RO1 To investigate the implementation of franchising to an entrepreneurial concept.

RO2 To identify the benefits and challenges in the implementation of the franchise system.

RO3 To identify the requirements and characteristics of successful franchise system implementation (Critical Success Factors)

RO4 To identify South Africa specific contextual considerations that need to be factored in the implementation of franchising in the chicken-based fast food industry.

RO5 To conduct an in-depth interviews with an experienced key participant in the South African chicken-based fast food industry.

RO6 To analyse the primary data collected and to link the data to the propositions.

RO7 To discuss the results and interpretations of the research and to make appropriate recommendations based on the results.

1.5 CONCEPTUAL RESEARCH FRAMEWORK

To facilitate a clearer understanding of this research, a conceptual research

framework; which served as a cornerstone for the research; was developed utilising

a relevance tree (Wilson, 2010, p. 41); an analytical technique that breaks down a

topic into increasingly smaller sub-topics. Baxter and Jack (2008, p. 552) continue

that the development of a conceptual framework guides the research. The

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conceptual framework shown in Figure 1.3 was formulated to illustrate the objectives

of the research and formulate an understanding of the study.

Figure 1.3: Conceptual research framework

1.6 DELIMITATION OF THE RESEARCH

To ensure the research project is of a manageable size, it has been demarcated in

the following manner:

1.6.1 Chicken-based Fast food

The research will focus predominantly on chicken-based fast food.

1.6.2 Geographic Demarcation

The research is limited to South Africa.

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1.7 RESEARCH METHODOLOGY

This research study is described as a theoretical framework-building study.

Numerous factors were identified in the literature for the development of a proposed

model for the implementation of franchising in the South African chicken-based fast

food industry. The case study research approach was adopted and is associated

with the interpretivist paradigm and therefore a qualitative research methodology

(Collis & Hussey, 2009, p.56; Yin, 1994).

1.7.1 Literature study

There is currently a paucity of research available that focuses exclusively on the

successful implementation of franchising in South African chicken-based fast food

industry or restaurants. Therefore it was necessary to conduct an extensive review of

the literature to deal with the problem statement. This was done to identify as many

factors as possible that influence the successful implementation of the franchising

concept in South African chicken based fast food. Wahyuni (2012, p. 73) posits that

secondary data be collected from publicly available date in addition to internal

publications provided by the research participants. The literature was collected using

the relevance tree mentioned in section 1.5. as keywords that facilitated the search

were obtained from the headings and sub-headings of the tree providing structure

and limitations to the literature search (Wilson, 2010, p. 41).

1.7.2 In-depth Interview

The research was of a qualitative nature and thus possessed the potential to yield

rich primary data as suggested by (Yin, 1994). This data was collected through the

use of an in-depth semi structured interview with an experienced franchising sector

participant as the respondent. This franchising sector participant was due to a stellar

profile of sustained contribution to franchising in South Africa and currency in the

chicken-based fast food industry.

1.7.3 Case Study

The case study proposition directs attention to something that must be inspected

within the scope of the study (Yin, 1994). There are several chicken-based fast food

franchise systems operating in South Africa. They are widely distributed particularly

in metropolitan and urban settings in the country. In the Eastern Cape Province, and

in South Africa at large, entrepreneurs have developed entrepreneurial interest in

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investing in chicken-based fast food franchises as these consistently perform well in

terms of number of outlets (Business Tech, 2016). This study will focus on one of the

top performing chicken-based fast food franchise systems in South Africa. The most

appropriate method which will be used for this study is the qualitative single case

study. The single case study approach will be characterised as explanatory; which

could be a fitting method to meet the research objective. Explanatory case studies

are beyond descriptive in nature and seek to address and illuminate the cause of the

phenomenon under study, applying contemporary theories to understand and

explain present occurrences (Blumberg, Cooper, & Schindler, 2014, p. 381; Collis

and Hussey, 2009).

1.7.4 Case Study Propositions

Baxter & Jack (2008, p. 552) suggest the development of propositions when

conducting case study research. Yin alludes the importance of linking primary data to

the propositions of the study (1994, p. 25). The dependent variable was identified as

the successful implementation of franchising in South African chicken-based fast

food industry.

The following propositions of the case study were investigated and are illustrated in

Figure 1.4 below: Propensity for franchising; franchisability; implementation process;

South Africa specific considerations and fast food industry specific considerations.

The relationship between the dependent and independent variables are illustrated

and presented in Chapter 4. The relationships were empirically tested, which

achieved the primary and secondary objectives of the study.

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Figure 1.4: Propositions influencing the successful implementation of franchising in South African chicken-based fast food industry

1.8 DEFINITION OF CONCEPTS

The following two terms have been interpreted for the purpose of this study:

- Entrepreneurship

- Franchising

1.8.1 Entrepreneurship

Various studies highlight the challenges of defining entrepreneurship and attest to

the absence of a concise definition (Bruyat and Julien, 2000; Cunningham and

Lischeron, 1991; Acs, 2006). Additionally the various authors directly or indirectly

attest to the constructivist approach in regards to defining the concept.

Bruyat and Julien (2000) define entrepreneurship as the dialogic between individual

and new value creation, within an on-going process and within an environment that

has specific characteristics. Entrepreneurship cannot be understood in isolation;

rather cognisance needs to be taken of the project, the entrepreneur, the

environment and how these are interconnected. Lambing and Kuehl (1997:10)

indicate that “Entrepreneurship is a human creative act that builds something of

Successful Implementation of Franchising in South African

Chicken-based Fast Food Industry

Propensity for franchising

Franchiisability

Implementation Process

South Africa specific considerations

Fast food industry specific considerations

Independent Variable Independent Variable Dependent Variable Dependent Variable

+P1 +P1

+P2 +P2

+P3 +P3

+P4 +P4

+P5 +P5

12 | P a g e

value from practically nothing. It is the pursuit of opportunity regardless of the

resources, or lack of resources, at hand. It requires a vision and the passion and

commitment to lead others in the pursuit of that vision. It also takes a willingness to

take calculated risks”.

1.8.2 Franchising

Franchising is a form of business by which the owner (franchisor) of a product,

service or method obtains distribution through affiliated dealers (franchisees)

(Franchise Direct, 2012, p. 2). The franchisee licenses or purchases the right to do

business in the name of the franchisor, utilising the latter‟s system.

The International Franchising Association‟s definition of franchising is “…a contract

or agreement, express or implied, oral or written, between two or more persons by

which:

• A franchisor prescribes in substantial part a marketing plan under which a

franchisee is granted the right to engage in the business of offering, selling

or distributing goods or services;

• The franchisor‟s trade name, insignia, advertising, trademark, service mark

and other commercial symbols are availed for the operation of the

franchisees‟ business.”

1.8.3 Chicken-based fast food industry

This is not traditionally an industry but rather a subset of the fast food industry and

also a subset of the franchising sector. For the purposes of this case study research

the term chicken-based fast food industry is utilised.

1.9 SIGNIFICANCE OF THE RESEARCH

This study aims to investigate the challenges and benefits of successfully

implementing the franchise concept to any enterprise by entrepreneurs. This is

important because it explores strategies that can provide entrepreneurs with a

strategic roadmap and model for further growth and development of their business

concepts.

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Entrepreneurs are in addition provided with an implementation model for converting

their existing concept into a franchise system should they be contemplating such a

strategy.

According to the International Franchise Association (2015), franchising provides

entrepreneurs with an affordable means of accelerating expansion and achieving

development goals more quickly than might otherwise be the case, and with far less

risk. This is in comparison to the various other alternatives that entrepreneurs have

for growth.

1.10 ASSUMPTIONS

The following assumptions were made:

- That there would be sufficient literature to conduct a comprehensive literature

study on implementation of franchising and entrepreneurship;

- That the selected sample is representative of chicken-based fast food in South

Africa;

- That the selected respondent(s) cooperate in the collection of empirical data

required for the study;

1.11 RESEARCH OUTLINE

Chapter two presents a background of the franchise concept; definition;

requirements; critical success factors; benefits and challenges associated with

successful implementation of the franchise concept.

The focus in Chapter three is to outline the research methodology utilised in

this particular project.

In Chapter four the empirical study is performed about the requirements, critical

success factors, benefits as well as challenges associated with the franchise

concept and the chicken-based fast food franchise model. The evaluation of the

results and feedback received will culminate in the conclusion of the empirical

study.

In Chapter five a conclusion and recommendations discuss requirements,

critical success factors, benefits and challenges determined to implement the

franchise concept successfully.

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1.12 SUMMARY

This chapter serves as an introduction aiming at aligning the development of this

study with the main objective of the research, as well as the research questions. It

emphasises the need for a guideline or benchmark, when implementing the

franchising concept to enterprises in order to make it easier in the future. The

objective of the study, and research methodology employed are explained.

CHAPTER ONE

INTRODUCTION

CHAPTER ONE

INTRODUCTION

CHAPTER FOUR DATA ANALYSIS AND

FINDINGS

CHAPTER FOUR DATA ANALYSIS AND

FINDINGS

CHAPTER THREE

RESEARCH METHODOLOGY

CHAPTER THREE

RESEARCH METHODOLOGY

CHAPTER TWO

LITERATURE REVIEW

CHAPTER TWO

LITERATURE REVIEW

CHAPTER FIVE SUMMARY, CONCLUSIONS

AND RECCOMMENDATIONS

CHAPTER FIVE SUMMARY, CONCLUSIONS

AND RECCOMMENDATIONS

ROM ROM

RQ1 RQ1

RO5 RO5

RQ5 RQ5

RQ6 RQ6

RO5 RO5

RQ2 RQ2

RQ3 RQ3

RO1 RO1

RO2 RO2

RO3 RO3 RQ5 RQ5

RQ4 RQ4 RO4 RO4

Figure 1.5: Layout of all chapters Figure 1.5: Layout of all chapters

15 | P a g e

CHAPTER TWO

2 LITERATURE REVIEW

2.1 INTRODUCTION

This chapter discusses franchising, providing a historical background of the concept

and is led by the research objectives in the prior chapter. Relevant literature

concerning the successful implementation of franchising is also discussed with

particular focus on the benefits and drawbacks as well as what constitutes

successful franchising. These discussions will culminate in suggested guidelines

taken up in a theoretical model that can be followed by any entrepreneur evaluating

franchising as a business option. The review exposes the theoretical underpinnings

of the concept, the prevalence of franchising in selected developed and developing

economies with a particular focus on South Africa.

2.2 BACKGROUND OF FRANCHISING

2.1 INTRODUCTION 2.1 INTRODUCTION

2.6 FAST FOOD FRANCHISING

South African fast food franchising

2.3 FRANCHISING • Definitions

• Theoretical Underpinnings • Types/Classification

• Advantages and Disadvantages

2.3 FRANCHISING • Definitions

• Theoretical Underpinnings • Types/Classification

• Advantages and Disadvantages

2.4 IMPLEMENTATION • Motivators of the

franchising decision • Critical Success Factors – Is

the business franchisable? • The Implementation

Process

2.4 IMPLEMENTATION • Motivators of the

franchising decision • Critical Success Factors – Is

the business franchisable? • The Implementation

Process

2.5 PREVALANCE OF FRANCHSING • Conduciveness of a Country for

franchising • Franchising in Select developed

and developing countries • Franchising in South Africa

2.5 PREVALANCE OF FRANCHSING • Conduciveness of a Country for

franchising • Franchising in Select developed

and developing countries • Franchising in South Africa

DELIVERABLES Determinants of franchising

Process of Franchising Understanding of the context in

which to franchise

DELIVERABLES Determinants of franchising

Process of Franchising Understanding of the context in

which to franchise

Figure 2.1: Layout of chapter two Figure 2.1: Layout of chapter two

16 | P a g e

2.2 BACKGROUND OF FRANCHISING

Sir Harold Evans in his brief narrative entitled “The Real Origin of the Franchise”

ascribes the real genesis of franchising to Martha Matilda Harper (Evans, 2012).

Through resilient, passionate, and innovative development of her beauty salon

network, Ms Harper installed working class women from 1891 as owners of their own

„Harper Method‟ outlets, trained in and adhering to her methods. It is plausible that

Sir Harold limited his narrative to the business format system of franchising and

excluded other forms such as manufacturing-retailer formats or the product

distributor formats. These are evidenced to have predated the Harper Method as

discussed further in this chapter.

Yet Seid (2016, para.2) displaces Harper and attributes the first franchisor rights to

Benjamin Franklin, a notable polymath and also one of the founding fathers of the

United States of America. Franklin is credited with entering into several co-

partnerships during the 1730s and 1740s, with several printers throughout the

colonies (prior to the unification of the States). These agreements were modelled on

an initial co-partnership of 1731 which locked Franklin‟s partner into a system of

operating, yet placed no limits on Franklin himself (Seid 2016, para.8-11). Franklin

expanded his system across the colonies and into Jamiaca utilising the proceeds

thereof to fund his stay in France which culminated in the assistance of the French in

the US War of Independednce, and the birth of a nation.

However Illetschko (2001, p.2) suggests that in its most basic form, franchising has

been in use from as early as 200 BC. This is evidenced in the creation of a

franchised chain store concept by a Chinese businessman named Los Kas, for the

distribution of branded food items throughout China. Seid (2016, para.14) confirms

this with a report of the first business format franchise originating from China in

200BC. Seid reports that some historians have dated franchising back to the Roman

empire and perhaps earlier (2001, para.2).

The granting of various rights and obligations to politicians and soldiers, by British

Royalty in medieval England was to come later during the Middle Ages (Illetschko,

2001, p.3). The Lords were given a privilege to collect taxes from people in certain

well defined territories under the authority of the Crown (Blair & Lafontaine, 2005, p.

17 | P a g e

3). A percentage of these collections were paid to the royal treasury giving rise to the

term royalty payment, still in use today (Blair & Lafontaine, 2005, p.3).

Khan reports that franchising‟s pace of development increased rapidly coinciding

with increasing levels of industrialisation in the late 1800s as businesses adapted to

the changing commercial environment and innovation in distribution practices (1999,

p.10). A forerunner of modern day franchising is the awarding of tax collection

franchises in the mid-1850s and the emergence of “tied houses” in the United

Kingdom. These were pubs tied to breweries from which they had agreements in

place to purchase only from the particular brewery they were tied to (Sireau, 2011,

2.2.1 The Advent of Modern-Day Franchising

Early examples of franchising in the middle ages can be considered more of a

political activity than a business activity. The concept of franchising evolved as the

economies of the world evolved. Today‟s concept of franchising originated in the

United States in the 1850s through the franchised network of dealers established by

the Singer Sewing Machine Company (Illetschko, 2001, p.3). Singer accepted fees

from independent salesman to acquire territorial rights to sell his recently developed

sewing machine, the Singer sewing machine, enabling expansion of the distribution

network without employing a large sales force (Khan, 1999, p.10).

Coca-Cola soon outpaced Singer when in the early 1890s, it decided to franchise

the right to bottle its carbonated beverage to independent businessmen who

accepted to pay and assume the risk of distribution in return for exclusive territories

(World of Coca-Cola, 2016). In 1886, a druggist named John S. Pemberton created

a beverage comprising of sugar, molasses, spices, and cocaine in 1886 out of

curiosity (Coca-Cola Company, 2016; Sharp, 2016). Pemberton licensed selected

people to bottle and sell the drink, which is now known as Coca-Cola. Initially

Pemberton distributed his product by providing the syrup to pharmacies, which at the

time was where carbonated beverages were sold. Later on after selling off some of

the business to various buyers, the drink was then bottled and the franchising model

revamped into the current system employed today, which allows for the availability of

the drink worldwide (The Coca-Cola Company, 2016; Feloni, 2015).

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In 1898, Franchising was applied to the motor industry for the distribution of vehicles

initiating the franchised dealer network, a system still in use today. The Model T Ford

was also sold through a franchised dealer network during the early 1900s (Herman,

2016). The timeline in Figure 2.2 details on the background of franchising as

reviewed in relevant literature.

Figure 2.2: Timeline Illustrating the Background of Franchising

Source: Authors own construct (2017) based on (Feloni, 2015; Illetschko, 2001, p.2; Khan, 1999;

Olotu, 2011, p.164; Sharp, 2016; The Coca-Cola Company, 2016; Evans, 2012).

In the latter part of the 1940s, franchising ascended into the most successful

distribution concept ever known to mankind (Illetschko, 2001, p.2; Olotu, 2011,

p.164). This can be particularly ascribed to the end of the Second World War.

Numerous military personnel were made redundant by the demobilisation of the

United States armed forces, returning home desiring to engage in profitable

enterprise (Olotu, 2011, p. 164). These men and women had ample financial

resources, a hunger to earn a living on their own terms, little desire to return to

colleges and lacked skills to survive in the dynamic world of business. This created a

demand for a business format that would be easier and quicker to set up profitably

than the then traditional product franchises. This meant that in addition to a product

such individuals required a detailed blueprint that mitigated their lack of prior

business experience (Illetschko, 2001, p.2).

Established businesses welcomed this new concept as it furnished them with various

advantages such as expanding with little significant investment in the infrastructure

of each outlet; there was minimal strain on management resources. It also allowed

200 BC

• Businessman Los Kos

• Franchised Chain Stores

1730s and 1740s

• Benjamin Franklin's Printers

Middle Ages

• Medieval Lords

• Tax collections

• Royalty Payments

• Singer Machine Company

• Franchised network of dealers

• Motor Industry

• Pemberton's Coca-Cola

• The Harper Method

• Franchised Salon Network

• End of WW2

• Structured business format

• Mordern Franchising

19 | P a g e

them to exercise strict control over the brand usage. This was a win/win scenario

and developments over the past five decades attest to this (Illetschko, 2001, p.2).

2.3 FRANCHISING

2.3.1 Definitions

The relatively high prevalence of franchising especially in developed economies

would suggest that a clear concise definition of the concept would be readily

available in academic literature; rather what emerges from reviewing the relevant

literature is some form of discord. There are some elements within the various

definitions that proponents concur are essential tenets.

Adopting a contractual lens Boll describes the concept of franchising as a business

agreement where an individual person or a company can purchase the products or

services that have been developed into a prosperous business model (2016, p. 3).

This suggests mutual benefit from a distribution channel. Olotu‟s definition is similar,

indicating franchising to be an agreement between organisations where a producer

of product or service grants rights to independent business men to conduct business

in a specified way, designated place and at a certain period of time (2011, p. 163).

The method of operating is specific to allow the buyer successful enterprising.

Franchising is a popular business concept which has successfully infiltrated

numerous industries worldwide and has received scholarly interest from various

disciplines. Hoy and Stanworth suggests franchising does not fit comfortably within

the limits of any single academic discipline or area of management practice, rather it

extends into a multiplicity of fields such as law, marketing, economics,

entrepreneurship, human resource management, psychology, and sociology (2003,

p.20). Its multidisciplinary nature has challenged academics and practitioners alike in

reaching consensus on one particular definition and as the review of literature

revealed there are numerous definitions to adopt in any discussion on the topic.

One definition by Curran and Stanworth (2003) as seen in Hoy and Stanworth (2003,

p.10) states franchising to be “a business form consisting of an organisation with a

market tested business package centred on a product or service, entering into a

contractual relationship with franchisees, typically self-financed and independently

20 | P a g e

owner-managed small firms, operating under the franchisor‟s trade name to produce

and/or market goods or services according to a format specified by the franchisor.”

Franchising is a form of marketing or distribution in which a parent company

customarily grants an individual or a relatively small company the right or privilege to

do business in a prescribed manner over a certain period of time in a specified place

(Vaughn, 1982, p.1). This definition is aligned to that of Elango and Fried (1997, p.

68) with the exception that they regard franchising as an organisational form and not

a form of marketing and they include the payment of fees by the one who receives

the privilege to the party that provides said privilege.

It is also not an industry as has been previously misconstrued suggest Parker &

Illetschko (2007, p.4). Franchising was once regarded as a marketing tool, though it

has since evolved in response to the dynamic environment it finds itself in and can

be considered today as a total business system with the marketing of the

product/service offering as only one aspect of the model.

Franchising for many firms is a means of growing a business and for many

individuals it is a means of opening a business that increases the likelihood of

success. Spinelli, Jr. et al. (2004, p.xvi) suggest that there is a vast wealth creation

potential in franchising. It is a way of widening a given business‟s field, including the

right to distribute products and services under a better-known brand name. (Alon,

Alpeza, & Erceg, 2010, p. 6). In modern business, franchise business arrangements

include several important points such as market-testing business package,

franchisee self-financing, and also multi-unit franchisee or corporate franchisee (Hoy

& Stanworth, 2003, p.10).

Taking these various definitions into consideration it could be suggested that

franchising is a grouping of several small businesses utilising the format and

enjoying the support of a larger business. This arrangement combines the

infrastructure, business concept of a firm with the ambitions and resources of

individual entrepreneurs. This synthesis of the salient points inherent in the above-

discussed definitions is supported by the Franchise Association of Southern Africa

(FASA) which defines a franchise as; “a grant by the franchisor to the franchisee,

entitling the latter to the use of a complete business package containing all the

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elements necessary to establish a previously untrained person in the franchised

business, to enable him or her to run it on an on-going basis, according to

guidelines supplied, efficiently and profitably."

It can thus be concluded that granting someone the right to do business

following the same pattern established by the franchisor is the main tenet of

franchising. The pattern provided needs to have been market tested and proven

to be successful; which is key in franchising. The franchisee rewards the franchisor

with various sums of money for different services as guided by the franchise

agreement.

2.3.1.1 The responsibilities of the parties in a franchise relationship

Table 2.1 presents the main rights and responsibilities of parties in a franchising

relationship. The franchisor carries the broad vision of the franchise system, defining

and setting the standards, and selects suitable franchisees. The franchisee operating

on a micro scale follows the franchisor‟s standards.

Table 2.1: Franchisor and Franchisee Duties

Franchisor Franchisee

Macro Vision

Strategic Planning

Define and set Standards

Create Systems and Methods

Select Franchisees

Define Brand Positioning

Franchisees guide,

Support to Franchisees

Micro Vision

Tactical and Operational Planning

Follow the Standards

Follow Systems

Suggest improvements in systems

Contribute to the improvement of the network

Leader; Apply a local view

Adapt certain hubs and nodes

Source: (Pina, Dias Alves, & Malherios, 2007, p. 3)

2.3.2 Theoretical Underpinnings

There are two distinct theories that enjoy prominence in literature as underpinning

franchising, namely resource scarcity theory and agency theory. These amongst

others drive the propensity for franchising and although most literature is oriented on

the franchisor perspective, aspects of these theories can be used to explain the

propensity for franchising from a franchisee perspective. The symbiotic relationship

22 | P a g e

of these theories is clear, as a franchise system must attract resources and satisfy

both franchisor and franchisee objectives within their quasi-agency relationship

2.3.2.1 Resource Scarcity Theory

Through a comprehensive review of franchising literature, Gillis and Castrogiovanni

(2012, p. 77) are able to advance resource scarcity theory when discussed within the

context of franchising to be concerned with entrepreneurs‟ attempts to overcome the

lack of financial capital, constraints of managerial expertise and local market

knowledge.

2.3.2.2 Agency Theory

Agency theory is concerned with the resolution of potential agency issues that may

arise from a misalignment of franchisor (principal) and franchisee (agent) interests

(Combs et al., 2004, p.909; Gillis & Castrogiovanni, 2012, p78). Franchising is

perceived as a means of aligning organisation-level and outlet-level incentives.

2.3.3 Types/Classification

Parker and Illetschko (2007, p.14) state that there are two distinct types of

franchising models; product or trademark franchising and business format

franchising. There are however, others who suggest stratification in a different

manner such as Olutu‟s „three types‟ stratification: (1) product franchise where a

producer is granted a right to sell its products to the franchisee (2) name and

process franchise is a situation where the franchisee is granted the right to use the

name and process of the business and (3) we have the business format mode where

the franchisee is not only granted the rights above but, involves the transfer of ways

of doing business by the franchisor (2011, p. 163).

This study shall adopt the stratification of Parker and Illetschko (2007, p.14).

2.3.3.1 Product/Trade Name Franchising

Dealer franchised networks are used by motor-vehicle manufacturers to act as retail

outlets for the manufacturer facilitating ease of distribution for the vehicles. This

format of franchising originated in the United States in the 1800s (Blair and

Lafontaine, 2005, p.3), and is characterised by a sales relationship between a

supplier and a dealer (Franchise Association of South Africa, 2016). The dealer is

granted the right to sell his/her products in exchange for fees and royalties and has

23 | P a g e

an obligation to sell only the franchisor‟s products. Soft drink manufacturers

(bottling), automotive manufacturers, and fuel producing companies also use this

method to distribute their products (International Franchise Association, n.d.).

This type of franchising focuses on the products manufactured/supplied by the

franchisor and not (as in the case of business format franchising) on the system of

doing business. The International Franchise Association (IFA) proposes product

distribution franchising to be larger in total sales than business format franchising

though the former is less associated with franchising.

2.3.3.2 Business Format Franchising

In business format franchising, the franchisor provides the name, image and method

of doing business. The International Franchise Association (IFA) (n.d.), defines

business format franchising as follows:

“In business format franchising, the franchisor prescribes for the franchisee a

complete plan, or format, for managing and operating the establishment. The plan

provides step-by-step procedures for major aspects of the business and, anticipating

most management problems, provides a complete matrix for management decisions

confronted by the franchisees.”

The IFA state that the major advantage of buying a business format franchise is that

the means for distributing goods and or services has been developed, tested, and

associated with the trademark. Parker & Illetschko (2007, p. 15) concur that this

format comes with a comprehensive blueprint for the successful operation of the

business.

2.3.3.3 Multi-Unit Franchising

Parker and Illetschko (2007, p.197) define multi-unit franchising means to be a type

of franchising wherein a franchisee controls a number of franchised units in the same

network. According to Weaven and Frazer a franchisor granting franchisees the right

to operate more than one outlet in the same franchise system is the organisational

arrangement that is known as multi-unit Franchising (2007, p. 107).

Opponents of multi-unit franchising claim a franchisee operating more than one

unit means that a main advantage of franchising - the owner being present in the

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store is lost (Parker & Illetschko, 2007, p. 197). Another downside to this is the

possibility of a franchisee becoming too powerful in the system (BPL Team, 2016).

Proponents of multi-unit franchising counter that multi-unit franchisees create

their own momentum decreasing strain on the network‟s support infrastructure and

speed up growth. Additionally a franchisor will be able to better apportion resources,

dealing with a smaller number of franchisees, boosting the best franchisees whereas

the weaker ones fall out of the group (BPL Team, 2016). Parker and Illetschko

(2007, p.197), discuss some key factors for consideration of multi-unit franchising

which are summarised as follows:

Business Sector – businesses‟ operational characteristics vary and so too

are variances evident in the infrastructure needed to control them. Parker and

Illetschko (2007, p.197) propose that highly standardised operations allow for

management by remote control as opposed to non-standardised operations

that require the owner present for effective control.

Franchisee profile – franchisors need to recognise the inherent differences

in franchisees and decide in time which personality type will fit in best with the

network‟s franchisee profile. Parker and Illetschko (2007, p.197) discuss two

types of franchisee personalities: Type A – detail oriented, relatively modest

financial goals, comfortable operating a business requiring limited staff

complement allowing for hands on control. Type B – empire-builders who

appreciate the umbrella of an established brand and well developed

infrastructure.

The network’s corporate culture- A typical type B franchisee will make a

great contribution to the growth of the network, yet such a franchisee is more

difficult to manage as they would expect nothing less than perfection from the

franchisor. If the franchisor is an individual who micro-manages every facet of

operations, they would usually prefer to work with type A franchisees. This

may slow growth of the network, but this type of franchisor is content with that.

Franchisors who focus on the bigger picture and let others handle the detail

will work well with type B franchisees (Parker & Illetschko, 2007, p. 197).

Weaven and Frazer indicate that multiple unit ownership is a growing phenomenon

with more than 10% of franchisees in the USA owning more than one unit (2007, p.

25 | P a g e

108), and although much literary focus has been on the franchisor‟s perspective

consistent with single unit literature, the positive relationship between system growth

and system wide adaptability is a major factor to which the growing popularity of the

phenomenon is attributable.

2.3.4 Advantages and Disadvantages

Franchising offers a multitude of benefits and given its seemingly positive

presentation as a means for rapid economic development through any nation‟s

commercial activities it may surprise many that there are many drawbacks to the

concept. These benefits and challenges affect both franchisors and franchisees

alike.

A franchisor or an entrepreneur considering franchising as a growth mechanism for a

business concept needs to fully comprehend the concept of franchising in its entirety

as well as ensure that they are thoroughly prepared. Illetschko (2001, p. 5) suggests

that the decision is not to be taken lightly as the franchisor is responsible for the

franchisees‟ success and to an extent failure.

In the same vein a prospective franchisee considering purchasing a franchise needs

to gain a solid understanding of the potential benefits and drawbacks of franchising,

allowing for a more informed evaluation of the concept prior to purchasing. These

benefits and drawbacks should be considered in tandem with the prospective

franchisee‟s abilities, resources and personality (character traits).

2.3.4.1 The Franchisor‟s Advantages

Maitland (1991, p.13) broadly classifies the key benefits to the franchisor as follows:

Low capital expenditure –use of franchisee‟s money to set up franchises.

Removing finance constraints and spreading the risk to franchisees allows for

more rapid expansion of the company. This will allow for bulk buying and

various other advantages to facilitate even more growth;

Personal commitment and motivation; and

Reduced daily involvement – in the daily running of operations in stores.

Illetschko (2001, p.5, 28-29) discusses the following advantages for the franchisor:

26 | P a g e

Less capital required for expansion. Franchisees are to provide the capital

for setting up their units, therefore making expansion much more cost

effective for the franchisor. In traditional expansion firms usually raise the

capital for establishment of additional branches;

Rapid market penetration becomes possible. Franchisees are owner-

operators with capital and other resources that reduce he pressure on the

franchisor‟s managerial and other resources. The pooling of resources and

specialisation allows for increased pace of market penetration than with non-

franchised firms;

Enhanced buying power. Rapid expansion in many cases leads to

increased buying power. In turn this improves competitiveness of all network

members, enabling them to gain additional market share;

Maximisation of operational efficiencies. Owner operators are highly

effective. According to Illetschko (2001, p.28) it is noteworthy that observers

have witnessed such turnarounds even though former branch managers

purchased the business and assumed the mantle of franchisee. This is the

central thesis of the agency theory which is one of the two main theories

underpinning franchising (see section 2.3.2.2);

Increased relevancy of future planning. Franchisor‟s future income stream

becomes more predictable especially given the long term nature of franchise

agreements. This facilitates more accurate forecasts;

Enhanced equity position. Loan finance raised by individual franchisees is

ordinarily not reflected in the franchisor‟s statement of financial position only in

rare instances where a franchisor provides security for a franchisee, and then

a contingent liability could arise;

Accelerated expansion. The franchisor that has built a business on firm

foundations and continually reinvests profits into the expansion of the

franchise infrastructure would see swift expansion of the network. McDonalds

is a shining example in this regard.

Briefly, the benefits include economies of scale, more beneficial terms with suppliers,

increased access to capital, reduced business and financial risk, rapidity of

expansion, increased performance of outlets, acceleration of brand development,

reduced groupthink through innovative ideas generated in from franchisee

27 | P a g e

contributions and advantages in marketing and sales promotion due to scale (Alon et

al., 2010; Murray, 2003, p. 15). These advantages are based on increased resources

from the franchisees and a shift of franchisor‟s management function away from

operating outlets to operating the franchise system as a whole.

2.3.4.2 The Franchisor‟s Disadvantages

Maitland (1991, p.16-18) broadly classifies the key drawbacks to the franchisor as

follows:

Loss of ownership – of the individual franchises, except in the case of

company owned outlets;

Low profits – in company owned outlets all returns are attributable to the

franchisor whereas in the franchisee owned outlets, only a portion of returns

are due to the franchisor;

Interdependence – Franchisor and franchisee are inextricably linked for the

duration of the franchise agreement, thus dependent on each other for their

continued success.

Illetschko (2001, p.30-34) discusses the following disadvantages for the franchisor:

Initial high cost of franchising. The relative high cost of creating a franchise

package. Infrastructure necessary to provide effective franchise support must

be in place from the very beginning, but will be underutilised until critical mass

has been reached;

o Critical mass is the number of franchisees that make the operation

profitable. Although it varies from industry to industry a generally

accepted rule of thumb is that a concept is not franchisable unless it

can establish a minimum of 15 outlets in a relatively short period;

o Most of South Africa‟s franchised networks have overcome the hurdle

of critical mass a long time back.

Reduced per-unit profitability. A well-managed company owned store has a

higher profit potential than a well-managed franchised unit simply because

returns from a franchised unit are limited to a small percentage of the unit‟s

turnover in the form of a management services fee whilst the entirety of the

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returns of a company owned store will be retained. This is based on the

assumption that the stores are operated at the same performance level;

Absence of owner. Unless owners exercise hands on control in the company

owned stores they are unlikely to be run at full efficiency. A valid proposal

being applied with increased frequency is a mixed approach with company

owned stores located in close proximity to the company‟s head office, thus

permitting hands on control and operations. Stores that are some distance

away are franchised;

Poor franchisee selection. Managers can be disciplined or dismissed for

failure to meet agreed targets whereas a franchisee who performs poorly is

much more problematic to deal with especially due to the sizeable investment

franchisees have to make;

Territorial mistakes. There is a problematic situation arising from franchisors

offering territorial protection. It is difficult to realistically assess the true

potential of any given area. Should a franchisee be sufficiently motivated to

exploit the territory and establish additional units as it becomes feasible then

the firm will not lose potential sales or market share to third party operators.

Territorial restrictions more often than not are counterproductive especially in

retail and fast food industries. Two or three outlets of the same fast food

brand have been known to successfully co-exist in one large shopping centre;

Limitations on the freedom to act. Franchisors in a legal sense have the

power to determine product policy, marketing strategy and any other decision

concerning the direction of the network. However experienced franchisors

rarely take decisions unilaterally. Decisions tend to be of higher quality when

franchisees are consulted. This can however limit franchisor‟s agility and

cause missed opportunities. In the long term though this works in favour of the

brand.

In brief, the drawbacks of franchising to the franchisor include a sizeable initial cost

of setup – especially in regard to infrastructure, piloting the operation, creating the

franchise package, legal aspects, employing expertise, recruitment and numerous

miscellaneous costs. Other drawbacks for franchisors include limited actual control

over outlet activity; franchisee underperformance which can affect the overall

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network; fraudulent franchisee behaviour; and difficulty in protecting intellectual

property.

To mitigate the franchisee-based problems, meticulous selection of franchisees is

essential. Parker and Illetschko (2007, p22) caution against being too eager in

signing up franchisees, especially during the early stages when a franchisor has just

implemented franchising and is seeking the initial recruits. Alon, Alpeza, and Erceg

(2010) state; that the biggest disadvantage to a franchisor is the potential loss of

control over the network. This is supported by Parker and Illetschko (2007, p.23) who

caution against investor franchisees.

2.3.4.3 The Franchisee‟s Advantages

Maitland (1991, p.69-72) broadly classifies the key advantages to the franchisee

under the following headings:

A proven track record;

Initial help and advice;

An established name;

Continual support and guidance.

The four key advantages as listed above are affirmed by Illetschko (2001, p. 30-34)

as presented in the following discussion:

Proven blueprint. Purchase of a bona fide franchise literally buys a blueprint

to success which a franchisee can confidently utilise to avoid the early losses,

and pitfalls of lack of experience, as well as judgement errors. Time to

establish the business, breakeven and produce satisfactory returns should be

considerably shorter than if the franchisee was an independent operator;

Established trademark. Franchisee can benefit from the goodwill associated

with the use of the network‟s trademark. An example prevalent in some

service industries is access to local branches of the firm‟s national customer

Possible cost savings. Cost can both be seen as a negative and a positive

aspect in the consideration of purchasing a franchisee. In this instance it is an

advantage as a franchisee gains from the superior buying power of the

franchisor providing cost benefits that would ordinarily not be available to

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independent operators. Illetschko (2001) suggests that in some recorded

cases the savings from bulk buying are greater than the sum total of on-going

franchise fees franchisees are expected to pay;

Industry experience. The underlying operations have been simplified to such

an extent that a newcomer to the industry can successfully operate a

franchise. Franchisors even prefer to recruit franchisees from outside their

industry as it is easier to teach a newcomer than someone experienced in the

industry who may need a lot of unlearning;

Career change opportunity. This creates an opportunity for those individuals

making a career change as is evidenced by many prospective franchisees

who have reached their forties and fifties before taking the entrepreneurial

leap, with the „safety net‟;

Mentoring and peer support. The support infrastructure and on-going

support services put in place by the franchisor is in effect an in house

business consultant for the franchisee that helps to overcome problems as

they arise. Additionally franchisees can benefit further from access to their

peers who are fellow members of a franchise family. They are usually willing

to share from their experiences and discuss problems on an on-going basis.

In summary the benefits of franchising to the franchisee include: lower risk than

going into business alone; the safety net of a proven system; on-going training,

mentoring and support; little or no experience required; in business for oneself but

not by oneself philosophy; rapid, efficient way to get into business; benefits of an

established brand; benefits of economies of scale and benefits from franchisor‟s

research and marketing programmes as well as some protection from competition.

(Alon et al., 2010; Spasić, 2006, p. 28).

2.3.4.4 The Franchisee‟s Disadvantages

Maitland (1991, p.73-76) broadly classifies the key disadvantages to the franchisee

under the following headings:

Hard work and effort;

Constant payments;

Inflexible rules and procedures;

Mutual dependence.

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The four key disadvantages as listed above are affirmed by Illetschko (2001, p. 30-

34) as presented in the following discussion:

High initial setup costs. To setup and present a professional image

consistent with the franchisor‟s requirements higher spending may be needed,

though the franchisor‟s preferential buying agreements may offset some of the

costs;

Franchisor imposed operational constraints. This is displeasing to some

franchisees especially as franchisors exercise on-going operational control. It

can be argued that this is in fact a benefit to the franchisee as it allows them

to follow the system and reap the financial rewards. The challenge might be

those franchisees that have a higher appetite for autonomy, in which case it

could be counter-argued that they are then unsuitable for franchising systems

especially in the role of franchisee;

On-going fees payment. This must be adhered to by franchisees;

Unprofessional and underperforming Franchisors. Franchisors that are

unprofessional and underperforming could negatively impact the development

of franchisees. There are several studies that have examined this aspect of

franchising in detail of recent. Proper due-diligence by a prospective

franchisee before committing to the system will eliminate this possibility.

Concisely the disadvantages to the franchisee include: limited independence

(system is fairly inflexible); franchisor maintains and exerts absolute control over

certain aspects of the system; conflicts are generally handled by way of protecting

network wide interests as opposed to individual franchisee interests; franchisee is

the underdog in this relationship; franchising fees may be considered excessive by

some franchisees; limited franchisee control; poor management by other franchisees

may hurt the network, and even performing franchisees; cancellation of franchise

agreement is difficult and expensive to achieve; and sometimes unrealistic profit

expectations (Alon et al., 2010.; Parker & Illetschko, 2007, pp.30-34)

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2.4 IMPLEMENTATION

2.4.1 Motivators of the franchising decision

Nieman (1998, p.17) proposes five possibilities that predicate the decision to

franchise. These are:

1. Purposeful intent to develop a franchisable business concept;

2. Prospective franchisor running an established business concern ripe for

expansion;

3. Prospective franchisor wants to amalgamate independent outlets (conversion

franchising) of same industry to enjoy the benefits of scale;

4. A prospective franchisor in need of a distribution network for a particular

product or service;

5. A firm burdened by agency issues or inadequate corporate structure for

distribution. This is retrospective franchising.

Parker and Illetschko (2007, p. 21) concede that the decision to franchise must be

thoroughly evaluated and arrived at after due analysis of several factors relating to

the franchisor, context, and the market offering.

2.4.2 Critical Success Factors – Is the business franchisable?

Reiterating a core theme of this treatise, the creation of a franchise is an ideal means

to expand a thriving business. However thorough research and a comprehensive

understanding of the process are necessary. The literature reviewed provided

several factors critical in determining the franchisability of an entrepreneurial

concept.

Illetschko (2001, p.19-20) puts forward the notion that in assessing the viability of an

existing business for franchising, several factors critical to success should be

considered, these are:

Does the business operate in a large or growing market? Sufficient

market demand to support a franchised network must be ascertained,

allowing room for growth and factoring the entry of competitors. The

profitability of franchising relies on a multiplier effect, so its market needs to

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be able to support rapid expansion so that the network can grow relatively

quickly.

Can growth be sustained? Concept needs to be tried and tested over time

to ensure its feasibility. This ensures that the concept is indeed not a fad and

possesses the potential to grow in the long term.

Are the attainable margins sufficient? Margins need cover on-going

franchise fees and if franchisees cannot afford this then the business is not

franchisable. Viability is determined using the financial projections based on

current performance and takes consideration of franchisees‟ ability to cover

debt, pay on-going franchise fees and achieve reasonable returns.

Can the product or service demand a price premium? Product categories

caught in price wars do not franchise well as there is often little loyalty and

margins will continue to remain under constant pressure. Consumers must be

willing to pay a price premium for the product or service, for its added value.

Is the infrastructure adequately funded? Access to sufficient capital? To

pilot the concept, develop the franchise package, build the necessary

infrastructure and fund on-going support capital is required. These tentative

stages of franchising are capital intensive and all relative factors must be

carefully considered.

Is there a substantial barrier to entry? An easily copied concept will be

devoid of the necessary competitive advantage to succeed in the

marketplace; such is not a franchisable concept. A potential franchisor

therefore has to raise the barrier to entry by offering customers benefits that

distinguish them from other brands. Differentiation within the industry is key

better yet a potential franchisor should create (a blue ocean strategy is

applied; which entails the creating of uncontested market spaces).

Is there potential to establish a memorable brand? Great franchises are

recognised as great brands, and chicken-based fast food examples include

KFC and Nandos Chicken. The essence of branding is occupying the number

one spot in a consumer‟s mind to ensure repeat sales.

Intellectual property needs to be difficult to copy and registered as soon as

possible to protect the brand.

Is it possible to grow a franchise culture? Open, learning-oriented, flexible

and supportive are all attributes of a franchise culture and as such an

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organisation going the franchise route must be committed to creating a

win/win situation. Leadership rather than authoritarian management is

required.

The following were factors mentioned in Parker & Illetschko (2007, p. 18-21) that

were not initially present in Illetschko (2001, p.19-20). This was after some

requirements and refinements over the years.

Does the concept have staying power? A professional franchisor must

have a vision for the future and strategy for continued success as well as

commit for the long term.

Will development costs allow for a satisfactory return on investment?

The franchisor and franchisee must be able to achieve satisfactory returns on

investment; failing which it will make sense for the franchisee to pursue an

alternative business opportunity. The franchisor‟s returns must justify the

costs incurred and capital expenditure to develop the network and requisite

infrastructure.

Are the requisite skills easily transferrable? Prospective franchisees will

be easily dissuaded by long training periods, need for prior professional

qualifications as they want to make their investment, begin operations and

reap returns in as quick a lead time as possible.

Are suitable systems and procedures in place? Franchising is the art of

controlled replication which cannot be implemented and/or monitored

effectively without suitable systems.

In order to successfully implement franchising the above discussed factors need to

be taken into full consideration by any aspiring franchisor. In order to ensure the

viability of any franchising attempt it is imperative that these factors be

comprehensively addressed.

Nieman (1998, pp. 18-19) presents the following criteria as necessary antecedents

to successful development of a franchising concept:

Standardisation: the market offering should be uniform to ensure

consistency across the system. What you get in one outlet should be the

same as what you get in another outlet of the same franchise system.

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Simple operation: Operating methods need to be simple to ensure operators

and staff, can easily implement them, allowing for standards to be maintained

with ease.

Duplicable: Franchise concept should be easily reproduced in any location

repeatedly.

Supply Chain: readily available just in time supply of inputs to the franchise

system.

Legal Constraints: Franchise system must be fully compliant with applicable

legislation.

Profitability: Ease of breaking even for participants in the franchise system;

market should be large enough to support an adequate and proven level of

profitability.

These considerations are further supplemented by Nieman et al. (2003, p. 265)

with the following:

Distinctness/Noticeability: The business should stand out from competitors

through the use of branding.

Personal Commitment: Franchisor must be willing to make significant

investments in systems, procedures and support infrastructure for the

franchise, in addition to a morality obligation towards franchisees.

According to Alon (2006, p. 35), in order for franchisors to achieve a higher level of

growth and scale they should:

Become franchised quickly after opening;

Internationalise their system to appeal to a larger global audience;

Grow the franchising line of their business;

Operate a sufficient number of company-owned outlets;

Accumulate experience over time which will help them increase their

competitiveness.

2.4.3 The Implementation Process

To successfully implement the franchise concept and develop a franchise system a

potential franchisor would undergo the following process according to (Nieman,

Hough, & Niewenhuizen, 2003, p. 253).

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1. Establish the suitability of the business for franchising. The concept can be

assessed using the criteria presented in the previous section.

2. Prepare business plan and feasibility study. To assess viability of the concept

addressing the ability of franchisor to:

a. administer the system properly according to regulatory frameworks of

the region; support franchisees comprehensively; and

b. enjoy the benefits of franchising as a growth strategy rather than

developing as a company owned and operated business.

3. Establish pilot operation. To prototype and test the concept. Franchisees

cannot be used as guinea pigs. Illetschko (SA Guide to Franchising, 2001)

indicates there must be compelling evidence the business is ready for

franchising. Nieman (1998, pp. 27-29) indicates the following as advantages

for piloting the operations:

a. Induction of potential franchisees: observing and getting acquainted

with the business.

b. Testing products, systems, methods and procedures: to evaluate them

before being released.

c. Identification of problems: to provide solutions.

d. Staying in touch with market: allows for direct customer interaction and

increased ability to respond to changing consumer behaviour.

e. Keeping blueprint up to date: actual information gathered and analysed

can be compared with plans especially in relation to performance

metrics. Deviations can be quickly identified and adjustments made.

f. Training and retention of franchisees: can be better facilitated as

training theory can be translated into practical instruction.

g. Determining location requirements: actual location experiences can be

obtained as well as changes in customer profiles, competitive activity

and trading hour requirements.

h. Basis for compiling operations manual: comprehensive, easy to

understand and use. Based on actual experiences recorded for the

benefit of franchisees.

i. Income generating potential and financial viability: facilitate projections

of actual financial viability.

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4. Develop Franchise package: combining all elements of the business to be

franchised including experiences, training plan, marketing plan, operations

manual and start-up assistance information.

5. Develop operations manual and franchise agreement: it should be a living

document regularly updated to reflect current practices. The franchise

agreement is a contract which details all terms and obligations of each party,

and explicitly defines the relationship.

6. Comply with ethical requirements.

7. Recruit and select franchisees: through marketing the franchise package,

ensuring the attraction and selection of suitable applicants.

8. Train the franchisee: to ensure that each franchisee is capable of running a

franchise outlet proficiently.

9. Operate and manage the franchise system: normal management functions

apply; the major consideration is with regards to the relationship dynamic and

contractual obligations between franchisor and franchisee.

Pina et al. (2014, p.7) conducted a study that proposed the following model for the

implementation of franchising after an extensive review of relevant literature, and a

survey of franchisors and franchisees in South-Eastern Brazil.

1. Open one or more units, get deep technical and specific knowledge of the

operation.

2. Format a pilot unit, test thoroughly simulating different situations trying to

predict possible errors. Model should be scrutinised and optimised as much

as possible before being defined and replicated.

3. Procedures manual should be prepared for all micro transactions that are

repeatedly executed.

4. Establish a comprehensive franchise offering circular, this will prevent

possible conflicts and problems between franchisor and franchisee as well as

facilitating the proper management of conflict of interest between them.

5. Determine a complete supply chain, members of which may become the

company's partners. Whenever possible have more than one supplier apart

from the principal. It is important to select suppliers for two main reasons,

namely: better price negotiation, maintain quality of products.

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6. Rigorous selection of franchisees, ensure alignment with company‟s

intentions. Desired franchisee profile: hard worker, with previous experience

in trading and own capital.

7. Intensive training of all franchisees.

8. During the Growth phase of the brand, the franchisor should ensure:

a. Good administrative staff at head office, to provide excellent support to

franchisees;

b. Maintaining the standard and quality of products and processes; and

c. Strength, unity and identity of the brand.

9. Having field consultants (supervisors) who guarantee franchisor‟s interest and

assist franchisees. They would be responsible for bringing innovations from

franchisees to franchisors, which can be assessed, developed and diffused

into the network.

10. Good logistics management is critical for two aspects: to optimally manage

inventory, and to ensure the right quantity goods are delivered to franchisees

on time, and at the right place.

11. Intensive marketing should only be done when the network‟s infrastructure is

strong.

12. All this should be drawn through goals, planning and a strong financial base.

13. No consensus on partnership with other brands.

2.4.4 Becoming a franchisor: Prerequisites

The quality of franchise expertise available in South Africa is comparable with

international standards as suggested by Parker and Illetschko (2007) but this know-

how is not always fully applied especially by established franchisors. Once a

business stops growing it starts to die, therefore starting small to stay small is not an

option. Franchisors have a demonstrated advantage over competitors who operate

traditional branch operations as they can depend on their network of self-motivated

business owners with aligned goals to drive the brand forward. Parker and Illetschko

(2007, p. 165) propose that in order to fully unleash the multiplier effect of the

franchising network a franchisor should employ the following three step exercise.

1. Go back to basics – assess every aspect of core business at head office

level, excluding franchisees operations.

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2. Franchisee review – assess how they perform and how they see the

operation.

3. Lift off – Once the thorough assessment of own operations and franchisee

operations is concluded then the final stage can be put into play.

2.4.4.1 Franchisor Steps to Success

Eric Parker‟s 21 proven steps to becoming a successful franchisor as seen in

(Parker & Illetschko, 2007, p. 186).

1. Make sure you are fully informed

2. Put funding in place

3. Set strategy

4. Grow wisely

5. Uphold ethics

6. Create win-win outcomes

7. Gain allies

8. Shun confidential rebates

9. Protect the brand

10. Select franchisees wisely

11. Be selective

12. Look out for culture fit

13. Support your franchisees

14. Use benchmarking as a tool

15. Set up communication

16. Be realistic

17. Act as a mentor

18. Praise your stars

19. Prepare for rainy days

20. Be decisive

21. Spend on marketing

2.4.5 Becoming a Franchisee: Prerequisites

Parker and Illetschko (2007, p. 189) describe entering into franchising as a marriage

where the honeymoon is the easy part and once the novelty has worn off, then

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comes the challenge of making the best of the relationship; those that endure often

testify decades later that they would not want to have it any other way.

The commitment once made is extremely difficult and expensive to reverse and

experience garnered over the past five decades suggests that those franchisees who

select their franchisors with care and follow the system to the letter are generally

successful. Additionally established franchisees can learn to extract optimal benefit

from their business or sell it. The underlying principles of becoming a franchisee as

indicated by Parker and Illetschko (2007, p. 189) dwell on responses to the following

questions:

Am I cut out for entrepreneurship?

Will I be happy as a franchisee?

Do I possess the requisite passion?

Is a franchise available in this sector?

Is the franchisor responsive?

Is the franchisor‟s approach professional?

Are we compatible?

Can I afford the franchise?

Can the franchise afford me?

2.4.5.1 Franchisee‟s Steps to Success

According to Eric Parker, Senior Partner at Franchising Plus (2009, p.62) there are

21 proven steps that all prospective franchisees should go through in order to ensure

that they can make the transition to being a happy franchisee.

1. Franchisees need to be well informed

2. They must be team players

3. Accept majority rule

4. Embrace networks rules

5. Proactive.

6. Stay positive

7. Uphold ethics

8. Strive for win-win outcomes

9. Need not resent fees

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10. Represent the brand with pride

11. Focusing on your "desk"

12. Participate in training activities

13. Work with the franchisor

14. Undertake local marketing

15. Embrace your customers

16. Be a good sport

17. Aim for perfection

18. Strive for service excellence

19. Gain allies

20. Be an ardent communicator

21. Keep staff motivated

2.5 PREVALANCE OF FRANCHSING

2.5.1 Conduciveness of a Country for the Development of its Franchising

Sector

Amongst the criteria for consideration of a country‟s conduciveness for franchising

are the following:

Trainable skilled labour force;

Infrastructure;

Market demand;

Regulatory environment; and

Direct industry input (Boll, 2016, p. 6).

It should be noted that the above referenced author‟s report is primarily focused on

determining the viability of world markets for US franchise business expansion.

However the presented criteria share some overlap with those presented by Ba Binh

and Terry (2014) who discuss the considerations to cultivate a viable and healthy

franchise sector in developing countries. These are:

Political environment: Ba Binh and Terry (2014, p. 211) suggest political

imperatives support a country's economic and regulatory policies. Increasingly

governments are recognising the potential for franchising to boost their

economies and are reforming legal and economic systems with more

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favourable policies to foster franchising‟s growth. Boll (2016, p. 6) concurs,

stipulating a stable government with transparent policymaking and legal

frameworks is crucial to the attractiveness of a country for franchising.

The legal environment: The legal frameworks can be linked to upholding the

rule of law in a country. In many developing countries, even those with

dedicated franchise-specific regulation which provides an appropriate

foundation for the development of franchising, it is the weak enforcement that

provides a significant obstacle for franchising (Ba Binh & Terry, 2014, p. 212).

The economic environment: Developing countries as mentioned earlier in

this section have seen their governments increasing economic reforms which

have resulted in more liberal markets with increased ease of entry, increased

foreign investment. Entrepreneurship and private sector participation have

benefited claim (Ba Binh & Terry, 2014). They temper this with the caution

that challenges from corruption, preferential agreements, lack of

transparency, excessive bureaucracy serve to complicate the development of

the sector.

The commercial environment: Franchising‟s value chain is quite extensive

and includes various stakeholders adding an often-unseen complex

synergistic network which supports the franchise network. Ba Binh and Terry

(2014, p. 211) support this with the attestation that a range of commercial

services are also necessary for the functioning of effective franchise systems

(i.e., distribution and logistics networks, human resources, management

expertise, accounting, banking, consulting, and legal services). These

services are developed over time with various inputs from franchise sector

organisations and government.

The socio-cultural environment: Franchising in its current guise primarily

business format and product/trade name franchising is challenging to

implement in various developing countries due to strong cultural systems

evidenced by country specific idiosyncrasies that need to be thoroughly

considered. Ba Binh and Terry (2014, p. 211) conclude that despite training,

support, economic and regulatory infrastructure being in place, without

adequate analysis of socio-cultural factors franchising will not flourish.

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Ba Binh and Terry (2014, p. 211) indicate that each of these infrastructure

prerequisites may pose challenges for developing franchise sectors in developing

countries. It is therefore imperative that stakeholders such as policy makers,

franchisors, franchisees, industry associations and bodies in the franchising sectors

of various developing countries need to pay attention to integrated development of

these infrastructure prerequisites.

2.5.2 Developed Countries’ Snapshots

2.5.2.1 Australia

The Franchising Code of Conduct is the main regulatory instrument utilised in

Australia, and with a world class educational system the labour force can be readily

harnessed for the franchising sector. The franchising sector in Australia is well

developed with more outlets per capita than any other country in the world and over

1100 business franchise systems (Boll, 2016, p. 17). The sector contributes 9% to

Australia‟s GDP.

The retail component of the Australian franchising sector enjoys the largest share of

the sector at 26.6%, closely followed by accommodation and food services with

17.6% (Boll, 2016, p. 17). Interestingly 92% of the franchise systems in Australia are

local with a high cost of entry into this market rife with multi-franchisors.

2.5.2.2 United Kingdom

Transparent regulatory environment, strong protection of intellectual property, open

and efficient legal system, a well-educated labour force, advanced infrastructure and

financial system all make for a positive environment in which franchising can flourish

(Boll, 2016, p. 40). The sophisticated, mature market is saturated and international

franchisors have to ensure their market offering is innovative to appeal to the

discerning customer base.

There are no specific laws governing franchising, with the British Franchise

Association operating a voluntary Code of Practice for franchisors. 2012 data

counted 930 franchise systems operating in the United Kingdom (Boll, 2016, p. 40),

however recent data (British Franchise Association, 2016) indicates a drop to 901

brands; however the total number of outlets increased to 44200 (British Franchise

Association, 2016) from 37300 reported by Boll. 29% of franchisees now run multiple

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units, 80% of franchise brands in this country are UK-owned and developed (British

Franchise Association, 2016).

2.5.2.3 United States of America

The gross domestic product (GDP) of the franchise sector will increase by 5.1% to

$521 billion in 2015. This will exceed the growth of U.S. GDP in nominal dollars,

which is projected at 4.9% (IHS Economics, 2015, p. 1). The franchise business

growth in the USA, in the areas of establishments, employment, output and GDP has

been positive after the world financial crisis of 2008 that spilled into 2009, as

presented in Figure 2.3 on the following page. The franchise sector will contribute

approximately 3% of U.S. GDP in nominal dollars, with over 781 991 outlets

providing employment for 8816000 people (Franchise Direct, 2016).

Figure 2.3: US franchise business growth by year, 2009-2016, January 2016

forecast

Source: (IHS Economics, 2015, p. 2)

The developed countries discussed above enjoy stable systems such as those of

education, governance, healthcare, rule of law, and when these are juxtaposed

against their economic climates of sophisticated markets then their performance

metrics are justified. There is a downside o most of these developed countries‟ which

is evident in their mature markets being quite saturated, a reflection of the countries‟

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maturing populace. Innovative practices and international expansion are the keys to

sustained growth, the lesson for developing countries is to nourish innovation and

even once established brands should encourage intraprenuership.

2.5.3 Developing Countries’ Snapshots

2.5.3.1 China

The population of China which exceeds a billion people is a glaring commercial

opportunity that cannot be ignored. The middle class of China continues to expand

creating an enormous market for the development and growth of franchising. The

regulatory system is challenging to navigate and lacks transparency which is

especially problematic for foreign brands (Boll, 2016, pp. 19-20). Attraction and

retention of workers seems to be a concern in spite of the country‟s large labour

pool. World class infrastructural developments have occurred in the country but

some gaps exist and cold chain issues prove problematic for franchising.

China enjoys more than 4500 franchise systems, employing over 5 million people,

with the franchise sector dominated by food and beverage operations taking up 40%

of the sector (Boll, 2016, pp. 19-20). Foreign brands are receiving increasing interest

and opportunities are high in non-food and beverage industries. The sector is

regulated partially through the China Chain-store and Franchise Association (CCFA).

2.5.3.2 Selected African Countries

Six out of the ten fastest growing economies of the world are in Africa, namely:

Nigeria, Botswana, Ethiopia, Mozambique, Rwanda, Tanzania and Uganda reports

Märzheuser-Wood, (Franchising In Africa, 2014, p. 129). African countries have an

interesting mix of indigenous micro-franchises and a spattering of more prominent

international franchisors such as KFC, Subway and others (Märzheuser-Wood,

2014, p. 129). Successes in South Africa where franchising contributes in excess of

12% to GDP and Morocco with 315 brands on the market, can be translated to other

African economies.

Established franchise associations exist in South Africa, Nigeria, Kenya and

Zimbabwe which in tandem with the recently established Pan-African Franchise

Federation facilitate the development of franchising in Africa (Bizcommunity, 2013).

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Franchising is therefore a successful business format for SME development. It has

also been established that a significant number of countries in Africa are either

currently supporting franchising or have the potential to do so.

Franchising contributes to the public policy initiatives of employment creation and

poverty reduction while creating entrepreneurship through the transfer of

technologies and knowledge (Märzheuser-Wood, 2014, p. 130). Franchising

achieves these goals through the mentoring relationship maintained between

franchisors and franchisees and by significantly decreasing the failure rates of

franchised businesses in comparison to that of SMMEs.

2.5.4 Franchising in South Africa

In keeping with international trends, franchising has evolved from very modest

beginnings to become a substantial contributor to South Africa‟s economy. It is

noteworthy that this growth was maintained throughout periods of near-recession.

Needless to say, franchising‟s growth outstripped inflation by a comfortable margin.

Today, 757 bona fide franchisors, operating through around 33 557 outlets, serve the

local market, most of which are owned by the franchisees (90%). This is an increase

of 6% in the number of stores since 2014 (Franchise Association of South Africa,

2016, p. 32).

The 2016 Franchise Association of South Africa franchise report demonstrates the

sustained growth of the franchising sector in spite of very challenging economic

conditions as evidenced in the following highlights:

• At a 2015 average exchange rate of R13,54 to the dollar (US), South Africa‟s

GDP for 2015 was estimated at R4 235.31 billion rand, a 12% decline from R4

736.56 in 2014 (Franchise Association of South Africa, 2016, p. 45).

• The estimated turnover for the franchise market at R493,19 billion is 11,6% of

the SA GDP.

Comprehensive growth has occurred in the sector, with an increase of 132 franchise

systems from 625 to 757 (21% growth) as seen in Figure 2.4, an increase of

franchise outlets from 31 050 to 35 111 (13% growth) and with turnover increasing

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by 6% from R465, 27 to R493, 19 billion rand (Franchise Association of South Africa,

2016).

Figure 2.4: South Africa growth in franchise systems

Source (Franchise Association of South Africa, 2016)

Figure 2.5 presents the composition of South Africa‟s franchise sector, with the

largest component being fast foods and restaurants at 24%, retailing follows at 16%.

Similar in size are building, office and home services and business-to-business at

11% each (Franchise Association of South Africa, 2016, p. 16). Childcare, education

and training, automotive products and services and real estate Services are next at

9%, 7% and 7% respectively.

156 212

430 381 391

470 531 551

668 627

1994 1998 2002 2006 2010 2014 2016

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Figure 2.5: Composition of South Africa’s franchise sector

Source: (Franchise Association of South Africa, 2016, p. 16)

2.5.4.1 Notable Trends

• International Expansion: In addition, 50% of franchisors plan to expand

outside of South African boundaries, mostly to neighbouring countries

(Franchise Association of South Africa, 2016). Capacity for expanding

outside African borders is very limited.

• Resilience of Franchising: On average, the claimed number of years in

business is 9 years (Franchise Association of South Africa, 2016). There is

no significant difference between franchise systems in the various sectors,

although it appears that an automotive products and services franchise may

have been in business a little longer (10.6 years).

• The fact that four out of five franchisors have been in business for more than

six years (54% have been in operation for longer than 10 years) is testament

to the sustainability of these businesses (Franchise Association of South

Africa, 2016).

Other** 1%

Construction and related

Leisure and entertainment

3% Personal services

4% Health, beauty and

body culture 5%

Real estate services 7%

Automotive products and

services 7%

Childcare, education and

training 9%

Business to business services

Building, office and home services

Retailing 16%

Fast food and restaurants

**Includes: Agriculture, mining, manufacture and industrial; Petroleum Retailing; Social Franchising

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• Influx of International Franchisors: Foreign brands are expanding into

South Africa, such as Burger King, Starbucks, Domino‟s Pizza and Pizza Hut,

which are re-entering the market, and the soon to launch Dunkin Donuts.

This is a definite indicator of confidence in the franchise sector (BPL Team,

2016).

• Lower setup costs: There is an increase in the development of franchise

systems with lower setup costs requirements, facilitating an opportunity for

franchisees to enter the market (BPL Team, 2016).

• Transformation: In 2015, 36% of franchises claimed to have no Previously

Disadvantaged Individuals (PDI) ownership, while in 2016, the figure grew to

53% (Franchise Association of South Africa, 2016, p. 59). The percentage of

PDI ownership from 2006 until 2016 is presented in Figure 2.6.

Figure 2.6: Percentage franchise ownership by previously disadvantaged

Individuals

• Education and child focused franchises: An increased demand for safe,

fun and educational solutions for children of the burgeoning middle class is

fuelling the growth of various child and education franchises (BPL Team,

2016).

2.5.4.2 Challenges faced

The main challenges faced by franchisors in South Africa are presented in Figure 2.7

below. Finding the right person – in terms of finding the right franchisee with the right

skills sets and the right staff is the greatest challenge at 17%, closely followed by

attracting good/qualified staff at 15% and franchisees not meeting the standards of

the business at 10% (Franchise Association of South Africa, 2016, p. 24). Other

2006 32%

2008 25%

2010 33%

2013 20%

2014 26%

2015 20%

2016 18%

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challenges include: high rentals; lack of business/industry experience and the

marketing of the business amongst others (Franchise Association of South Africa,

2016, p. 24).

Figure 2.7: Main challenges faced by South African franchisors

2.5.4.3 The 2016 FASA Franchisee Survey

The 2016 FASA survey, interviewed franchisees to present a more balanced case of

the South African Franchise sector. This franchisee survey is based on the opinions

of franchisees and does not represent the total franchise universe (Franchise

Association of South Africa, 2016). Based on the findings of this study, the following

conclusions may be drawn about franchisees and their businesses:

The growth potential in the franchising industry is strong. Franchisees are

extremely optimistic about the growth of their businesses and are currently

making an average of 14% gross profit (Franchise Association of South

Africa, 2016).

There are some challenges facing the franchisee industry related to finding

skilled staff, the ability to consistently offer good service and managing costs.

0 20 40 60 80 100

Staff training

Finance for franchisees

Correct location

Staff turnover

Marketing the product/service

Finding franchisees with…

Economy slow/escalating food…

Marketing the franchise

Business/industry experience

High/expensive rental

Franchisees not meeting standards

Attracting good staff/qualified staff

Finding the right franchisee

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Increased training across all these aspects would be of great benefit to the

franchisee (Franchise Association of South Africa, 2016).

The challenge of transforming ownership of franchisees remains (Franchise

Association of South Africa, 2016).

Franchisors should be made aware that franchisees are less than satisfied

with the prices being charged for products. Franchisees do believe that they

should be benefitting by being able to obtain the products at a lower price

than available elsewhere (Franchise Association of South Africa, 2016).

South Africa is an example of how franchising can be used to quickly and efficiently

create jobs by helping people set up SMMEs under a franchise system. Franchising

currently contributes in excess of 12% to the country‟s GDP which is considerably

higher than the contribution of the US franchising (3%) to US GDP. The country

embraces creativity and innovation as evidenced in the composition of its franchise

systems when filtered by origin. Many of South African franchise systems are

indigenous tailored to the needs of this large and diverse country (Märzheuser-

Wood, 2014, p. 130). While the sector as a whole is showing strong growth, the fast

food and retail components remain the strongest players.

On the world stage the use of franchising as a means of expanding enterprises is

growing and though the franchising sector is well established in several developed

countries, their developing counterparts are making strides in developing their own

franchising sectors. Holmes (2016) posits that although the origins of fast food are in

North America, Asia Pacific is the fastest growing market, due to the growing

economies of many countries in the region.

70% of the global fast food market can be accounted for by the United States and

Asia Pacific where the biggest franchises are McDonalds, KFC and Pizza Hut

(Insight Survey, 2016). This illustrates the dominance of the fast food component of

the franchising sector worldwide and the saturation of developed country markets.

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2.6.1 Fast Food Franchising in South Africa

The economic landscape of South Africa has been lacklustre as it is riddled with a

volatile currency, rising food prices, utility costs, high household debt and

unemployment. Consumers strapped for cash are desirous of fast food offerings that

give more value for the limited cash a consumer is willing to part with (Euromonitor,

2016).

Rising prices, saturation of markets, various health and safety issues, and load

shedding are all issues which have challenged the South African fast food industry.

Maharaj (2015, para.3) contends that in spite of the above mentioned challenges,

fast food is experiencing exponential growth with consumption by locals increasing

from 66% in 2009 to 80% in 2014.

Figure 2.8 depicts the composition of the fast food outlets in South Africa based on

4841 outlets discussed in (Business Tech, 2016). The dominance of chicken-based

fast food in the country‟s franchising sector is cleary evident.

Figure 2.8: South Africa Fast Food Franchise Types

Source: (Business Tech, 2016)

The market is dominated by Yum! Brands Inc., with a 23% market share in 2015,

driven by their flagship KFC brand which South Africans support due to its brand

heritage in the country and innovative practices, eg incorporation of popular

Chicken

Burger

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packaged foods such as Oreo and Doritos into its menu offerings (Euromonitor,

2016). Business Tech concurs with this finding indicating that the global fried chicken

giant KFC remains South Africa‟s biggest brand with 828 outlets open across the

country, followed by Steers with 538 outlets and incidentally the top local brand

(Business Tech, 2016). Nandos a chicken-based fast food franchise system has

opened over 1000 outlets worldwide; it is only the sixth biggest chain in its home

country South Africa (Business Tech, 2016).

The local fast-food industry brings in more than R300-billion every year, according to

(Insight Survey, 2016).The percentage of adults who buy fast-food at least once a

month increased from 66% in 2009 to more than 80% in 2015. Euromonitor (2016)

estimates that the number of consumers in this sector will increase to 42-million

people in the next two years.

This favourable oulook is in contrast with other African countries, where many

international fast-food brands have limited or decreased their involvement. Maharaj

(2015) suggetsts growth in the South African Fast Food industry can be attributable

A broadening black middle class; It is no coincidence that the sector has

boomed at the same time as the growing black middle class. Now numbering

about 4.5-million people, the black middle class has more than doubled over

the past decade, according to Newsroom (2013, para.1) the black middle

class is helping create a vibrant and stable society by increasing South

Africa's skills base, deepening employment, and widening the tax net.

A strong meat-eating and dining-out culture; South Africa is also typified by

“high meat consumption” and a “strong eat-out culture”, both of which are

driving factors for fast-food companies;

An increase in the number of women in the labour force; and

Fast-food outlets increasing their footprints in townships and rural areas.

2.6.1.1 Notable Fast Food Trends

International brands: An aggressive penetration of global players into the South

African market which coupled with the rapid growth of resident global and local

franchise stores aids positive market performance.

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Rural greenfields: Fast food service operators are entering previously

disadvantaged parts of the country. These peri-urban and rural communities

constitute a underserved market for the franchise sector, and are being developed

with retail centres (Maharaj, 2015). Brands such as Nkuku box have cropped up to

focus on unserved markets such as the Kasi areas with a market offering that is

created specifically for that locale in mind (Your Business, 2016).

Demand for healthier options: Consumers are becoming increasingly conscious of

the health effects of food, even if it is fast food, it should be healthier. Maharaj

supports this notion, indicating that reactive product differentiation strategies are

becoming manifest in menu alterations to cater for the burgeoning health trend

(2015).

Other trends: of note driving the successes of the fast food industry include the

increased involvement of private equity, Initial Public Offerings (IPOs), product

innovation and Internet & Communications Technologies.

Trends in the South African Fast Food industry mirror those of the franchising sector

as a whole, though this is to be expected given that fast food holds prominence as

the largest component of franchising in South Africa. There is a close relationship

between the use of franchising and outlet growth within the restaurant industry (Alon

et al., 2010)

2.7 SUMMARY

Franchising as an approach to doing business is growing globally, having made

great advances in the developed world with consolidated bases in countries such as

Australia, United Kingdom and the United States of America. Developing countries

although lacking in some contextual elements are nonetheless engaged in efforts to

nurture the budding franchising sector in their economies. Certain African countries

such as Nigeria, South Africa, Egypt and Morocco have more structured franchising

sectors than their other continental counterparts; this is partially attributable to

interventions such the African Development Bank Strategy for the Development of

Franchising in Africa which was implemented in 2001.

In South Africa considering the dominance of KFC as the top franchise in terms of

number of outlets is an indication of the country‟s appetite for chicken but is also an

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indicator of franchising excellence. It can be postulated that in South Africa, of the

factors critical to successfully implementing franchising, franchisee recruitment,

selection and training carry more weighting than others, due to „finding the right

person‟ being a main challenge reported by franchisors.

To successfully implement franchising an entrepreneur who is motivated to

franchise, would firstly determine the franchisability of the concept using the criteria

presented in 2.4.2, thereafter using a synthesis of the implementation processes

presented in 2.4.3 juxtaposed against the South African contextual factors, such as

socioeconomic trends and the South African fast food industry trends. This serves as

the foundation of a proposed theoretical model for franchising South African chicken-

based fast food.

The next chapter explains the case study methodology adopted for this study.

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CHAPTER THREE

3 RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter presents an explanation of the methodology used to develop a model

for the successful implementation of franchising in chicken-based fast food in South

Africa. Collis and Hussey (2009) (2009, p. 11) define a methodology as an approach

to the process of the research, encompassing a body of techniques for collection

and/or analysing data. A research methodology can also be described as a road

map for realising research objectives and responding to research questions

(Blumberg, Cooper, & Schindler, 2014, p. 58).

The prior chapter examined the concept of franchising, its successful implementation

and prevalence in selected countries around the world culminating in a brief

exploration of the fast food industry from a global perspective, through to an African

perspective and concluded with a South African exposition. In this chapter the

researcher advocates the research paradigm selected to answer the research

questions posed in chapter one by using case study methodology. This selected

method is the best approach to use in meeting the research objectives as well as to

answer the research questions and, finally, to test the listed propositions in relation

to developing a model for the successful implementation of franchising in chicken-

based fast food industry of South Africa.

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3.2 CASE STUDY RESEARCH APPROACH

The case study research methodology is used to contribute in the understanding of

individual, group and related phenomena, this allows for research to focus on a case

while maintaining a holistic and practical orientation. This approach increases the

depth of understanding of intricate issues, expanding experiences already known

about a particular phenomenon (Collis & Hussey, 2009, p.82; Blumberg, Cooper, &

Schindler, 2014, p. 376). The inclusion of detail from a multiplex of sources offers

precious insight for problem solving in case study approaches allowing for the

verification of evidence while avoiding missing data. Case study research is

conducted in order to comprehend a real-life case better, and has the following

methodological characteristics (Yin, 1994, p.13):

3.2 CASE STUDY RESEARCH APPROACH 3.2 CASE STUDY RESEARCH APPROACH

3.4 THE LOGIC LINKING THE DATA TO THE PROPOSITION

3.3 CASE STUDY RESEARCH DESIGN • Case Study Questions

• Case Study Propositions • Unit of Analysis

• Reliability and Validity

3.3 CASE STUDY RESEARCH DESIGN • Case Study Questions

• Case Study Propositions • Unit of Analysis

• Reliability and Validity

DELIVERABLES • The Research process

• The methodology used in conducting this study

DELIVERABLES • The Research process

• The methodology used in conducting this study

Figure 3.1: Layout of chapter three Figure 3.1: Layout of chapter three

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Case study investigation deals with a technically distinctive situation in which

there will be several more variables of interest than data points; and

Case studies benefit from the prior development of theoretical suggestions to

guide data gathering and examination.

Table 3.1 reproduced below, presents various conditions for different research

methods, allowing the research to identify the best-fit research method based on the

nature of their research problem. Yin (1994, p.3) states that every research method

may be used for all three purposes, being exploratory, descriptive and explanatory

studies. This means there may be exploratory case studies, descriptive case studies

and/or explanatory case studies. An explanatory case study method has been

selected for this study as being the most appropriate to achieve the research

objectives. Explanatory case studies are beyond descriptive in nature, seeking to

address and illuminate the cause of the phenomenon under study (Collis and

Hussey, 2009; p.82; Blumberg, Cooper, & Schindler, 2014, p. 376). The authors

continue that explanatory case studies apply contemporary theories to understand

and explain present occurrences.

Table 3.1: Conditions for Various Research Methods

Method (1) Form of Research Question (2) Requires control of Behavioural Events

(3) Focuses on Contemporary Events

Experiment How, Why? Yes Yes

Survey Who, What Where, How much, how many?

No Yes

Archival Analysis Who, What Where, How much, how many?

No Yes/No

History How, Why? No No

Case Study How, Why? no Yes

Source: (Yin, 1994, p. 6)

3.3 CASE STUDY RESEARCH DESIGN

Researchers who are in the process of gathering, analysing and interpreting findings

are guided by research design, in order to avoid their findings being misaligned with

research findings that fail to address the initial problem (Yin, 1994, p.18). The design

logic includes connections between the research questions, data gathered and the

strategies for analysis so that the study‟s findings will address the actual research

questions and facilitate the reinforcement of the study‟s validity as well as its

accuracy. Yin (1994, p.17) indicates that as a logical model of proof, the case study

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research design allows the researcher to draw inferences concerning causality

between the variables under investigation. Wahyuni, (2012, p.72) reports that in case

study research the preference is for multiple case designs with multi-sites as a basis

for comparisons between the observed practices of the subjects‟ studies in order to

obtain a more complete understanding of these practices. However a single holistic

case can be justifiably worthwhile of scientific rigour when conducted with thorough

care (Baxter & Jack, 2008, p.549).

The intent of this case study method is to contribute towards the development of a

model for the successful implementation of the franchising concept in chicken-based

fast food in South Africa. Therefore the research design methodology of a single

holistic case by Yin (1994, p.20) is followed in this study, employing the following

components:

A case study‟s questions;

Its propositions, if any;

Its unit(s) of analysis; and

The logic linking the data to the proposition.

3.3.1 Case Study Questions

The most appropriate case study methodology for addressing “how” and “why”

questions is the explanatory case study according to Yin (1994, p.4). This case study

developed a model for the successful implementation of franchising for chicken-

based fast food businesses in South Africa by undertaking an examination of

literature and an in-depth semi-structured interview with an experienced,

knowledgeable chicken-based fast food industry stakeholder/participant. The

following investigative questions were used to address the proposed research

questions and objectives:

Interview with experienced chicken-based franchising industry participant

Part 1 - Franchisability

Does the business operate in a large or growing market?

Can growth be sustained?

Are the attainable margins sufficient?

Can the product or service demand a price premium?

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Is the infrastructure adequately funded? Is there access to sufficient Capital?

Is there a substantial barrier to entry?

Is there potential to establish a memorable brand?

Is the intellectual property secure? Is it difficult to copy?

Is it possible to grow a franchise culture?

Does the concept have staying power?

Will development costs allow for a satisfactory return on investment? Are the

requisite skills easily transferrable?

Are suitable systems and procedures in place?

Part 2 – Implementation Process

How suitable was this concept for franchising? – answered in prior section

Was a business plan prepared? Was a feasibility study undertaken? How

useful were these in determining the viability of the concept? How did they

facilitate the process?

Did you pilot your operations? At which point did you feel that the concept was

ready for launching?

Regarding the piloting of your concept, what where the findings of the pilot

operation?

o Did you test products, systems, methods and procedures? Which

ones? Kindly name them?

o What problems were you able to identify that were resolved during

piloting? Kindly provide some examples.

o What consumer behaviour did you notice that you were able to use in

altering your market offering during the piloting stage?

o Plan versus reality: what changes did you make as a result of practical

experiences versus what was theorised? Respond especially in relation

to performance metrics?

o Was training of franchisees done at this pilot unit?

o Was the pilot process used to determine location requirements?

o Was this pilot process (actual experiences) used to compile the

operations manual?

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o Was the potential for generating substantial income determined during

piloting? Were any comparisons made between actual and the

projections?

Did you develop a franchise package? What were its key elements?

Did you prepare an operations manual and a franchise agreement? Is the

operations manual updated regularly?

What practices and policies are in place to facilitate ethical compliance?

What is your recruitment and selection process like? How do you attract

franchisees? How do you ensure they are the right fit?

What training do your franchisees undergo? How do you measure the efficacy

of this training?

How do you transition from operating a unit to operating a franchise system?

How was the transition from owning an independent unit, servicing customers

directly to being a franchise system owner selling and supporting franchise

outlets?

What functions did you put in place to facilitate the operation and

management of the franchise system?

Part 3 – Contextual Considerations

What South African socioeconomic issues impact the implementation of

franchising?

What chicken-based fast food issues and trends impact the implementation of

franchising?

The interviewee selected for this study is an experienced franchisor and multi-unit

franchisee in the South African chicken-based industry. Taking into consideration

that the interviewee was a franchisor and then a franchisee, his rich experience is

sufficient for this single case study, and provides rich data for analysis of the case

under consideration. The case under analysis here is a process of franchise

implementation in a particular context namely: South African chicken-based fast food

industry.

3.3.2 Case Study proposition

The case study proposition directs attention to something that needs to be examined

within the scope of the study (Yin 1994, p.21). When a case study contains precise

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propositions, it increases the probability that the researcher will be able to impose

restrictions on the scope of the study and increase the feasibility of accomplishing

the project (Baxter & Jack, 2008, p.551). The primary proposition of this case study

is to develop a model for the implementation of franchising in chicken-based fast

food franchises incorporating relevant South African contextual considerations.

The secondary proposition of this study was to investigate the successful

implementation of franchising in chicken-based fast food in South Africa by

examining the following case propositions: Propensity for franchising; franchisability;

implementation process; South Africa specific considerations and fast food industry

specific considerations.

3.3.3 Unit of Analysis

One of the most challenging aspects of case study research is the identification of

the unit of analysis; Baxter and Jack (2008) attest to this with the assertion that both

novice and experienced researchers alike are challenged by this seemingly simple

concept. Yin (1994, p.27) indicates that the unit of analysis in case study research is

related to the process of how the initial research question is defined. This research

study developed a model for the implementation of franchising in chicken-based fast

food in South Africa; therefore the unit of analysis is the implementation process

of franchising in the South African chicken-based fast food industry.

Yin states that cases can either follow a holistic or embedded design (1994). This

case followed the holistic design with the following source of information: An

interview with a key experienced chicken-based fast food industry participant. The

case was constructed using multiple sources of evidence to enhance construct

validity; the use of a case study protocol and pattern matching to ensure internal and

external validity. These added confidence to findings and reinforced the quality and

reliability of case study research.

One more concern of key importance in the design of case study research is the

explanation of conditions linked to the quality of the design. There are four conditions

according to Yin (1994, p.33), which are:

Construct validity;

Internal validity;

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External validity; and

Reliability.

These are discussed in more detail below.

3.3.4 Validity

The degree to which an investigation measures what it is supposed to actually

measure is referred to as validity. This is attainable through methods of suitable

research design, data collection and analysis. There are three conditions for validity,

namely:

Construct validity is concerned with the confirmation of what is measured.

Confirmation can be achieved by using multiple sources of evidence in a

manner that encourages convergent lines of inquiry, an established chain of

evidence, and by having the draft case study report reviewed by key

informants (Yin, 1994, p.34).

Internal validity is concerned with establishing credibility in explanatory case

studies by means of causal relationships in underlying patterns of similarities

and differences between units of analysis in case study research. This is

achieved by ascertaining components that are important to the inspected

patterns and what tools are used to produce them (1994, p.36).

External validity is concerned with the transferability of data across

individuals, settings and times while determining whether a study‟s findings

can be generalised beyond the immediate case (Blumberg, Cooper, &

Schindler, 2014, p. 17; Yin, 1994, p.36).

In this case study rich data that fully covered the field of inquiry was obtained

through a detailed in-depth interview. The respondent was asked clarity seeking

questions during the interview to minimise misinterpretation. Finally an explicit

comparison of the results was made between the empirical findings and what was

espoused by the literature (Yin, 1994, p.32).

3.3.5 Reliability

Reliability refers to the demonstration that the processes and activities of the

research study can be replicated by other researchers to obtain comparable findings

and produce results of a consistent nature (Blumberg, Cooper, & Schindler, 2014, p.

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17; Yin, 1994, p.36). The aim of reliability is to eliminate errors and (Yin, 1994, p.35)

was used to deal with any documentation issues.

3.4 THE LOGIC LINKING THE DATA TO THE PROPOSITION

Case studies emphasise the full contextual analysis of fewer events or conditions

and their interrelations in order to establish a causal link between variables. This is

known as the causal explanatory logic of linking data to the proposition in

accordance with the ideal standard of causation that one variable always causes the

logic linking the data to the proposition. Pattern matching always involves an attempt

to link two patterns where one is a theoretical pattern and the other is observed or

operational. As an arrangement of objects or entities, a pattern is non-random and is

used to match recorded interview responses against the proposed, theoretical

framework of patterns between the independent and dependent variables to validate

the constructs (Yin, 1994, p38).

3.5 SUMMARY

This chapter presented an overview of the research methodology utilised in this

research study. An explanatory case study research approach was selected as the

most appropriate for realising the research objectives defined in the first chapter. The

design was manifest in a single holistic case analysed through an in-depth interview

preceded by a review of publicly available company related documents, such as

reports, statements etc… The case study‟s primary and secondary propositions were

defined as well as the validity and reliability of the research. Pattern matching was

selected as the logic linking data with the proposition. The chapter that follows

presents detailed feedback and analysis of gathered data.

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CHAPTER FOUR

4 DATA ANALYSIS AND FINDINGS

4.1 INTRODUCTION

The literature review presented in chapter two discussed the propositions that were

considered to have an effect on the dependent variable. Chapter three then

explained the research methodology and design, and how the data collected from

the interview were linked to the propositions. This chapter reports the results from

the empirical findings addressing research questions RQ5; and research objectives

RO5 and RO6.

In chapter one the primary research problem was stated as follows:

As a result of inherent potential in the budding franchising sector of South

Africa, prospective franchisors are facing the problem of how to successfully

The dependent variable was identified as the success of a franchising

implementation model for the chicken-based fast food industry in South Africa

The propositions identified as having an effect on the dependent variable were:

Propensity for franchising;

Franchisability;

Implementation process;

South Africa specific considerations and

Fast food industry specific considerations

The method utilised to link the data to the propositions is critical to this research

effort. In this case study, pattern matching was employed. In this chapter the

researcher presents the empirical findings and provides answers to the propositions

from the South African chicken-based fast food industry participant interviewed.

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4.2 CRITERIA FOR INTERPRETING THE FINDINGS

As the nature of this case study is explanatory a causal explanatory study was

designed to establish whether the proposed independent variables explain the

causes or effects of the outcome variable. Causation is evident when one variable

leads to a specific effect on the other variable (Cooper and Schindler, 2011). In this

case, it is focusing on the success of the implementation process of franchising to

determine challenges and successes for South African potential franchisors. The

proposed theoretical model is investigated to determine its role in the successes of

implementation efforts in South African chicken-based fast food industry.

The following coding has been used to organise the data. Collis and Hussey (2009,

p. 179) suggest that codes enable the organisation of data and are labels to allow

4.3 PATTERN MATCHING 4.3 PATTERN MATCHING

4.2 CRITERIA FOR INTERPRETING THE FINDINGS • Respondent Profile

• Rudimentarily Coded Interview Responses

4.2 CRITERIA FOR INTERPRETING THE FINDINGS • Respondent Profile

• Rudimentarily Coded Interview Responses

DELIVERABLES Presentation of responses Identification of patterns Evaluation of propositions using pattern matching

Figure 4.1: Layout of chapter four Figure 4.1: Layout of chapter four

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separation; these labels are entirely subjective yet reflective of the nature of content.

These codes are based on the literature review particularly section 2.4.2, section

2.4.3 and section 2.6.1; the codes are applied to the interview responses by listing

codes below the relevant response here the theme appears in the primary data.

Furthermore the codes were utilised in Table 4.1 for the pattern matching analysis of

results.

01 Large market 16 Supply chain 31 Induction

02 Sustainable growth 17 Local products 32 Ethics

03 Profitability 18 Intellectual property 33 Recruitment

04 Barriers to entry 19 Existing franchise

architecture

34 Operations

05 Sufficient capital 20 Franchisability 35 Professional services

06 Branding potential 21 Research 36 Infrastructure

07 Commitment 22 Business plan 37 Marketing

08 Return on investment 23 Feasibility study 38 Logistics

09 Transferability of skills 24 Operations manual 40 Labour

10 Systems approach 25 Franchise agreement 41 Unemployment

11 Franchise culture 26 Prospectus 42 Government support

12 Standardisation 27 Piloting 50 Costs

13 Simplicity 28 Testing 51 Supply chain

14 Reproducibility 29 Training 52 Staff morale

15 Legislative

compliance

30 Control 53 Internationalisation

Some of the above listed codes are broad classifications which encompass some

important subthemes. These are discussed below:

Testing – this includes various types of tests to be conducted in the franchise

system such as systems testing; product testing, testing of markets; location

testing; testing of processes; and even the testing of new business models.

Control – refers to the aspect of comparing plans versus the actual results

obtained using predetermined metrics and milestones.

Operations – regular management functions in operating the franchise

system.

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Localisation – refers to the inputs and equipment sourced within the country.

Piloting – encompasses all aspects including the piloting of the franchise

concept; of products; systems; processes; and even marketing campaigns

This case study makes use of pattern matching as discussed in chapter three, with a

focus on the interview responses and document review conducted. The semi-

structured interview took place in January 2017 and was captured on a recording

device and transcribed by a third party for increased reliability. The responses are

presented as follows:

4.2.1 Respondent Profile

Due to ethical considerations and to retain the respondent‟s anonymity as agreed

with the respondent, no names of said respondent or associated companies will be

mentioned in this document or any annexures that form part of this research report.

The selected respondent for investigating the case has been involved in the

franchising sector of South Africa for little under 30 years, both as a franchisor and a

franchisee. That rich experience includes the conceptualisation and development of

new franchise brands, and associative systems; sales of franchises; consultancy

services and training. Presently the respondent serves as a multi-unit franchisee

within a top chicken-based franchise system, owning and operating between 30-50

outlets. The respondent can be recognised as a type B franchisee as described in

the literature reviewed in the latter part of section 2.3.3.3, as the respondent depicts

an appreciation for well-developed systems and a penchant for contributing greatly

to any system involved in. It is on the basis of this profile‟s strength that the

researcher selected this respondent for the study.

4.2.2 Interview Responses

The following primary research question was formulated in order to address the

research problem:

How to develop a proposed theoretical model for the successful

implementation of franchising in the South African chicken-based fast food

industry?

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The transcribed interview responses are organised under the research questions

below and then pattern matching is used in Table 4.1 to match the research

responses, propositions and questions.

4.2.2.1 Part 1 - Background

1. What is your current position?

A: I am currently the general manager of an international chicken franchise.

a. Scope of responsibility? b. Time period in this role? c. Training

that you have had in this role? – What does the training cover?

“I have been a general manager for the last 6 years. I acquired my franchising

background from 1987 and that was in a steak house franchise. Part of the

process was overseeing listed companies, trying to find other markets; and

that involved the research and development of new franchises; setting up a

new franchise of which one is a national pizza franchise today.”

“I was very involved in taking it up from the ground level. In South Africa that‟s

part of the listed company as well and I was involved in that process, doing

research and development of the menus, pastas, picture recipes, selling

franchises, doing the training, I opened the first five stores before we went on

and started selling as a franchisor itself‟.”

4.2.2.2 Part 2 – Franchisability

This discussion assumes the orientation of an entrepreneur who is considering

franchising – the things he should consider that are crucial for him to successfully

attempt franchising. If these are met then franchising is a go-ahead.

In your experiences what are the factors to consider when assessing the

franchisability of a business?

“There are couple of things; firstly it must be a unique business model or

product. It must be something that you must be prepared to market and create

a demand for. It is very important that the product itself must be locally

purchased. Equipment needs to be locally purchased, in order to keep the

setup costs as low as possible.”

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“That is the most important factor, the minute you start franchising a business

you start putting on 5 or a 6 or a 7% royalty and you look at 5, and a 7 and a 8

% marketing fee. And all of sudden you‟re looking at an 11 to a 14 to 15 %

that you are paying the franchisor.”

Emergent themes by code: 04, 01, 17, 08, 16, 08, 03,

It needs to be sustainable?

“Absolutely and then you get at the food industry and you‟re fortunate enough

to be able to source a good product at a good price. You are still going to be

looking at the vicinity of 45-50% of your sale being cost of sale. So if you‟re

looking at a 45% to 55% cost of sale and you put on another 14 or 15% on top

of that, which you‟re paying the franchisor, you haven‟t even started paying

your overheads yet.”

Emergent themes by code: 02, 03, 50

That type of margin squeezes the franchisee and doesn‟t give much options of

breaking even in the short term, right?

“Yes, the franchisee is at the end of the day, for at least the first five years,

working for the financial institution that is financing the operation, he is

working for the franchisor, and he is working for the landlord. And I think that it

is what makes franchising in South Africa very very difficult. Coupled with that

is very difficult to get financing from a financial institution, if the franchisors

themselves do not have a good and strong reputation.”

“Starting your own business is a high risk in anybody‟s terms. And people

would think that if you then buy a franchise it lowers the risk. It does if you

have a premium franchise that has been around a long time and has got an

established business model which is tried and tested. …we put together a

concept and pay a lawyer a certain amount of money to set up a franchise

agreement…franchisees are in many instances not successful. The premium

franchises like the big chicken ones that we have in the country, like the big

steak houses that we have in the country, like the pie franchises that we have

in the country. Those franchises are tried and tested. They‟ve run through the

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mill; however they charge premium for royalties, advertising and their joining

fee.”

“To get back to the franchisability of any franchise, the most important thing is,

is it a unique offering? Is it another Spur Steak ranch? Where you‟re walking

in, you‟re getting the same type of sit-down experience, the same, more or

less the same cost of the product. The only variance is the quality of the

service you get, because the price is more or less the same; you can only do

so much to a steak. So, if it‟s properly mature, the steak can taste the same

other than a bit of basting. That is not a unique product; for me, that is not a

unique product. So in today‟s market you need to be able to have a product

available, whether it be food product, a consumable product, a service that

you are offering. It needs to have a differentiator. And that differentiator is

either the cost of setting it up; or the product demand; or the service itself.”

“The franchise support is vitally important, so if you are a franchisor setting up

a new business, and there are franchisors in the country that will disagree

with me. I have been associated with a number of franchises and the most

vital aspect of setting up a new franchise is to have understanding that;

1. Firstly it is a business decision that is made not only by yourself but by the

franchisee who‟s buying your franchise; and

2. probably the most important of them all is that it is not only a business

decision the franchisor in my view is morally obligated to make sure that the

franchisee is going to became successful. Otherwise don‟t take his money.

We have many franchisors in our country; who will sell a franchise with high

promises and when the franchisee runs into trouble the franchisor walks

away. That is not franchising.”

Emergent themes by code: 05, 03, 07, 35, 06, 04, 19

That is ethically improper, isn‟t it?

“ Absolutely, that is why I am saying it is not only your business decision to

franchise; you have to commit yourself morally, understanding that you‟re

taking somebody‟s money and for many it‟s their life savings and pensions

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and now your responsibility like a child put them in school and make sure they

graduate. If you not prepared to do that, and to walk the road then you are not

good enough to be a franchisor. You need to walk away.”

Emergent themes by code: 07, 31, 29, 11,

Would you be able to transfer the skills needed for the franchisee to operate

“A very big problem we are having in South Africa today that I have

experienced over the last twenty odd years; is that many franchisors have a

good concept but they are not able to transfer those skills, from a good

product to a new franchisee.”

“Vitally, vitally important and it is very very easy taking (money from a

potential franchisee), selling a franchise to an unsuspecting franchisee and

telling him, “we‟ve got our own systems, and (we have got) procedures in

place. We will take you by the hand, we will train you.” And that franchisee

during his training process performs phenomenally well because he is being

trained in a structured, disciplined environment. The problem comes the

minute that franchisee walks out of that environment, gets into his new

business, he now needs to set his own structure, he now needs to set his own

discipline and many of them fail. Many of them fail because the franchisor

feels the minute he‟s finished his (franchisee) training and he‟s opened his

business for him (franchisee), he (franchisee) now must be able to survive by

himself. And he cannot do that.”

There needs to be a transfer period, a transition period where the franchisee is

weaned; is this correct?

“Exactly, Many franchisors… and when we took over the business that was

bought out of liquidation. When I put my own franchise agreement together,

one of the clauses that I put in the franchise agreement was that within the

first six months of opening that business that franchisee would give the

franchisor full access to all the books.”

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Emergent themes by code: 11, 12, 31, 32

Yes that is excellent; it actually allows you to hold their hand. Is this so that as the

franchisor you could guide the franchisee on the financial well-being of his business?

“.Yes, absolutely; I also wrote a clause into my franchise agreement saying

that for the first two years of the business the franchisee was not allowed to

take anything from the business, was not allowed to buy things like houses

and cars and luxuries. The money has to go back into the business to sustain

it, until it was a long term profitable business. Until then they weren‟t allowed

to buy luxuries out of the business.”

Emergent themes by code: 07, 03, 02, 32, 10

In reality this is incubation for franchisees, so it helps them to get their business

successfully off the ground.

Absolutely, some of the big mistakes that new franchisors make today is, they

are not selective and this has been a difficulty for industry for over twenty

years, they are non-selective on who their franchisee is. Now many people,

many franchisors that do successful recruiting today will tell you that “we are

extremely selective about our franchisees and we don‟t just take anybody. My

answer to you is absolute [expletive], you are never going to build franchise if

you don‟t take anybody. It‟s your job to make sure it is successful.”

So, and a lot of the franchisors will have their concept ready, they are ready to

go to market, they have posted it in the newspaper, they will post their ad on

radio etcetera. They will make all these promises that we can support you, will

find you a site. Take you, they will sit down. Make all these promises. He

signs the franchise agreement and then the franchisor does not have visibility,

or the ability to go and find a site, to negotiate a site, or they don‟t have a

network of development where they can call on to find…you see I am talking

specifically in the food industry now, because your site is prime.

Emergent themes by code: 11, 33, 29, 34, 37, 32, 19, 21, 38

It is essential to the success of that business as found in the literature.

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Hundred per cent; If you are offering a service, your site is not that important.

In the food industry, site is paramount to making your business successful.

What the franchisor then does is they will place the ad. They will then find

they have a queue of two or three people coming to them to say “I want to buy

your franchise” and they will take anybody that they can find that is prepared

to put the money down, and get financing from the franchise. They‟re doing it

to get the income to grow their business. The problem is they then take on

franchisees from not locally in which they can support, they take on new

franchisees anywhere because they need to be able to open the stores; they

need to be able to sell the franchises to say “I‟ve grown from 1 franchise to 10

in 18 months. So, I‟m a fast growing franchisor.” If you don‟t do that you are

not being regarded as successful.

“A franchisor‟s money does not come from the stores he owns. His money

comes from his joining fees; his money comes from his royalty. So he cannot

be selective in who he is going to allow to buy his franchise and where he

comes from. He‟s got to take whoever is in the queue.”

“And many of the guys take that franchisee‟s money, set him up as a

franchisee but they don‟t have the skills or support base to service a

franchisee that is 300 km away. So the franchisor starts running into financial

trouble because the stores themselves of the franchisees are not doing well,

his royalties are not high enough. Now he has got to have support base of

skilled people because when he is taking a man off the street and say “I‟m

going to train you as a franchisee.” You‟re not just training him on your system

and processes; you are training him about how to run a business. And that

means: basic accounting; that means basic marketing; and that means basic

business principles.

“In South Africa today, over and above anything else, it‟s what we understand

about the labour relations policies. If you don‟t understand labour relations,

and the industrial relations side of South African business you are going to

fail.”

Emergent themes by code: 21, 37, 11, 32, 19, 05, 02, 33, 38, 10, 09, 29, 15, 40

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Is there a substantial barrier to entry?

“Firstly, find the franchisees that have got the money. Once they have money

they also need to meet the financing to be able to sustain themselves as very few

franchises open today and breakeven tomorrow. You need to be able to carry

that loss for sustained period of time.”

“First and foremost criteria or barrier is; the franchisee that I‟m appointing

financially, how stable is he?”

“Secondly: if it is food based, finding sites. If it is service based you still need a

point of operation, but that is easier because you have office blocks or whatever

the case is. Those are the two.”

“The third one is making sure that your systems and procedures that you are

going to be able to sell to the franchisee are workable. So they must have been

tried and tested, and they must have gone through a period, in my view of at least

two years before you can get out there and franchise.”

Emergent themes by code: 03, 05, 04, 33, 21, 30, 10, 28, 27,

The literature says 12 months, yet you are saying two years.

“For me it‟s very simple, when you open a new business and at least for the

first year, you are still trying to understand the business. Trying to understand

the nuances, what affects your business, what is the market? You can‟t tell

me, in twelve months you understand your business, well enough, as a new

franchisor to go and take the risk of someone‟s life savings and say I‟m going

to put you into business and you will be successful. Impossible! Nobody can

do that in twelve months. Not for a brand new business. Then you‟re

ripping…, you are taking somebody‟s money at high risk and that is where the

moral part of franchising comes in.”

So it is a long term commitment.

Is the intellectual property secure? Is the concept difficult to copy?

“So let us talk about the intellectual property aspect. Obviously it is a unique

service that is being offered. They‟d want to protect, get a good attorney or

group of attorneys that you are working with. They got to protect the income

from any intellectual property. If it‟s a unique product they have got to be

prepared to spend money on patents etcetera. In order to protect the

intellectual property, and by doing so you‟re protecting your franchisee as

well. You must be prepared to spend money. Again to kick start a franchise,

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you must have enough finances to be able to build a franchise without relying

on new franchise sales and royalties.”

Emergent themes by code: 04, 15, 05, 06, 19, 35

Is it possible to grow a franchise culture?

“With regards to culture and this is something that I preach to all my

franchisee that I have trained over many years. It is like having a marriage.

For the first two years of your marriage, everything is honky dory with your

wife, and you love each other. After two years you start finding faults with

each other; exactly the same happens in franchising. For the two years the

new franchisee accepts everything that the franchisor is telling him, because

he needs him for his business to be successful. But as he starts

understanding how his business operates and as he starts understanding

what he needs to do to be successful. He is going to start feeling he doesn‟t

need his franchisor‟s advice. And as of the minute he starts getting to the

point where he feels he doesn‟t need his franchisor‟s advice, he then starts

finding a reason why his franchisor is not performing, why he shouldn‟t be

paying him full royalties. It becomes a love hate relationship with the

franchisor; the franchisee will specifically always look for faults with that

franchise. And they will always find reasons to not pay the royalties or to pay

less and it is a head butt session for at least the next five to seven years.

Whereas if the franchisee and the franchisor get past the first five or seven

years. Where you now get to a stage in the marriage where you say “Now I‟m

fifty years old, I am fat and ugly, my wife is fat and ugly, we are not going to

find sexy anymore, we going to live with each other till the day we die. That is

what happens in the franchisor, franchisee relationship.”

“So very very important, when you setting up a new franchisee, you take them

through the cycle of saying: “This is how franchising works”. We understand

that for the first two years you going to believe everything we say and that‟s

our responsibility to tell you how to run the business. Then you will start

finding faults because you think what we telling you to do, is not how you will

be running your business now that you understand it a bit better. So, you are

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going to start pushing back on some question; that for me is a very healthy

part of franchising. The problem with many of South African franchisors is that

they don‟t accept the push backs from the franchisee, they are saying we are

the franchisor, you will do it our way especially American franchises.

Americans are very very good at saying you will do it our way, or else.

Franchising is not an „all or else‟.”

Emergent themes by code: 11, 13, 10, 31, 29, 32

Yes, it‟s not a dictatorship.

“It‟s not, it‟s a partnership. Many South African franchisors don‟t understand

that. You sign a 10 years franchise agreement. That franchise agreement is to

be signed and put away until you need it. You have too many franchisors who

continue towing the franchise agreement, and threatening legal action against

the franchisee, instead of spending time around the table understanding that

personality of the franchisee, understanding the button that makes them work.

You build the franchisee up, you build the relationship by saying “you have to

understand, that within the franchise there are ramifications and frameworks

that you have to work within”. However we need to also understand that you

are going to want to step over the rope, you are going to want to become

more independent. And mature franchisor understands how to manage those

scenarios. An immature franchisor just throws the franchise agreement at an

individual. The minute you threaten the franchisee with legal action, you have

broken a relationship that is not work repairing again.”

4.2.2.3 Part 3 – Implementation Process

Steps in franchising, what comes first, things to consider, preparations to make,

getting the franchise system off the ground?

How suitable was this concept for franchising?

A – answered in prior section

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Was a business plan prepared? Was a feasibility study undertaken? How

useful were these in determining the viability of the concept? How did they

facilitate the process?

“Business plan is vitally important from day one. Whatever business it is that

the franchisor wants to franchise, he must be able to set up a business plan

himself. Any new franchise that he goes into or any new franchise that he

sells to a new franchisee. He must be part of being able to set up a business

plan and to be able to send that business plan with a new franchisee to the

financial institution to get his funding.”

“Ok and I feel that is vitally important, It must not be left to the new franchisee

themselves to do the business plan and then go and find his financing.

Franchisor has got to be involved in that through the whole process. Not only

franchise business plan that is set just to get your financing. The business

plan should be revisited, in my view at least every quarter; and in that

business plan must be a marketing strategy, must be the cash flow, and must

be benchmarks that can be measured along the way. Now when it comes to

the planning side of setting up a franchise, obviously if it‟s food related you got

to look at the logistics of product, and availability of product, pricing and

sourcing. If it is service related obviously you then got to look at the

uniqueness of that service, what are other competitors charging and where do

you place yourself in the market. Vitally important setting up your accounting

system. A big thing with franchising is under declaring royalties. A franchisor

cannot be a franchisor if he cannot collect his money. So, he has got to make

sure that part of the deal when he sells to franchisee there is a decent

accounting package that has been put in place. Whether it‟s been modified or

specifically written for that, franchisor is immaterial. The franchisor must be

able to access the accounting system of the franchisee from day one.”

Emergent themes by code: 22, 05, 31, 16, 32, 10, 36, 34

Is this to be able to remain fully aware of how much money is due to him, in terms of

royalties and other fees payable?

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“The more your franchisee becomes aware of his business, and the more

viable and profitable his business become, the more he is going to want to

pay less royalties and he is going to find ways to un-declare.”

Emergent themes by code: 34, 32

Some literature consulted in preparing for this research study, indicated that some

franchisees find ways to avoid paying their dues and bypassing the financial

management system or accounting system of the franchisor to try to get some extra

cash under the radar.

“Very much so, we have had franchisees making their own sauces, instead of

buying from the central kitchen. There is many ways including, not ringing up

sales, many ways that they can un-declare. So it is a very real problem with

any franchisor in the country.”

There is a business plan of the whole franchise system and that is the one you

referred to, which needs to be visited quarterly and also that of the franchisees. You

also indicated that it helps to take that to the financial institution to increase the

credibility of that franchisee‟s fundraising application.

“Absolutely, it helps to prepare that other business plan with the franchisee

and take that together to financing institution to increase the credibility of that

franchisee receiving funds from that institution.”

Emergent themes by code: 22

What is the role of a feasibility study in the implementation of franchising?

“ Vitally important and the new franchisor must be prepared to spend money,

some professional fees to have successful independent people put together

the feasibility study because we are looking at development of

professionalism.”

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So in the development stages it is important to actually get professionals who are

experts, who have experience and specific skills to conduct this feasibility study?

“Absolutely, my advice to a new franchisor take your feasibility study and go

and sit down with your council and go through it to see if it make sense. It is

surprising enough that; in the 27 years that I have been in franchising, both as

a franchisor and as a franchisee, and I have opened over 200 different

franchise businesses. I have not yet had a bank come to me and say “I can

see the business plan for the franchisee that you support, can you give me

your business plan as a franchisor. I want to see it in line with that of the

franchisees‟.” Never ever, has a financial institution asked me for a business

plan for the business itself; and I think that again it‟s a short fall.”

They should determine that the franchisor‟s house is in order, because there is risk if

it isn‟t. Shouldn‟t they?

“They should, absolutely.”

The next one is piloting. Can we just have a brief introductory statement on

piloting? Do you pilot the operations? At which point do you feel that a

concept is ready for launching?

“Let me refer back to what I said earlier. I don‟t believe that a new franchisor

is ready to launch his business in 12month, because there is a lot of piloting

going on. There is piloting of the business itself, the new business that you‟re

busy building. When you start your business as a new franchisor, you got to

be able to develop and you got to be able to expand the business, you need

to be able to offer a fuller basket to your franchisees. Otherwise your business

will stagnate. So there is a lot of piloting that goes in (the business). There is a

piloting of a new product or a new burger or a new service or piloting of

change of software, maybe you are not getting the result, from your

accounting system that you want and you need to pilot a new one. Piloting is

vitally important because it allows you as a franchisor to be able to test new

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product, new services, new systems, in your business. With piloting there is a

risk. You need to be able to have…, if it a new franchise you must be

prepared to carry those risks as a franchisor. My belief is again the moral

side, if you are going to pilot new products, you are going to pilot, you must

carry themselves as a franchisor once you see that they working So you are

carrying the risk because its your moral responsibility. As your franchisees

become stronger, you get those that you know are loyal to you, you know they

are not going to under-declare overheads, and those are then your support

base and they are going to be the ears and the brains that you have out there

so far, those then are franchisees that you will coach and say now this is what

we have, here is a new product, here is a new system we have, would you be

prepared, two or three of you as franchisees, would you be prepared to pilot

this, very very important, because as a new franchisor going into product

development, there is always a risk involved, somebody has to carry the cost

of that risk, whether that means a decrease in royalties for the new franchisor,

or a decrease in advertising schemes so they can put more money into local

advertising to launch that product in the local area, there the franchisor has to

be negotiable, many South African franchisors are not negotiable on hose

kind of things.”

So that is another gap because franchisors need to work hand in glove with trusted

franchisees in the development of the franchise system. Franchisors need flexibility

in managing piloting.

“Absolutely.”

In examining your introductory statement on piloting; a theme that emerges is that

piloting is an on-going exercise, requiring the support of trusted franchisees. It does

not stop because there are always new systems and new procedures that need to be

tested out, even once the franchising system is established. Is it correct to say it is

on-going?

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“Hundred per cent, piloting is vitally important, otherwise your business stays

stagnant. You have to research and you have to pilot, otherwise your

business is going to die. Five years and you don‟t have a franchisee.”

Regarding the piloting of your concept, what where the findings of the pilot

operation?

“ Absolutely, I think what a new franchisor needs to do is to build in a clause

into their franchise agreement that as a new franchise all franchisees have to

be willing to be part of the piloting process.”

This then exemplifies your earlier assertions that the launch of the franchise system

is preceded by a good two years and possibly more?

“For me two years, unless you are going to go copy another franchise, which

many of our franchisors do. It is very simple to go and work for a franchise, for

a number of years and then you come out and say, now I am going to go and

open my own. Business. I am going to start my own franchise. And then you

copy other franchise systems. And people do that.”

There is no unique product, the differentiator is not clear, or non-existent in terms of

cost or the demand is not clear. It becomes a cannibalisation of market players

within that is already established. These are perhaps the types of franchisors that

sell franchises without thorough preparations, just after money and in fact are

charlatans.

“Absolutely and if you do your homework, if you do some research, you are

going to find out that in South Africa there are many charlatans.”

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Did you test products, systems, methods and procedures? Which ones?

Kindly name them?

“One example would be in the food industry. Let‟s say for example, you want

to launch a new burger, this new burger has one or two components or

products that make it unique. There is a marketing budget that has to be put

together. You have a certain amount of Stores that you need to be able to

pilot with so that they can launch this product. A marketing campaign to

support this new product; there is training that is involved. There is quite a lot

of financial input from the franchisor and from the franchisee‟s side to pilot just

this example of a burger. After running it for six weeks, and it doesn‟t work ,

you are not getting the sales out of it that you what. So you decide this is not

going to work out, it is too expensive, let us can it, and it might be a good

product, but because people didn‟t use the proper strategies to market it, then

it takes longer. You are canning a good product that could blow your

business. But it‟s costing a lot of money to get it, without canning it. That is

one example.”

“Another example is the introduction of a payroll system, your franchisee is

already using an accounting system that works and you want to add on this

payroll system. Then it works initially. Now you sit down with the unions and

the unions know what is here and they want to renegotiate their wages, and

they want a lot of add-ons to their wages, maybe increase the nightshift

allowance by 10 per cent, they want the staff yield, all of these things that they

need to renegotiate, your payroll system now has to be reprogrammed, and

when it comes to any type of ICT re-programming it becomes extremely

expensive.”

Emergent themes by code: 27, 28, 05, 37, ,38, 30, 10, 40, 36,

What problems were you able to identify that were resolved during piloting?

Kindly provide some examples.

“Training when it comes to piloting the system, this is vitally important and

again there is an expense involved. This depends on where your pilot stores

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are, your trainer needs to go out there. Not everybody can train. It is a special

skill and you need to have these especially skilled people to go to the pilot

stores and be able to train.”

Was the pilot process used to determine location requirements?

“Okay under the location side of it, again is very important to understand your

market and to understand your franchise, your business model itself because

different locations for the franchise will have different target markets. So it will

have different levels of LSM customers that will be buying from you and each

different level of LSM will have different taste or different demand or different

service that is required. So, you are going to need to understand your

business well enough to say I need 2 or 3 or 4 samples of each different type

of business level requirements or different products. Is it burger or steak or

pizza? You need to understand thoroughly all of these categories. I‟ve got 3 of

this store, I‟ve got 4 of that store, I‟ve got 2 of this store. I need 3 of this

particular…, example of pizzas, so I need 3 stores selling pizzas and I need in

different locations.”

Is this to really get an idea of where you should be locating and how the business will

perform?

“Exactly, exactly. So as a new franchisor you are going to say “now I‟m going

to pilot a burger and you‟re going to pilot that burger in a completely different

market, to what is different from the majority of businesses runs with. So, you

are now going to make business decisions based on marketing strategy,

supply and demand, and logistics to support that burger; and all the products

that go with it. You got to make business decision based on one location

which could damage our business.”

Emergent themes by code: 01, 28, 27, 37, 30

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Was this pilot process (actual experiences) used to compile the operations

manual?

“Absolutely, that franchise manual is vital, that is the bible of your business.

So, if a franchisee does have any queries and he needs assistance, he needs

to be able to go to that franchise manual first. Make reference to that. If he

does not understand that, then go and speak to your franchise consultants.

That franchise operational manual as I was saying is the bible and it must be

one brush covers all. So you manual that you going to write is the standard

manual that must be used for every single franchise that you have, so that the

processes are exactly the same.”

So it then means that one has to be able to create this manual based on experiences

across different LSMs and locations, taking into account various experiences to

culminate in a franchise manual for standardised operations?

“One hundred per cent correct.”

Was the potential for generating substantial income determined during

piloting? Are any comparisons done between actual figures from operations

and the projections from the plans?

“Absolutely, you have to because if you‟re not doing the comparisons between

the projections and the actual figures, you have got to go and revisit it. Study

your business plan. You got to go back and revisit those numbers on a daily

basis or monthly basis, especially as a new franchisor. And it‟s only through

that process of doing…, and I think this is something that I forgot to mention.

For a new franchisor to have a specialist professional business analysis, is

probably more important than having a proper marketing business person,

because that business analyst is going to tell you which direction your

business is going in. And that business analyst is not only working on the

numbers that they got. They also look at the results are out of your marketing

plan, your marking services and to give you direction. And I think it is a big

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mistake that many of our franchisors make. Over the years that I‟ve been the

industry, many franchisors don‟t have successful business analyses or

analysts in their business to give them guidance. That must tell you where to

go.”

How does the business analyst go conduct the analysis?

“They take all the information from franchise system, all that data; and they

will analyse that data and tell us we need to do this and that. That is what a

business analyst does. The problem with the franchisor, when he does it

himself is that he is too close to his business. If he is professional about his

business, he will need an independent person who can have a clear view of

what those numbers are saying.”

So this business analyst is ideally someone who has specialist franchising

knowledge?

“Yes they should have worked at a business franchise consultant, or a field

consultant, they need to understand a bit of marketing, they need to

understand a bit of business principles, they need they understand the

franchising principles and that individual needs to have absolutely core

understanding of that specific franchisors business model.”

Is there a gap for training of franchising specific analysts, especially given that

franchising has been espoused as a means of growing the economy? Is there an

opportunity for franchising specific business analysts?

“I think there is certainly a service where franchising specialists who have got

an analytic aptitude could certainly offer that service especially if you start with

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franchisors. I think the value that the franchisor would get from something like

that or someone like that is invaluable.”

Did you develop a franchise package? What were its key elements?

Did you prepare an operations manual and a franchise agreement? Is the

operations manual updated regularly?

“You can‟t sell a franchise today unless. You can‟t sell a franchise today

without a proper franchise prospectus. It‟s nicely done folder which is well

presented, it‟s got the setting up cost, it‟s got all the cash flows, it a very

professional document. You need that to be able to sell that franchise.

Because that the first look that prospective franchisee has into your business

as a franchisor; in that prospectus that he gets. That is vitally important and

there you get a proper marketing company, you need proper team of people

to put that together for you. That‟s very important.”

Do they have to be professionals?

“Absolutely, that document is as important as your operations manual.”

“Operations manual has to be revisited in my view every 6 months. You can

delegate one of your operations guys; you can delegate one of your franchise

business consultants. You can back it up into different sections if it‟s a big

business operations manual that you got. But it has to be visited in my view

twice a year. Somebody needs to go through them to say yes we still

operating like this, now we are out-dated, we have brought in a new product,

and we have brought in a new piece of equipment. We need to update this.”

“So, you‟re more dictatorial, in my view less intelligent franchisor is going to

try and do it by himself. A more mature, forward thinking franchisor is going to

build himself a council or committee, depending on the size of his franchise

system, of 2, 3, 4 or 5 franchisees. He will keep them close to him and you will

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have a committee and you will bounce off marketing ideas. You will bounce

off logistics issues, you bounce off cooperation ideas, they are part of your

piloting, whether it is piloting your equipment, or piloting your product,

whatever the case is. I don‟t believe a forward thinking franchisor today does

not have a council. You will be silly if you didn‟t have that.”

And what about the franchising agreement?

“The franchising agreement needs to be very thoroughly planned, well put

together. It costs a lot of money if you are going to get it done through

attorneys. You can‟t start putting your franchise agreement together until you

understand your business backwards. Because if you don‟t understand your

business and your business model backwards you‟re going to end up having

gaps in your franchising agreement which is going to allow intelligent devious

franchisees opportunity to duck and dive.”

So, obviously it makes sense to have professional legal advice or legal people to

handle that, so that you don‟t create any loopholes as you have said.

“Absolutely. Because if you do not do it especially now, me buying my

franchise from you as soon as I get franchise agreement I‟m going to go to my

attorney to tear it through. Every franchise agreement is one sided, and it is

meant to be one sided because the franchisor has an obligation to protect the

business. Every attorney that you are going to take your franchise agreement

is going to say its way safer on the side of that franchisor and doesn‟t give

leeway to you as a franchisee. Any franchising agreement that allows the

franchisee leeway to make their own decision is not a good franchise

agreement.”

What is your recruitment and selection process like?

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“You have to be selective you don‟t need to be overly selective because you

going to end up working yourself into coma. But franchising is not taking up

somebody off street and turning him into a franchisee. I‟ve tried that, I did this

for a franchise system we created. And if they don‟t understand depending on

the level of your franchisee that you bring into the system as a person they

going to live out of the till.”

“So, your selection process for the sustainability of your franchise is very

important; especially in the first two years of you building your franchise. The

person must have an understanding of basic business principle, they must

understand of basic marketing principles. They must understand that yes

they are going into business for themselves but they still have somebody

they‟ll report to. They are their own managing director but they still got a

chairman to report to. That chairman is the franchisor himself.”

As a multi-unit franchisee, do you have managers or sub-franchisees?

“We have in each store a restaurant manager and they have assistant

managers under them. So, there are different levels of management in a

store. The ultimate responsibility lies with the franchisee that signs franchise

agreement.”

The recruitment and selection is slightly different from that over franchisor for

multiple franchisees to recruit and select those managers or is it just a straight up

business type of decision where you‟re looking for the best possible general

manager?

“Most of the business where I‟ve been, it‟s been left to the franchisee to make

his own decision on his management staff. Under one particular franchise I‟ve

started I‟ve written into the franchise agreement that until the franchisee has

had at least two years‟ experience and understands the business properly,

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when appointing a manager, the franchisor has to be part of that selection

process.”

One more thing on training, what about franchisees‟ employees is the training for

them left up to the franchisee or can a franchisor not get involved. This is touching to

what you just said now. Franchisors should be able to get involve even with that, not

necessarily that they need to micromanage but having a consultative process. What

is your take on the training of franchisee employee‟s a due process.

“The franchisor must set up the frame work and the processes of the training.

Franchisee need to do the training and franchisor need to oversee it and see

that it‟s done properly.”

“100%. All comes back to who signs the franchise agreement. The person

who signs the franchise agreement has got ultimate responsibility in

everything that happens in their franchise. The franchisor is the one to set the

frame work, the guidance and support and to ensure that is done properly.

Franchisee carries the responsibility of running business and training the

people.”

How do you transition from operating a unit to operating a franchise system?

What about to the transition from a single unit franchisee to a multi-unit

franchisee?

“The transition is very difficult. Firstly and then I add the mistakes that many

franchisor make is, your single franchisee needs to understand a business for

at least for a year. My view is at least a year before they take a second store.

In actual fact I would be a lot more comfortable with those two years because

that individual needs to understand that business 100%.”

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What about the franchiser himself because he starts out with just a store or two

stores and now he has to transition from selling chicken products to selling actual

franchise outlets? How is that transition?

“That is a very difficult transition because that‟s a high risk transition because

that franchisor got one store and he now wants to go for another franchise. By

opening up a second and third store his taking his focus off one business he

had and now putting it on other second store. One of the mistakes that many

franchisors make and the franchisee then suffers for; they try to expand too

quickly. They expand quickly because they need the sales to be able to grow

their business and support themselves. It is a cache twenty two situation, new

franchisors often fall into the trap of expanding too quickly and not being able

to support the business and it collapses.”

“Absolutely, part of his business model that he put together, is a case of

saying I need, I can look after myself six stores. That means I can franchise, I

got my own store. I can franchise five. What are my overheads going to be to

manage those five stores and give them their support? And then how do I

arrange this up so that .the royalties from the stores is covering my expenses

as a franchisor. That is a very difficult one because everybody has to grow

quickly so that they can get the income. Initially they have to just make sure

that they got enough fund available to support themselves without expecting

any royalties. A franchisor needs to carry on with running the franchise and

support the franchisees that are existing and the next 5, 6,7 or 8 stores

without expecting any royalties because enough funds are available to sustain

himself.”

4.2.2.4 Part 4 – Contextual Considerations

What South African socioeconomic issues impact the implementation of

franchising?

“On South African scenarios; the only problem we have here obviously we

need to create employment and franchising is a good way to create

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employment. South African context the government need to get involved in

lessening the risk that prospective franchisees will take, so that when he does

not weigh the 5,6, or 7 or 10 people that his creating an employment for,

there needs to be some subsidies or assistance from the government to

create these small businesses. Vitally important because it is high risk, banks

are at risk, and banks don‟t want high gearing in a business because that puts

them on a risk. The government must be prepared to take some of that risk. In

my view it is three-fold, the franchise must put some financing in, the

government should put some financing in and the bank should put some

financing in.”

“So, it‟s working with the union, it‟s working with the employees that you‟re

pulling out of the street and employ. It is an issue that not going to be

addressed overnight. And it clearly takes a conscious effort to try and change

a culture and that is a many years.”

What chicken-based fast food issues and trends impact the implantation of

franchising?

“Cost of product is a great problem. Is number one on the list because there is

specialised equipment which is mostly imported? So, it comes in a rand dollar

or rand euro or rand pound, making it very costly.”

“The setting-up cost of chicken franchise today run into the millions. If you

have the knowledge and the ability to start a franchise today, and you can

open up a store under a million rand and you have enough marketing finance

behind you to put a proper marketing campaign together and more importantly

your able to produce a phenomenal product that will rival the big franchises

that we have today you will be successful.”

“Supply of product, supply chain and supply of product specifically in the

chicken industry supply of product is a problem.”

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How did the entry of new international brands impact the South African fast food

franchise industry?

“So they don‟t impact our current business, because of the size of our brand.

A new franchisor wanting to start a chicken brand as a franchise it is a very

high risk. It‟s a highly traded market with a lot of competitors. If you could get

the set up cost down and you are able to produce a phenomenal product that

you can take to market fairly quickly. The problem with many new franchisors,

they start one store and they get into a comfortable financial situation and

then they will try and open a second one. You are having no impact on the

competitors whatsoever. You need to be able to make sure that your product

is 100% correct, the supply chain is correct, you got local equipment that you

are using and you going to open 20-50 stores, then you are in the market.”

Are there any other issues that you can discuss here that affect the industry?

“The shrinking disposable income affects the business as does

unemployment. Whenever we have a price increase, we have to keep our

business viable and sustainable, so we have to watch the numbers. In order

to watch the numbers and keep them sustainable, we have to put in price

increases. We see every time we put in price increases the bottom end of our

market falls away, those are unemployed, those that don‟t have liquidity,

which is the largest part of our market. Every time we put in a price decrease

we see a big climb in our comebacks. And that is the real problem for any of

these chicken-based fast food franchises.”

“With regards to the morale and cost; that is something you deal with on the

daily basis. School fees go up, inflation go up, medical aid go up but goes

higher than what your average increase is. So effectively your employee is

becoming poorer, although you are giving them an increase. He is actually

becoming poorer. And that brings your staff morale down completely. In our

markets, probably three-quarters of our employee‟s wages goes to transport.

So, we bring about incentives in our businesses based on their transportation

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process. We run one of best operations in the country at the moment because

our incentives are based on the real time things that affect our employees. We

say, you fix our cost per sale, you fix our customers, you keep them happy,

you come to work on time, and we will help pay your transport cost. The better

results we produce, we go right up to say we will pay for all of your transport

costs. Three quarters of their money back, that is just an incentive; and that

works for us. It also helps with the morale issues.”

Is the anything you could comment on expanding into Africa, from South

Africa expansion international franchising perhaps?

“We believe that is market that is right. We believe that is a market that is

growing. We have expanded our product into Africa and it has been growing

exceptionally well and there is an opportunity.”

4.3 PATTERN MATCHING

In chapter three the researcher explained that this case study employs pattern

matching to link the logic to the data proposition. Pattern matching involves an

attempt to link two patterns where one is the theoretical pattern and the other is

observed or operational. As an arrangement of objects or entities, a pattern is non-

random and is utilised to match recorded interview responses against a proposed

theoretical framework of patterns between the independent and dependent variables

to validate the constructs (Yin, 1994)

4.3.1 Linking the Data to the Proposition

Table 4.1 presents the gathered data linking it to the propositions for the unit of

analysis using pattern matching. Coding, as used in this case study research was of

a rudimentary nature and served just to manage the primary data. The code are

applied to demonstrate themes that correlate with the data. All interview questions

provided positive correlations with the propositions.

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Table 4.1: Linking the data to the propositions

Proposition Code Interview

Question

Research

Question

P1 Propensity for

franchising

Not coded Part 1-

Background

P2 Franchisability 01, 02, 03, 04, 05, 06,

07, 08, 09, 10, 11, 15,

16, 17, 18, 19

Part 2

question 1 to

P3 Implementation

process

21, 22, 23, 24, 25, 26,

27, 28, 29, 30, 31, 32,

33, 34, 35, 36, 37

Part 3

question 1-11

P4 South Africa specific

considerations

40, 41, 42 Part 4 RQ4

P5 Fast food industry

specific considerations

50, 51, 52 Part 4 RQ4

4.4 SUMMARY

Chapter four‟s focus was to organise and present the primary data; thereafter linking

it to the proposition using pattern matching.

The following chapter summarises the problem and the main findings of this

research effort. Included are some conclusions and limitations to the study and,

finally, a section dealing with recommendations towards a proposed theoretical

model for the implementation of franchising chicken-based fast food in South Africa.

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CHAPTER FIVE

5 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

The objective of reporting the case study is to describe the study in a holistic

manner. Baxter and Jack (2008, p.544) suggest that it is important for the researcher

to describe the context in which the phenomenon occurred as well as the

phenomenon itself. Yin (1994) continues with the importance of returning to the

propositions and suggests pattern matching as a method for reporting the case

study. Chapter 5 addresses the research question RQ6 and research objective RO7.

This chapter discusses empirical findings of the study and the insights gained from

the research are organised, interpreted and comparatively evaluated according to

the propositions, and then recommendations are made based on the findings. This

chapter ends with the proposals for future research and general concluding remarks.

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5.2 SUMMARY OF THE RESEARCH

This research was concerned with the successful implementation of franchising in

the South African fast food industry where literature has shown chicken-based fast

food to be the most dominant category. The scope of the study was limited to a top

performing chicken-based fast food franchise system.

The main research problem as formulated and presented in chapter one, was as

follows:

5.6 SUGGESTIONS FOR FUTURE RESEARCH

GENERAL CONCLUSDING REMARKS

DELIVERABLE • Proposed

theoretical model for the

successful implementati

on of franchising in South African

chicken-based fast

food industry

DELIVERABLE • Proposed

theoretical model for the

successful implementati

on of franchising in South African

chicken-based fast

food industry

5.4 INTERPRETATIONS OF THE RESEARCH PROBLEM

AND QUESTIONS WITH CONCLUSIONS

5.4 INTERPRETATIONS OF THE RESEARCH PROBLEM

AND QUESTIONS WITH CONCLUSIONS

5.3 CONCLUSION FROM THE RESEARCH

METHODOLOGY

5.3 CONCLUSION FROM THE RESEARCH

METHODOLOGY

5.2 SUMMARY OF THE RESEARCH

FRANCHISING SOUTH AFRICAN CHICKEN-BASED FAST FOOD

Figure 5.1: layout of chapter five Figure 5.1: layout of chapter five

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As a result of the inherent potential of the budding franchising sector in South

Africa, prospective franchisors are facing the problem of how to successfully

In order to address the research problem the following primary research question

was formulated:

RQM: How can a model for the implementation of franchising be developed for

the South African chicken-based fast food industry.

In accordance with the primary research question, specific areas of interest were

identified, which included: franchisability of an entrepreneurial concept; propensity

for franchising; success factors of franchising; process of implementing franchising;

the prevalence of franchising in South Africa; and fast food industry with specific

focus on South Africa. This conceptual framework is illustrated in Figure 1.3 and was

supported by the literature survey in chapter two.

The primary objective of the research as stated in chapter one, was:

To develop: a proposed theoretical model for successful implementation of

franchising in the South African chicken-based fast food industry.

This primary objective was supported by a number of ancillary objectives listed in

Table 1.2 and the achieved objectives are listed in Table 5.1.

The dependent variable was identified as the theoretical model for successful

implementation of franchising in South African chicken-based fast food industry by

examining the following research propositions: implementation process,

franchisability, Propensity for franchising, South Africa specific considerations and

Fast food industry specific considerations. The positive relations between these

variables were illustrated and presented in chapter four. The relationships were

empirically tested, therefore achieving the primary and secondary research

objectives outlined below in Table 5.1

Table 5.1: Ancillary Research Objectives Achieved

Ancillary Research Objectives Achieved

RO1 An investigation of the implementation of franchising to an entrepreneurial concept was undertaken.

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RO2 The benefits and challenges in the implementation of the franchise system were identified.

RO3 The requirements and characteristics of successful franchise system implementation (Critical Success Factors) were identified.

RO4 The South Africa specific contextual considerations that need to be factored in the implementation of franchising in the chicken-based fast food industry were identified.

RO5 An in-depth interview with an experienced key participant in the South African chicken-based fast food industry was undertaken.

RO6 The primary data collected were analysed and linked to the propositions.

RO7 To discuss the results and interpretations of the research and to make appropriate recommendations based on the results.

5.3 CONCLUSION FROM THE RESEARCH METHODOLOGY

An interpretivist research paradigm was applied in line with the case study research

methodology to test the propositions using an in depth interview to source the

primary data. The interview was set up with an identified chicken-based fast food

industry participant, namely a multi-unit franchisee and former franchisor currently

part of a top performing chicken-based fast food franchise system.

The above-mentioned interview was initiated personally by the researcher and

subsequently unsuccessfully transcribed by a third party. The interview was a fitting

measuring instrument to collect data on the unit of analysis of the implementation

process of franchising in the South African chicken-based fast food industry.

To firstly, ensure validity in the case study, a case study protocol was employed and

rich data was obtained from the chosen respondents through an in-depth interview

process. Subsequently, respondent validation was ensured due to the voice

recording method adopted for the interviews and the semi-structured nature of the

interviews. The semi-structured nature allowed the researcher to ask clarifying

questions, which decreased possible misinterpretation issues. The researcher

employed the use of elementary coding and pattern matching to compare the results

across the different settings confirming the independent variables as criteria for a

theoretical model for implementing franchising in South African chicken-based fast

food industry.

Secondly, the reliability of the research instrument was tested. The research

questions were clearly defined and the features of the study design were congruent

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with the questions. The paradigm and analytical constructs were clearly specified

with data collected across a full range of appropriate settings, times and sources

suggested by the research questions. The respondent‟s accounts have converged in

areas that the researcher was expecting, presenting parallelism across primary and

secondary data sources. After effectively organising the data, using elementary

coding, a database was produced which can be referred to in Table 4.1.

Figure 5.2 below illustrates the relationship between the dependent variable and the

independent variables identified in Chapter 1.

Figure 5.2: Relationships of propositions influencing successful implementation of franchising

5.4 INTERPRETATIONS OF THE RESEARCH PROBLEM AND QUESTIONS

WITH CONCLUSIONS

The identification of factors that influence the success of implementing franchising in

South African chicken-based fast food industry formed the basis of the research

problem. The limited research on successful implementation of franchising in the

South African chicken-based fast food context represented the basis of the research

gap in the study.

Successful Implementation of Franchising in South African

Chicken-based Fast Food Industry

Propensity for franchising

Franchiisability

Implementation Process

Contextual Considerations

Positive Positive

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The study aimed at addressing the successful implementation of franchising in the

South African chicken-based fast food industry. The factors having a significant

impact on the variables were identified and reported in chapter four and the

relationships were summarised in Figure 5.2. The secondary research questions that

were answered in the case study are listed and described in Table 5.2 below.

Table 5.2: Ancillary research questions answered

Findings

RQ1 The study found that the franchise model can be used to develop an

entrepreneurial concept into a multiple unit franchise system given certain

conditions. These include cognisance of the contextual factors and the

target industry. Additionally the franchise model as espoused by reviewed

literature is narrowly focused on the implementation aspect in itself,

though assessing franchisability is therefore necessary to ensure success

of an implemented system.

RQ2 The study discovered benefits and challenges of the implementation of

franchising as presented in section 2.3.4 and these were related to the

issues of resource scarcity and agency issues

RQ3 The case study found that the critical success factors discussed in section

2.4.2; were validated by the empirical findings and are indeed necessary

for determining the franchisability of an entrepreneurial concept.

RQ4 The case study found that a pro-employment stance by franchisors and

increased government involvement in the franchising sector are South

African specific contextual factors. For the fast food specific considerations

costs are the most prominent issue discovered by this case study.

RQ5 The primary data collected was successfully linked to the propositions in

line with the case study methodology.

RQ6 The study concludes that to successfully implement franchising in the

South African chicken-based fast food industry; the propensity for

franchising; implementation process; franchisability of the concept need to

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be juxtaposed against the South African franchising sector and chicken-

based fast food industry conditions.

The section below presents a discussion on the findings addressing the propositions

presented in Figure 5.2, with the interpretations and recommendations for each

relationship stated in the context of the research problem and supporting research

questions.

5.4.1 Propensity for franchising

For the purpose of this case study, propensity for franchising is described as the

conditions that predicate the decision to franchise. The conditions that motivate the

franchising decision vary and it is only after due consideration of the entrepreneur,

the concept to be franchised and the context in which franchising is to be

implemented that the propensity for franchising can be readily known.

This study discovered an original intent to develop a franchise business, additionally

the respondent had an intention to join the current franchising system.

Therefore it was found during the research that there is a positive relationship

between propensity for franchising and the successful implementation of franchising

in South African chicken-based fast food industry.

5.4.2 Franchisability

For the purpose of this case study, franchisability is described as the factors that

determine if an entrepreneurial concept can be franchised. The literature presented

several critical success factors for franchising. The case study empirical findings

indicated that the factors discovered in the literature were essential in determining

the franchisability of an entrepreneurial concept.

The findings offered some additional insights on franchisability that were not

mentioned in the literature, these insights include:

Development costs need not be underestimated as it is quite a costly

endeavour to franchise an entrepreneurial concept;

In South Africa franchisors do not easily transfer the requisite skills for

operating the outlet to the franchisee, however the respondent does ensure

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skills are transferred and includes a clause in the agreement where franchisor

continues to hold franchisee‟s hand for a considerable period until the

franchisee is established; and

The respondent suggests local products and equipment as being vitally

important for the franchisability of an entrepreneurial concept. This is due to

their cost saving effects.

between franchisability and the successful implementation of franchising in South

African chicken-based fast food industry.

5.4.3 Implementation process

For the purpose of this case study, implementation process is described as the

process to be followed in implementing franchising to an entrepreneurial concept.

This process was discovered in the reviewed literature and presented in section

2.4.3. The empirical findings of this case study confirm the elements of this process

as being important in the implementation of franchising. The findings offered some

additional insights on implementation process that were not mentioned in the

literature, these insights include:

the concept should be piloted for at least two years or more to

comprehensively understand the nuances of the venture prior to franchising it

and offering it to franchisees; and

the implementation process should as much as possible be conducted with

the expertise of seasoned professionals to increase the likelihood of success.

between implementation process and the successful implementation of franchising in

South African chicken-based fast food industry.

5.4.4 South Africa specific considerations

For the purpose of this case study, the South Africa specific considerations are

described as conditions that are particular to the country of South Africa and have an

impact on the franchising industry. These were presented in section 2.5.4 and

empirical findings related to these were presented in section 4.2.2.4. The empirical

findings of this case study confirm the literature review results only partially. This is in

104 | P a g e

part due to the time and lengthy nature of the interview that was conducted and this

section of the enquiry being at the end of said interview.

The empirical findings did confirm that consideration needs to be given to context to

successfully implement franchising. Therefore in South Africa certain local issues

need to be strongly considered in implementation of franchising. The respondent did

present some considerations specific to South Africa namely: unemployment (need

for franchising sector to create employment) and the need for increased government

participation in the franchising sector.

between South Africa specific considerations and the successful implementation of

franchising in South African chicken-based fast food industry.

5.4.5 Fast food industry specific considerations

For the purpose of this study the fast food industry specific considerations are

described as conditions particular to the fast food industry. This case study

discovered various conditions pertaining to the successful implementation of

franchising in the fast food industry. This case study found that in South Africa

chicken-based fast food is the top performing fast food franchise business. This was

attributable to specific conditions such as an affinity for chicken, meats in general, a

growing culture of eating out or the semblance thereof and an increasing middle

class. The success of chicken-based fast foods is also attributable to the underlying

franchises systems which this study examined.

between fast food specific considerations and the successful implementation of

franchising in South African chicken-based fast food industry.

From the derived research results and the above discussions of the independent

variables‟ relationship to the dependent variable, a proposed theoretical model for

the successful implementation of franchising South African chicken-based fast food

has been constructed in Figure 5.3 below.

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Figure 5.3: A proposed theoretical model for the successful implementation of franchising in the South African chicken-based fast food industry.

The model presented in Figure 5.3 is a representation of the findings of the case

study research effort and can be utilised by various industry participants, academics

or any other party interested in the franchising of a chicken-based fast food concept

in South Africa.

It is suggested by the researcher that there is a great deal of future research

potential in each of the positive independent variables identified in Figure 5.3; such

research can explore the components of the independent variables; additional

enquiry into the exclusivity of these independent variables is necessary t determine if

the re are other variables; another line of enquiry can test the flexibility of the model

as proposed by the research, in terms of adjusting contextual factors for different

scenarios.

106 | P a g e

5.7 GENERAL CONCLUSDING REMARKS

The above chapter addressed research question RQ6 and research objective RO7

while the research findings in the context of the study were interpreted and evaluated

through the utilisation of both the empirical data as well as insights gained in the

duration the study. The study was then summarised and the findings were

interpreted against the background of the original research problem and research

objectives. The foregoing final section of the chapter underlined the implications of

the research results and presented specific recommendations with regards to future

research opportunities in the field of the study.

A proposed theoretical model for the successful implementation of franchising South

African chicken-based fast food was presented in Figure 5.3 as a theoretical means

of implementing franchising in chicken-based fast food industry of South Africa.

Entrepreneurs desirous to operate in the industry can utilise this model to facilitate

the franchising of a chicken-based fast food concept; additionally with a tweaking of

the model‟s contextual considerations it becomes applicable to different industries

and countries.

I | P a g e

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ANNEXURE 1: Cover Letter for interview

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ANNEXURE 2: Interview Questions

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ANNEXURE 3: Ethical clearance form

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ANNEXURE 4: Turnitin report

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ANNEXURE 5: Intention to submit form

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ANNEXURE 6: Permission to submit for assessment

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