Home Accounting and Auditing Food franchises suffer 88% drop in revenue in May, but help is...

Food franchises suffer 88% drop in revenue in May, but help is on its way

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For businesswoman Zanele Mvelase, owner of McDonalds franchises in Hartbeespoort and Brits, the disruption caused by the Covid-19 pandemic has been the most difficult time of her entrepreneurial career. Her business received no benefit from the UIF relief fund, which left her with few funding options and saw her staff go without pay during lockdown.

Mvelase is one of thousands of SME franchise owners across South Africa who have been hard hit by the pandemic. According to the Franchise Association of South Africa, the franchise sector contributes nearly 14% of the country’s gross domestic product (GDP), but many franchise businesses have been left floundering by the effects of the lockdown and subsequent slow recovery.

According to Stats SA’s food and beverages survey for May 2020, total income generated by the food and beverages industry decreased by 87,9% in May 2020 compared with May 2019. The largest decreases were recorded for bar sales (-100,0%) and food sales (-87,3%) – with the main contributors to the decrease being restaurants and coffee shops (-98,0%, contributing -49,8 percentage points); and takeaway and fast-food outlets (-85,7%, and contributing -28,9 percentage points).

For Mvelase, getting through what she calls ‘the forced pause’ was an opportunity to re-think her systems and processes. She was also able to secure funding from alternative lender Merchant Capital, which allowed her to pay her employees and re-stock her entire store when the lockdown lifted.

Another franchise owner, Mmabatho Montse, owner of Steers and Fishaways in Els Park, Johannesburg, described the initial stages of the pandemic as ‘incredibly difficult and worrying’.  Montse managed to sustain her business by keeping her expenses as low as possible, but said that without working capital funding, she wasn’t sure her businesses would have pulled through.

Mvelase and Montse aren’t alone, says Merchant Capital’s Founder and CEO, Dov Girnun: “Franchising has become a substantial contributor to South Africa’s economy, but like many other industries, it has been devastated by the Covid-19 pandemic, which has caused the revenues of many good businesses to decline sharply,” he said.

Girnun estimates that nearly 30% of Merchant Capital’s current portfolio comprises franchise business, primarily in fast food and restaurants, hair and beauty, hardware and automotive sectors. Over the past seven years, the company has assisted more than 7000 SMEs with working capital to the tune of more than R1.5 billion.

Since the pandemic struck South Africa, Merchant Capital has announced several initiatives to support struggling SMEs. It gives successful applicants access to funds in as little as 48 hours, with repayments based on a set percentage of debit or credit card sales in future months to provide for flexibility during periods of low turnover. SMEs can then access additional capital once they have repaid 70% of the cash advance.

“We’ve got a real understanding of the needs of South Africa’s SMEs, and are committed to supporting them in good times and bad. Right now, we’re trying to help where we can, to keep their businesses afloat through the crisis by providing quick and easy access to working capital at this time,” said Girnun.