Profits in the franchise stores Larry Hodes once ran grew by 400%; not because the brand changed, not because the market improved, but because one area manager decided to do the job differently. It is a lesson he has spent his career applying ever since.
By Larry Hodes, CEO Grow Franchising & FASA Board Member
South Africa’s franchise sector contributes R721 billion to GDP. It employs hundreds of thousands of people and, on most measures, outperforms independent business ownership by a considerable margin. Those numbers are worth acknowledging. They represent real businesses, built by real people, in conditions that have been anything but straightforward.
But there is a conversation the sector keeps avoiding, and it sits right at the heart of those numbers. Franchisors and franchisees are both reporting falling revenues and tougher trading conditions. The standard responses “open more stores”, “tighten brand audits”, “cut costs”; are not working the way they used to. The ones that are gaining ground are doing something different. They are investing in their franchisees as business leaders, not just as brand operators.
What a franchise is actually selling
When someone buys into a franchise, of course they are buying a brand but they also buy a set of operating procedures. They are buying the promise of support, genuine, ongoing support that helps them run a better business. The audit is part of that. Brand standards exist for good reason: consistency protects the network, and every franchisee who cuts corners puts everyone else’s investment at risk.
But the audit is the floor, not the ceiling. A franchisee who only ever hears from head office when something is wrong is not a supported franchisee. They are a monitored one. And monitored franchisees, in my experience, do not behave the same way as supported ones.
I know this from my own experience on the inside of a franchising operation. Years ago, running my own franchise stores during a difficult period, I had an area manager whose visits followed a predictable pattern: arrive, assess, score, list the problems, leave. The feedback was accurate. The support was absent. And I will be straight about what happened: I started cutting corners. Not dramatically, but incrementally small deviations from brand standards that I justified to myself because the relationship with head office felt purely transactional.
When a different area manager took over, everything changed. Same audit. Same brand standards. But this person sat with me and asked what I was struggling with. They looked at my cost of sales, my staffing model, my revenue trends, and they engaged with the business rather than just the compliance scorecard. Within a few years, profits in those stores had grown by 400%. I am not claiming all the credit; far from it. But I am saying that the quality of that support was the single biggest variable that changed.
The skills gap nobody is measuring
Across South Africa’s 727 active franchise systems, most franchisees are capable operators. Many of them are genuinely skilled at running the day-to-day. What a large proportion of them have never been taught is how to lead. Financial management, people development, strategic thinking, the ability to read a business rather than just run one – these are listed in most franchise training programmes but for the most part never applied in a meaningful way, and the gap shows.
Franchisees who feel supported are more likely to reinvest, expand and create stable employment. That finding from recent sector analysis is not surprising. What is surprising is how few franchisors have drawn the logical conclusion from it: that the return on investing in franchisee development isn’t goodwill but rather revenue. When a franchisee’s business performs better, royalties grow. When they are more engaged with the brand, compliance improves – not because they are being watched more closely, but because they have a reason to care.
Where area managers come in
The area manager is the most underleveraged asset in franchising. In most networks, the role is defined primarily around compliance requiring the person to visit stores, run audits, report findings, follow up on gaps. That is necessary work; it is not sufficient work.
The area managers who move the needle are the ones operating more like business coaches than brand inspectors. They run the audit, and then they stay in the room. They look at what the numbers are saying about the health of the business. They ask the franchisee what they are finding hard and help build a plan. When franchisees understand why standards around the customer experience and the brand equity at stake exist, they stop treating compliance as a corporate obligation and start treating it as a leadership responsibility.
That shift won’t come about through more rigorous auditing. But it does happen through better relationships, built by area managers who have been given the skills and the mandate to operate as genuine business partners.
Most franchisors hire area managers for their operational knowledge and leave them there. Leadership capability, coaching skills, financial literacy, strategic thinking are all competencies that would allow them to do the job that actually needs doing; but are rarely developed with the same rigour applied to brand standards training.
The growth question
South Africa’s franchise sector has genuine ambitions; but sustained growth at sector level does not come from opening more stores into a pressured consumer market. It comes from improving the performance of the stores already open.
That means better franchisees. It follows that better franchisees come from better support. And better support requires franchisors to make a deliberate decision to invest in their people – both the franchisees running the stores and the area managers responsible for the relationship between head office and the field.
Sixty-three percent of South Africa’s franchise brands operate fewer than 30 stores. For most of them, the path to genuine scale does not run through the next franchise sale. It runs through the franchisee sitting in a store right now, wondering whether anyone at head office actually cares whether their business succeeds. The answer to that question determines rather a lot.
AUTHOR BIO: Larry Hodes is CEO of Grow Franchising, a division of Grow Business Coaching, and a board member of the Franchise Association of South Africa. He is also the founder and working owner of Arbour restaurant in Johannesburg.
