By Victor Adar
Franchising is seemingly the next growth frontier. It sees small business buy into a large brand, gaining a readymade business model including software, ways of doing business that are proven as revenue earners, staff training, and heavy marketing.
Although over the years food businesses have been the biggest takers of franchise, the model is currently accelerating in other sectors too, with Coldwell Banker, opening as a local franchisor to vie for a piece of the up-market real estate businesses.
It is common to come across food franchises in town. Recent ones to launch in Kenya include KFC, Subway, Naked Pizza, Cold Stone Creamery, and Domino’s Pizza, joining longstanding South African franchises such as Debonairs Pizza, Steers and Spur. In deed, bosses in brick and mortar industry are equally tipped to follow the brighter franchise road. This business model has taken off in Kenya, with some of the world’s top players like Coldwell Banker tilting at it as a creative way to open up opportunities.
Not since the days when real estate franchise companies that have set-up base in Kenya such as Knight Frank, from the UK, and Pam Golding Properties Kenya, a franchise of South Africa’s Pam Golding Properties has a player tapped into the market directly. These franchises came in as a single business as opposed to Coldwell, one of those franchises, which is happier to enter the sizzling hot market directly.
In Africa, South Africa has rapidly embraced franchising, which now accounts for 12.5% of the country’s Gross Domestic Product (GDP), generating turnover of Sh3, 362 billion and employing more than 323,519 people according to the Franchise Association of South Africa. The rise comes as research shows franchised businesses to be the most profitable, the fastest growing, and the biggest job creators especially during the global downturn.
“Franchising is one of the most powerful and cost effective ways of thriving during periods when standalone businesses are under pressure,” says Danielle Callaway, the Managing Director of Coldwell Banker Kenya, currently launching in Kenya as part of the world’s largest real estate franchise network.
Now as the influence of the new kid on the bloc is felt, lucrative trade pursuits are expected, as the new entrant will join a global sales force of 82,000 agents, in 13,500 offices. Coldwell Banker Kenya is the latest in opening the door to local franchising, as it partners with a range of existing local real estate businesses.
What of the claim that most foreign firms only eye Kenya first but not other East African countries like Uganda or Tanzania? It is true that demand is robust as new comers’ appetite to enter the market is getting a warmly welcome. In addition, companies spreading their tentacles in Kenya have clearly shown that both residential and commercial offerings are a notch higher compared to the rest of the markets.
Few companies opt for franchise model, but in recent years the scenario is changing especially going by the fact that there is need to improve accessibility while boosting property values. Real estate is driven more by fundamental demand, but not by developers. It goes that the right construction at the right price, and the right location always sells.
According to Gavin Bell, Founder of the Kenya Franchise Association, the Kenyan market is ripe for the franchising model. He says: “Franchises are more successful and more resilient than other businesses thanks to the sharing of resources and prominent marketing. They also accrue rapid, collective business knowledge and market position.”
Data from a 2014 research by the British Franchise Association shows that franchising has continued to expand in the United Kingdom (UK) throughout the recession, having grown by 11% since the start of the British downturn in 2008. At the same time, the number of employees in UK franchised businesses has grown by 20%, to now 561,000 employees. A tall order you might think but again, the same research also found that franchises are performing well financially, despite the economic challenges, with 92% reporting they were profitable, and 49% saying they were quite, or very profitable.
Real estate experts say that it is the potential of franchise business, backed with such statistics, that lures giant companies like Coldwell to overlook challenges and pour money in fragile sectors – sometimes there is an uptick in prices as demand grows, sometimes things crumble. Whether this new entrant will make headway at a time when a number of single franchise businesses (picture Knight Frank, Pam Golding…) are already in the country is hard to predict. That all these players run successful businesses means that the market is big enough to accommodate new entrants.
Coldwell Banker Kenya is expected to trigger a series of realignments in the domestic real estate sector, as it partners with multiple local brands in deploying its global systems. The franchise has taken the gamble to enter the market directly and whether the real estate giant will reap the benefits of investing in a sector that is bearing the brunt of high interest rates and a big population lacking the financial muscle to afford pricy homes,remains to be seen.
