Franchising

Franchising can be defined as a business system in which a company
(or franchiser) sells an individual (or franchisee) the right to operate a business using the franchisor’s established system or format. The franchisee is thus able to take advantage of the franchiser's brand names, reputation and experience. As part of the contract (or franchise agreement) the franchisee pays an initial sum of money, known as a franchise (or front end) fee, to the franchiser and, in addition, agrees to pay a management services fee (royalty), which is usually calculated as a percentage of the annual turnover. In certain cases the franchisee may also pay an advertising
fee to contribute to the franchisor's annual advertising and marketing costs. It is important to realize that the franchisee also has to put up the necessary capital to open and manage the business. Once the contract has been agreed, the franchiser provides an operations manual, which is a document containing all the information that the franchisee requires in order to run his or her business.

Massive growth in franchising across Europe is forecast over the next few years as trade barriers, which used to obstruct business activity, disappear. Something of a boom is predicted by a number of companies who are preparing an onslaught on European markets, which are still relatively underdeveloped in franchising.

France and Britain are the most franchised-developed countries, but even in these two only 10 percent of retail sales are made through franchised outlets.

The most optimistic projections suggest that by the end of this decade
as much as half of all sales in Europe will come through franchised outlets.
American companies especially see Europe as a happy hunting ground and are using Britain with its common language as the launch pad for European expansion.

Names like McDonald’s, Burger King, Kentucky Fried Chicken and, more recently, Domino's Pizza have already blazed trails across Europe.
From now on it is likely to be US retailing and service companies that will make up the invasion force.

‘We know of a number of US operators looking to use the UK as a foothold for moving into Europe’, says Stuart Brown a consultant with Hayward Franchising Services. ‘We expect considerable growth in cross-border franchising as a means of achieving international development. In most cases, companies need a local partner who knows the market place. Hence the expansion through master licences of franchising. Joint ventures are the name of the game’.

In retailing, Body Shop has led the way in franchising in Europe. Having opened its first shop in Belgium in 1988 it now has more than 250 outlets in mainland Europe, from Finland to Portugal. Chairman Anita Roddick and her vision of local partnerships in other countries has made Body Shop one of the greatest retail successes since the war.

Benetton of Italy used the method of granting master licences to similar
effect and another Italian casual clothing company Stefanel, is using franchising to move into eastern European countries such as the Czech Republic, Hungary, and others.

Local market expertise is essential for best financial returns. There may
be no boundaries in Europe any more, but cultures remain very different. It is no use saying: what's good enough for the British is good enough for the French. You have to understand local culture that is why franchising to local businessmen is the best way to expand.

The range of franchise opportunities is now myriad. Retailing used to
be the main cross-border growth area and names like Mothercare, Evans (part of the Burton Group) and even Marks and Spenser are taking the franchise route to Europe. Now come service companies, whether it be office cleaning, car tuning, computer technology, picture framing, hairdressing or legal services. One already making a move is a ServiceMaster, the US-based cleaning operator. It is now well established in the UK and has moved into Germany, from where it is expecting to
expand into other countries.

To bring franchising to a wider public an increasing number of exhibitions are being held. The Blenheim Group is responsible for a number of these shows and their spokesman Cheryl Wallis says: ‘Cross-border franchising is on the up and up now that trade restrictions are disappearing. Our Paris show was particularly well received. We had 22, 000 visitors and 170 exhibitors, 12 per cent of whom were from outside France’. A number of French companies are poised to invade the UK via the franchise route. Cross-border franchising is definitely the name of the game from now on.