Lack of robust dispute resolution process a threat to franchise industry

The prosperous franchise sector in South Africa, which accounts for about 15% of the nation’s GDP yearly, is undergoing turmoil akin to the nation’s contentious palace politics.

Following conflicts between franchisors and franchisees, the Franchise Association of South Africa (Fasa), the organisation that promotes and advocates for the interests of the industry, has had to defend its position.

This follows reports that several Cash Crusaders franchisees split off from the business and started a competing brand called Cash Xchange, costing the corporation 40% of its royalties.

This comes after a disagreement between Cash Crusaders and more than 75 franchisees regarding the initiation fees that the latter charge customers who pawn their valuables in exchange for short-term loans.

Fasa CEO Fred Makgato said the organisation was collaborating with the government and other key parties to implement a franchise industry code, which would create an industry ombud to arbitrate conflicts between franchisors and franchisees.

“The association is limited in its engagement in legal issues between Fasa’s franchisor and franchisee members until such time… sets down an industry code and appoints an industry ombudsman.”

Sometimes, after their issue has been referred to legal counsel, complainants come to the association seeking assistance. The association has no legal foundation upon which it could provide value, become involved, or play a part in this situation.

On the other hand, if a member company is found to have violated the law or acted unethically by a court of law, the association will promptly review the member’s a creditation status.

Internal conflict has also plagued Romans Pizza franchise, with the franchisor and one of its franchisees at odds over royalties.

“It is false to say Fasa “frequently skews in favour of franchisors” because neither Romans Pizza nor Cash Crusaders submitted a complaint. Fasa’ frequently mediates disputes on behalf of franchisees,” said Makgato.

According to Fasa data, the industry has 68 463 shops, employs about 500 000 people, and accrued R1-trillion in revenue during the fiscal year 2022.

Makgato begged the government to expedite the creation of an industry ombud to guarantee that disagreements do not jeopardise the industry’s continued survival, which is home to well-known brands such as Spur, Chicken Licken, Nando’s, etc.

“This issue has become urgent in light of providing recourse to both franchisers and franchisees, as well as our efforts to persuade the government to acknowledge franchising as the tried-and-true business model that can help with job creation, education and training while addressing innovative initiatives such as micro franchising,” said Makgato.

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