Retail news. Semester 1 of 2014 table of contents

What franchisees need to know about the CPA. By: Marcel Strauss | 22 Nov 2013

As individual consumers without business experience often buy franchises, the Consumer Protection Act (CPA) plays a significant role in protecting new franchisees. It changes the way franchises are sold and run with specific reference to the franchise agreement.

For the first time in law, franchise agreements are regulated by legislation rather than the common law. Therefore, the CPA now governs the definition of a franchise agreement as well as all franchise relationships in South Africa.

As prescribed by the CPA, the franchise agreement must be in plain and understandable language, in writing and signed by both parties. According to regulation 2 made in terms of the CPA, it must also contain the exact words 'a franchisee may cancel a franchise agreement without cost or penalty within ten business days after signing such agreement, by giving written notice to the franchisor (Section 7(2) Consumer Protection Act. 2008)'.

It must also contain provisions that will prevent unnecessary or unreasonable conduct regarding any risks and unnecessary conduct to protect the legitimate business interests of both parties and the franchise. Other important provisions are that it must contain a clause that clearly states that the franchisor is not entitled to any benefit or compensation from suppliers unless the franchisees are informed in writing. Furthermore, the agreement must also give details of the names and descriptions of the goods or services that the franchisee can provide, produce, render or sell, as well as the obligations of the franchisor and the franchisee. It must also describe the franchise system, all direct or indirect payments and give details of any territorial rights, describe the premises and location and explain the conditions under which the rights and obligations of the franchise can be transferred or assigned.

Other important inclusions

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  A description of the trademark and any other intellectual property of the franchisor that the franchisee can use must also be included in the conditions of use.
  
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  Particulars of the initial training and assistance and ongoing training must be included as well as the duration and terms for renewal.
  
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  The franchisor's legal name, trading name, registered office and franchise business office, street address, postal address, email address, telephone number and fax number as well as the directors' names, identity numbers, towns of residence, job titles and qualifications must also be included in the agreement.
  
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  The nature and extent of the franchisor's involvement in site selection and the terms and conditions about termination, renewal, goodwill and assignment of the franchise must be included.
  
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  The agreement must confirm that any deposits from the franchisee will be paid into a separate bank account and describe how these deposits will be used. It must also indicate the initial fee payable when the agreement is signed, and what this will be used for. Further, it must give a description of the funds needed to establish the franchised business such as purchase or lease of property, site conversion costs, decor and signage, equipment, furniture, hiring and training of staff opening stock and legal and financial charges and the initial working capital needed and how this is calculated.
  
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  The total investment required must be indicated and a clear statement of any expenses and costs not included in the purchase price as well as the amounts of funding available from the franchisor, the conditions for funding, and the total cost of funding and ongoing amounts payable.
  
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  The franchisor must also state if all or part of the amounts are included in the price of goods and services that must be bought from the franchisor or other preferred suppliers, the date or intervals when the amount is due and if any fee must be paid for administrative services provided by the franchisor and what these services entail.
  

Consumers who buy franchises often do so with money from a severance or pension package earned from within other sectors. Franchisors cannot expect them to know everything about the business and, as the franchisor, it is our duty to ensure they get all the information necessary for them to make informed decisions. Franchising is a growing business all over the world and we can only stimulate the growth of the industry in South Africa by treating our franchisees fairly.

Burger King plans to repeat success in Gauteng

By: Nick Hedley | 30 Jan 2014

Global fast-food chain Burger King is hoping to replicate its success in the Western Cape when it enters the more lucrative Gauteng market this weekend.

Image courtesy of Grant Cochrane / FreeDigitalPhotos.net

The chain - which first launched in SA in May last year - will open three stores on Saturday, at Park Station and on Rivonia Road in Johannesburg, and at a Sasol forecourt in Centurion.

Burger King entered the local market through a joint venture with JSE-listed Grand Parade Investments, and recently signed an exclusive agreement with Sasol to roll out stores at Sasol's fuel retail sites, initially in Gauteng.

Burger King SA CEO Jaye Sinclair said the chain's performance at its six Western Cape stores had been "absolutely phenomenal - way beyond any sort of expectation we might have had".

Burger King was hoping to achieve similar success in Gauteng, which holds the biggest share of SA's quick-service restaurant market.

Sinclair said Gauteng "historically fetches about a 30% premium on the ticket price compared to the rest of the country, so we are expecting Gauteng to be a big market for us".

Burger King would have five stores open in Gauteng by the end of next month and would also look to enter the KwaZulu-Natal market this year. The US-based group is a new entrant in a competitive South African fast-food-chain market that includes the likes of McDonald's and strong local incumbents such as Steers and Wimpy, owned by Famous Brands.

Sinclair said the group needed to be "very cognisant that there is competition out there, but we are just keeping our heads down and we don't want to worry about someone else's business".

"We are worrying about the growth of our business and we have got to ensure that we serve customers the finest quality at very competitive prices in an environment that the public are wanting."

Meanwhile, Burger King also plans to use SA as a platform to expand into fast-growing African countries. Its local licence agreement includes Namibia, Botswana, Zambia, Zimbabwe, Mozambique and Mauritius.

Sinclair said the group's main focus at the moment was on the South African market, where it was establishing its local supply chain, including its distribution and logistics network.

A move north of SA's borders was only likely to happen in 18 to 24 months' time.

Sinclair said that Burger King had strong interest from franchisor investors, landlords and developers.