Given that for
most franchise systems, especially the food-service franchise, the average
period for renewalof license is 5 years, this in essence means that most franchisees do not
renew their licenses
after the expiration of the very first contract in South Korea. This
situation “costs franchisors
tremendous money as they have to constantly recruit and train
new franchisees in order to fill
the leaky bucket instead of using the resources for other
strategic growth opportunities” (Lee
et al
, 2016:49).
In Nigeria, the problem of poor system performance in recent years seems to be more
precarious. Although the Nigerian franchise industry grew rapidly and became a popular path
for entrepreneurship for many (Aderibigbe
et al.
, 2016), things have taken the turn for the
worse in recent years. The available performance report of leading franchise systems in the
country is worrisome. For example, the financial performance of Mr Bigg’s – the largest (by
number of outlets) franchise system in Nigeria has been dismal since 2013. Its revenue was
down 20% while profits dropped by a whopping 63% at the end of 2014 (UAC, 2015). Its
efforts to shore up performance by divesting 49% stakes to Famous Brands of South Africa in
2013 has not made much impact as it continues to record loses with the company revenues
going down 19% (year-on-year) while profit before tax recorded a staggering decrease of
88%
(from US$189,500 to US$21,500) in the first quarter of 2015 (UAC, 2015). The half-year
2016
report of the parent company (where it still constitutes substantial percent of the portfolio)
showed that sales were down 2% while profits went down further by 16% (UAC, 2016). The
number of the company’s outlets also shrunk considerably from almost 300 in 2012 to under
150 currently (UAC, 2016). That is more than 50% closure rate within a span of 4 years.

Similarly, Tantalizers, the second largest franchise system, has been operating on a losing
streak since 2012. The company which was doing so well and attracted IFC to invest in it in


You've reached the end of your free preview.
Want to read all 5 pages?
- Summer '17
- Iking