Set Up Cost Includes Equipment

Despite a weak economy and tough trading conditions, the franchising sector has continued to perform well - especially in the fast-food sector. “Over the past few decades, business format franchising has become the most successful business model the world has ever known,” said Tony Da Fonseca, chairman of the Franchise Association of South Africa (FASA). “Seeing that in this fast-moving world of ours, change is seen as the only constant, it is appropriate to ask whether franchising can maintain its momentum.

Survey results released by FASA in 2017 showed that the sector’s performance remains on an upward trend. During the period under review, the sector consisted of 845 franchisors and over 40,000 franchisees. It employed about 343,000 people and generated sales of R587 billion. The survey also confirmed the stability of the sector, with some brands operating for over 50 years. Despite this success, franchisors are notoriously tight-lipped as to how well their respective restaurants are doing, making it almost impossible to say exactly which fast-food franchise is the most popular.

Instead, BusinessTech looked at ‘fan favourite’ franchises based on the Sunday Times’ recent Top Brands awards and how much they currently cost to open. Despite KFC being by far the most popular fast food franchise in South Africa, it is not likely to increase its number of restaurants any time soon. KFC South Africa brand owner, Yum International, has noted that the company is not currently looking for new franchisees. However, existing KFC franchisees may elect to sell their businesses, and it is therefore possible to become a new KFC franchisee by purchasing an existing KFC business.

According to the latest franchise data available from KFC, new franchise owners could expect to pay close to R6 million for a new franchise. With the only option to now buy a franchise from a current owner, perspective franchisees can expect this number to increase or decrease slightly depending on a number of factors such as location and demand.

There are two main cost requirements when looking at a Nando’s franchise - establishment costs and standard fees. You are also required to pay a R230,000 franchise fee (excluding VAT), to make use of and operate under the Nando’s name and concept, staff training, site assistance, and launch assistance. However the biggest expense comes from establishment costs which include everything from setting up the kitchen to light fittings - and will set you back approximately R6.95 million (excluding VAT).

According to Debonair’s South Africa’s franchising documentation, new franchise owners can expect to pay around R2 million. According to its website, once applicants have been granted and guaranteed a franchise, Debonairs will assist you with a business banker for your application. This includes help when applying for financing and any other general enquiries you may have about the financing of a franchised business. One of the cheapest franchise options on the list, Steers franchisees can expect to pay around R1.7 million when starting a new franchise.

However this differs greatly depending on the type of Steers you wish to open - with standard, drive thru and kiosk options available. The approximate set up cost for a standard Steers is R1.65 million excluding VAT, joining fee and contingency. Set up cost includes equipment, shopfitting, wet works, furniture and fixtures.

According to McDonald’s South Africa, the cost of a franchise will vary, with actual costs only determined when an individual franchise is offered to an applicant. The size of the restaurant, location, pre-opening expenses, inventory, selection of equipment, signage, seating and style of decor and landscaping will affect this cost.

This means that McDonald’s South Africa estimates the cost of a franchise to be anywhere between R4 million - R6 million, depending on the type of restaurant and other factors. Applicants are are also expected to have a minimum of 35% of the purchase price of a restaurant in unencumbered, non-borrowed cash. According to its website, a standard Chicken Licken store costs R4.8 million while a drive through (Fly-Thru) restaurant will cost a minimum of R6.8 million.