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
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- Summer '17