European Franchising – Trends and Developments

The franchise industry in the European Union has tremendous growth possibilities. With 450 million consumers in 27 nations, many franchisor companies worldwide, especially U.S. businesses, are eager to expand franchise units into Europe.

The International Franchise Association (www.franchise.org) cites Western Europe as one of the best places for international franchise development. A 2006 study released by the William Rosenberg International Center of Franchising at the University of New Hampshire indicates that nearly one-third of American franchisors surveyed believed their future prospects in the EU were “outstanding.” More than fifty percent of respondents who currently do not operate in the EU cited the UK at the most likely country for initial entry into the EU marketplace.

Visit www.unh.edu to find out more about the survey.

Consumers naturally think of American brands when it comes to franchising – and for good reason since many popular brands, such as Burger King and McDonalds, still dominate as leading franchises. But one look at the current Top 500 Franchises in Europe indicates that even though American brands are still hugely popular, many franchises originating in European countries have also become big names across the continent and beyond.

Some of the most successful European franchises include:

* Tecnocasa, an Italian real estate franchise founded in 1980, has 3,760 units in eight countries.

* Jean Louis David, a French health & beauty company established in 1960, now has 1,200 units in nine countries.

* Foto Quelle, a German franchise focused on framing for photos and art, was started in 1957 and has 1,000 units in four countries.

* Fornetti, a food distribution business from Hungary, began franchising in 1997 and has grown to 655 units in six countries.

European franchises that are expanding internationally naturally tend to spread into bordering countries. Because the U.K and Scandinavian countries have long established commercial alliances, the export of and establishment of franchise brands among these countries is a natural outcome. Most other non-European or U.S. brands operating in the EU come from Canada or Australia.

A 2005 survey by the European Franchise Federation (www.eff-franchise.com) found that there are 6,500 distinct franchised brands operating in 20 different countries: Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, the Netherlands, Portugal, Slovenia, Spain, Sweden, Switzerland, Poland and Russia.

The International Franchise Association conducted a survey earlier in this decade that indicated franchise brands accounted for 56.3 percent of quick service restaurants, 18.2 percent of lodging establishments, 14.2 percent of retail food businesses, and 13.1 percent of table/full service restaurants. Franchises employed almost 10 million people, with direct output close to $625 billion and a payroll of $230 billion.

Though many leading franchises are in the food industry, European franchising is proving to be as diverse as consumer demand, with many businesses catering to home services, automotive repair, lodging, retail merchandise, education, travel, dry cleaning, construction and many other industries.

Both European and non-European franchisors about to launch new operations in EU countries commonly use these methods:

• Through direct franchising,

• Setting up a subsidiary or joint venture

• Master franchise licence or area developer.

The Master Licence grants an individual to sell franchisee rights within a fixed territory, such as an entire country. The Master Licencee in effect becomes the franchisor for that country and sells franchise licences. An Area Developer actually runs franchise units rather than sells licences in an assigned territory; and must have substantial resources to invest, backed by business experience.

One new and increasingly used practice in international franchise development are “test periods” of one or two years, during which the franchisee operates as an Area Developer and must meet minimum unit openings and operation before advancing to a Master licence.

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