South Africa’s franchise sector is experiencing remarkable growth, but according to industry leader Larry Hodes, the industry may be approaching a structural ceiling that few are openly discussing.
In a detailed analysis of the country’s franchising landscape, Hodes argues that the sector’s biggest challenge is no longer expansion, but rather the ability to sustain growth through stronger operational support structures. While the industry continues to generate impressive economic contributions, he believes the systems responsible for maintaining consistency and performance across expanding networks are beginning to show strain.
South Africa remains one of the world’s most active franchise economies. According to the latest figures from the Franchise Association of South Africa, the country now boasts 727 franchise systems and more than 68,000 franchisees. Together, the sector contributes approximately 15% to national GDP, produces turnover nearing R1 trillion, and supports around half a million jobs.
The sector has also made significant strides in transformation. Ownership by previously disadvantaged South Africans increased from 20% in 2019 to 48% in 2023, while local brands now account for 88% of franchise systems. Nearly 40% of these businesses have expanded beyond South Africa’s borders.
Despite these achievements, Hodes says many franchisors are facing the same operational reality once their networks exceed around 20 stores.
According to him, rapid expansion has placed immense pressure on the “middle layer” of franchise operations — the area managers, business coaches, field consultants and regional operations leaders responsible for maintaining brand standards and supporting franchisees on the ground.
As store numbers grow, these support structures are becoming overstretched. Weekly visits have increasingly turned into compliance-driven audits instead of meaningful operational coaching. Reporting systems often focus on historical performance rather than identifying emerging risks, while struggling franchisees are sometimes identified too late for effective intervention.
Hodes believes these challenges are not the result of poor brands or failing business models, but rather outdated operational structures that were designed for smaller networks.
He explains that the systems that worked effectively for 15 stores often become inefficient at 40 or more locations. Training programmes struggle to keep up with new openings, while area managers are expected to oversee increasingly unmanageable portfolios. In some networks, one manager may be responsible for more than 40 stores, creating operational strain that directly impacts customer experience and brand consistency.
The warning signs are becoming more relevant as South Africa’s major urban retail and fast-food markets approach saturation. Hodes argues that future success will no longer come primarily from opening new locations, but from extracting stronger performance from existing stores.
That, he says, is fundamentally a structural capability.
At the centre of the issue is the role franchisors actually play in the market. Hodes argues that franchisors ultimately sell one core asset: the brand itself. Franchisees invest in the reputation, systems and customer trust associated with that brand, making brand protection and consistency the most important responsibility within the business.
This is why the middle management layer has become so critical. These operational leaders directly influence whether individual stores remain aligned with the brand promise or gradually drift away from it.
Drawing from more than 25 years of experience across retail, hospitality and automotive franchise networks, Hodes says three recurring management patterns continue to weaken performance.
The first is the compliance-focused manager whose role revolves almost entirely around audits and reporting. The second is the “rescuer” who constantly steps into struggling stores to solve operational problems personally instead of developing franchisee capability. The third is the largely absent manager who offers little strategic support or follow-through.
Hodes stresses that these are not individual failures, but structural ones shaped by how organisations define, resource and measure the role itself.
He points to research from DMS Retail suggesting that capable multi-site managers can influence unit performance by as much as 20%, a figure that can dramatically alter the profitability of large networks.
Importantly, Hodes says this issue is not limited to traditional franchising models. Corporate multi-site operators face the same operational challenges, including grocery retailers, quick-service restaurant groups and fuel retailers managing multiple locations across regions.
Brands such as Pick n Pay continue to expand formats like Express and Clothing stores, while KFC increasingly awards new units to experienced multi-unit operators. This shift toward multi-unit ownership further increases the need for stronger operational support systems.
According to Hodes, the franchise groups performing best in this environment are those that have repositioned middle management away from pure compliance and toward leadership development. Their area managers focus on coaching rather than policing, while onboarding programmes are designed as long-term capability-building exercises instead of short-term training sessions.
He believes the future success of South Africa’s franchise industry will depend less on how quickly brands can grow and more on whether they can preserve operational quality and brand identity as networks scale.
For Hodes, the real challenge facing the sector is not whether brands can reach 200 stores, but whether those stores will still deliver the same customer experience and operational excellence that defined the business at store number 20.
For more information, visit Grow Franchising.
