Expanding your brand into Europe
There are over 12,500 franchise brands operating throughout Europe, with the UK and Spain particularly developing their franchise markets. Here, Professor Roy Seaman analyses and predicts the future of European franchising
With more than 1,500 franchise brands operating, the UK remains the most attractive market for US brands particularly to first grant their franchise rights due to the commonality of language. Like the US, the UK endeavours to offer what are called genuine Business Format Franchises rather than brand franchising, which has taken place in the French and Italian markets for the last 50 years. According to the Natwest/bfa Franchise Survey 2012, the British franchise industry contributes £13.4 billion to the UK economy and an estimated 38,400 non-dairy franchised units in the UK.
Ireland however, has been a much more challenging market in recent years and this has encouraged many of the successful indigenous Irish brands to look at expanding into new international markets. Many brands have ignored Europe entirely and expanded straight into one of the most up and coming markets – The Middle East (to read more on the opportunities in this area click here).
Brands are also expanding into Asian and US markets; those who have had some connection to Ireland, will use Ireland as a first step into the UK and then into mainland Europe. Currently, there are around 100 US brands looking at the European market either via the UK or Ireland and range from fast food, fashion, retail, sales marketing and management, all types of cleaning activities and health and beauty. Some brands, like Figaro’s Pizza and Sbarro, are looking for major investors to develop their brand to its full potential in these countries before taking on board the challenge of different languages and culture.
Some Irish investors take the opportunity to acquire the Master Franchise Rights for both Ireland and the UK and a good example of this is with, retail care franchise – Foot Solutions. They have spent a number of years establishing a strong foot print in the Irish market and today are a leading health and well-being franchise, focusing on foot care, comfort shoes and custom arch support. They have successfully combined stylish footwear and technology to deliver life-changing solutions to their customers, so that they return to Foot Solutions for all their future requirements.
Ireland aside, US brands have proved a very successful transfer into the UK market and a number of franchises are already expanding into other European countries. Some of the most successful US to UK franchises include McDonald’s, Subway Restaurants, Burger King, KFC, TGI Friday’s, Pizza Hut and Papa John’s. Once these brands have 100 locations or more in any of the European countries, they find growing their brand relatively straightforward. However, they fail to carry out detailed market research so that they clearly understand where their brand will be positioned and the competition both from the franchise and non-franchise market. It may cost up to $15,000 for pre entry market research, but this is totally justified when answers to some of the most important questions are provided and substantiated.
The Spanish market is still proven attractive for many brands due to the low cost of acquiring retail premises, even in key cities like Barcelona and Madrid. France is also an extremely well-established market with fashion franchise brands all the way from the designer top end brands, down to value for money clothing.
Italy, like France, embraced what is called international brand franchising, which has always attracted a great deal of initial interest, but few brands survive for any length of time, since the franchisors do not bring their international network of franchise owner investors together, nor do they provide in the vast majority of cases, ongoing support to develop the brand to its full potential. When questioned, these franchisors say that they do not have the time to investigate the benefits of Business Format Franchising, since they are really manufacturers and not in the market of creating business models for entrepreneurs to replicate. How unfortunate, since this is exactly what franchising and tomorrow’s world is all about. With all of today’s technology in relation to developing and managing global businesses as well as ensuring that all franchise owners subscribe to online accounting, there are a few arguments against the idea of embracing franchising at every level.
Although Europe is seen as one market, this is far from the case when it comes to legal requirements. The most attractive market in Europe for franchising is without doubt the UK, since there is no specific franchise legalisation and no need for registration or formal disclosure documents. However, Franchise Development Services (FDS) strongly recommends that every brand that intends to franchise in the UK should prepare their Franchise Information Memorandum (FIM®), since this voluntary disclosure document will cover all 21 areas that need to be understood by the franchisor and their various European investors acquiring the Master or Area Development Franchise Rights. Franchise Agreements from around the world would not work in many European countries and we strongly recommend that they be completely rewritten by an experienced franchise law firm.
France also has a complex legal requirement and, of course, languages can be a challenge since, documents and contracts must be provided in French. The same applies to Germany – the Trade Unions still have a huge say in the way businesses are conducted and many franchises have strict rules and regulations to abide by. Trade industries such as carpet cleaning and carpentry have strict trade codes which limit the potential franchise owners even proceeding, since the list of requirements that must be met before an individual can own and operate certain businesses, such as apprenticeships and master craftsman diplomas is so out of date that it restricts individuals from taking on a franchise opportunity in these business sectors.
Germany is still a ‘developing’ market and has not reached its full potential yet. Although many brands claim to franchise in Germany, in reality there are fewer than 500 genuine Business Format Franchises. In summary there has not been a great deal of cross-border franchising in Europe as yet, due predominately to the European recession. However, as we move out of recession, companies will be looking for more practical and profitable ways to expand and earn from new revenue streams and franchising will be on the agenda of many companies, as well as goals of individuals to own, operate and develop national, European and international franchise brands to their full potential.
Understanding franchising and, in particular, the 21 key factors that influence the growth and success of a franchise system in any market is the first step. Key factors such as language, law, rules, regulations and culture and are so significant that none of these should be underestimated. Banks will also need to play their part by making funds more readily available for either Master, Area Development and single unit franchises. Investors can all prepare for a new dawn for franchise development around Europe beginning in January 2014 – you can use the time between now and then for preparation.