South Africa's franchise industry remains one of the country's most powerful business engines, contributing approximately 15% to GDP, but according to Larry Hodes, CEO of Grow Franchise South Africa, structural weaknesses within the franchise system are hindering the sector's next phase of growth.
Speaking in a CNBC Africa interview, Hodes described the sector as being at a “crucial stage”, arguing that franchising continues to offer one of the most practical routes into entrepreneurship, as well as serving as an important source of job creation. Yet, he said, many local franchise brands struggle to move from early success to sustainable scale because internal operating models often fail to evolve as store networks expand.
Hodes said South Africa stands out globally for the economic importance of franchising, noting that the sector's contribution to GDP is significantly higher than markets such as the United States and Australia, where franchise activity is a smaller share of economic output. He suggested the scale-up highlights how fixing the sector's growth barriers matters not only for franchise owners but also for the broader economy.
“The great thing about franchising in South Africa is that it is one of the most powerful economic engines we have at the moment,” Hodes said. “It creates jobs, it enables entrepreneurship, it gives people a lower-risk way to get into business.”
He pointed to the growing interest from potential business owners who are attracted to franchising as a more structured option rather than starting from scratch. In the interview, Hodes gave the example of a 58-year-old corporate employee he is training who wanted to leave formal employment and purchase the franchise model because of its proven business structure.
However, that appeal does not remove the operational pressures faced by franchisors. Hodes said that once founder-led businesses expand to about 10 to 15 outlets, a recurring pattern emerges. At that point, founders are often hindered in decision making, reporting systems remain reactive rather than structured, and there is little or no middle management layer to support further growth.
In his view, the most pressing obstacles are internal rather than external. While policy, economic conditions and access to capital can influence franchise performance, Hodes argued that many brands are being held back more by weak leadership design, inadequate systems and poor scaling discipline than by forces outside the business.
When asked if the non-support structures were primarily driven by operational fundamentals rather than external constraints, he said, “Absolutely.” “If they just take a step back and start being more strategic when it comes to leadership, in terms of their brand, how do we really set things up the right way within a franchise so that we are able to scale that franchise model sustainably.”
A central theme of Hodes' comments was that franchisees are not just buying a product; They're buying into a brand. This makes the franchisor's head office responsible for protecting and strengthening the brand promise across the network. As franchises grow, he said, cracks in execution, systems and leadership can become brand risks if not addressed quickly.
Hodes distinguished between mature franchise groups and those that still operate with a narrow compliance mindset. He said established players such as Famous Brands and Spur Corporation generally provide meaningful support to franchisees and have developed more sophisticated operating models over time. But he also said that some big brands with hundreds of outlets are still limited to audits and compliance checks rather than actively helping franchisees improve performance.
According to Hodes, this approach is becoming increasingly out of sync with the modern franchise environment. Franchisees are often experienced, financially committed entrepreneurs who need collaborative assistance, not just supervision. A franchisor ultimately earns through the success of its franchisees, he said, making partnerships and capacity building essential.
Hodes recently launched Grow Franchise South Africa to address these scaling challenges. The company is targeting two segments of the market: franchisors that are struggling to move beyond the initial expansion stage, and larger groups of 60 or 70 stores and above that need strong leadership capabilities to move forward.
He argued that leadership is the defining factor in whether a franchise can exceed growth limits. “A business can only grow as far as where there is leadership,” Hodes said. “And if the level of leadership doesn't rise, the brand will never get big.”
This challenge is especially acute for founders who have excelled at building the original business but have not yet accepted the demands of becoming a franchisor. Hodes used the example of a coffee shop entrepreneur: being good at running a successful outlet does not automatically translate into being good at running a franchise system. That said, once a company starts franchising, it is no longer just in the coffee business or the restaurant business; It is in the franchising business that it requires different capabilities, systems and governance.
Those capabilities include creating an appropriate leadership structure, introducing expert talent where needed, and building repeatable systems that support consistency across multiple locations. Without those elements, brands may continue to grow in outlet numbers but remain fragile at the bottom.
Technology is becoming increasingly important in helping franchisors overcome those vulnerabilities, Hodes said. He described digital tools as a key enabler of better communication, workflow automation and more strategic leadership. By reducing manual complexity and improving visibility across the network, technology can free up management to focus on decision making rather than day-to-day gunfire.
He said communication is one of the biggest problems in many organizations, and technology can help franchisors interact with franchisees more effectively and timely, as well as strengthen accountability.
Ultimately, Hodes defined the industry's challenge not as a lack of growth potential, but as a lack of the tools and leadership structures needed to go from initial traction to mature scale. Many South African franchise businesses have already proven consumer demand and have created viable brands, he said. The next test is whether they can professionalize their structures to reach 20, 30 or even 50 stores and beyond without damaging the brand value the franchisees are purchasing.
For an industry that already plays a large role in South Africa's economy, this change could prove significant. If franchise systems can strengthen leadership, modernize support models and use technology more effectively, the sector may be better positioned to drive entrepreneurship and employment growth in the years to come.