Franchise sector also making its voice heard about load shedding

The franchise sector is the latest business sector to ask government to take urgent action to resolve the load shedding crisis and bring national security under control to prevent an explosion of unrest and civil disobedience.

The Franchise Association of South Africa (FASA) says franchising contributes around 14% to the country’s gross domestic product (GDP) in fourteen different sectors and FASA members comply with government’s guidelines while they continue to contribute to keep the economy going.

Freddy Makgato, CEO of FASA, says government’s inadequate response to provide the very basic services that enable businesses to operate and thrive is untenable. “FASA calls on government to act with the urgency it requires to solve the energy crisis and prevent further anarchy and the collapse of the economy.”

“The current situation not only has a detrimental impact on the economy but also more devastating wider ramifications that include franchise staff and their families. Throughout the pandemic, rioting, looting and load shedding, the business sector held the economy together through their efforts to remain viable, keep their doors open and employ as many people as possible.”  

Makgato says FASA is appalled by the current crisis in the country that is putting all citizens’ livelihoods at risk and warns if it continues, most businesses may not be able to recover and people can lose their jobs while the economy, that is already in dire straits, will come to a standstill.

ALSO READ: Load shedding driving small businesses to bankruptcy

Franchises not getting help to rebuild after floods, rioting

“The retail sector bore the brunt of the crisis, in particular in the aftermath of the riots and floods and has yet to see any significant steps from government to assist those who had to rebuild and restart from scratch.”

Reports from members indicate that, if steps are not taken immediately and urgently, rioting and looting is going to resume and escalate nationally, he says. Food security is also threatened as load shedding puts pressure on manufacturers, food growers and meat and poultry suppliers who are reporting massive wastage as produce goes bad.

“This disruption in the value chain is critical to feeding the nation and cannot be ignored. The knock-on effect of producers not being able to get produce to market, coupled with retailers forced to close operations during load shedding or simply not being able to afford the cost of alternate power, will impact all communities across the country.”

Makgato says the destruction of not only retailers and property, but also the very infrastructure and basic services, from the collapse of essential services and inadequate policing to water security, is cause for alarm.

In addition, the fast food and restaurant sector, which took strain during the pandemic is being hit  another devastating blow with up to 10 hours a day of load shedding that is further debilitating for the sector as, even with generators, restaurants remain unable to generate enough income during the hours of load shedding and end up with no customers and expensive wastages.

ALSO READ: How to run a small business in the dark during load shedding

The cost for franchises of staying open

“It is also not as simple as flipping a switch to diesel or petrol power. Those who have generators often lose thousands of rands as they have to spend more on extra supplementary expenses like fuel, labour and maintenance with each load shedding. Equipment also gets damaged because of the power surges and these are all impacting the bottom line.”

The broader franchise sectors, from automotive products and services, building office and home services, business to business, health and beauty, education and training to real estate, all agree that the load shedding and power crisis in South Africa is going to constrain economic growth and increase costs across the board.

Richard Mukheibir, CEO of Cash Converters and a board member of FASA, says the reality of living with load shedding extending into ten hours plus daily requires businesses to make a plan of action. Whether it is a generator, inverter, solar panels or a combination of these, people have to find additional money to invest in their businesses just to keep them going.”

Franchisees are caught between the devil and the deep blue sea. Although the increased costs of doing business hurts the bottom line, not trading during extended loadshedding is worse for business, according to many franchisors in less power intensive sectors.

“These businesses have rallied and thanks to the way they are set up, they can continue to trade off the back of improved IT systems, a few lights and the internet. They are slightly better off than businesses requiring extensive power to keep going, such as those using power-intensive dishwashers, ovens, stoves, fridges, freezers and furnaces.

ALSO READ: How to protect yourself when buying a franchise

Impact on consumers’ spending power

Tony Da Fonseca, past chairman of FASA and CEO of OBC Better Butchery, with stores in the lower-income areas, believes the impact on South African consumers who have to find money to live through the extensive power outages impacts on businesses as consumers’ spending power is cut, to the extent that many are going out of business.

James Noble, head of wholesale, retail and franchise at Absa and a FASA board member, the cost to operate a business has been increasing over the last couple years even before the Covid-19 pandemic.

“The biggest costs are rent, staff, increasing cost of sales due to inflation, electricity and the cost impact of load-shedding which not only reduces revenue due to limiting trading hours but it increases the cost to operate the business should you have solar or generators to keep the business open during those periods.”

To alleviate the power crisis, FASA suggests as a short-term solution government provides some sort of rebate or reduced tariffs to key sectors to provide some industry relief. “It would be a tragedy if, as a result of an incompetent administration and inaction on the part of government, the sector faces irreversible collapse,” Maria D’Amico, FASA’s chair for 2023/2024, says.