Paper to be presented at the EMNet-Conference on
"Economics and Management of Franchising Networks"
Vienna, Austria, June 26 – 28, 2003
www.univie.ac.at/EMNET
FRANCHISING NETWORK AS A GROWTH STRATEGY
– CONSIDERATIONS IN POLISH MARKET.
Anna Barbara Wróbel
Warsaw School of Economics
Ul.Niekłańska 30/1
03-924 Warsaw
Poland
Tel: 0048-608792437
Fax: 0048-22-6177316
E-mail: awrobel@sgh.waw.pl
Abstract
The paper is a part of the author’s Master Thesis research on “Franchising As A Modern International Growth
Strategy”. The purpose of this paper is to discuss the following issues: (1) What is franchising and why should
it be considered a growth strategy? (2) Is franchising network a growth strategy in emerging and transition
markets such as Poland? (3) What are the practical considerations and examples for expanding a franchising
network in Poland? The paper refers to strategic international management. It describes franchising as an option
for companies considering various growth strategies. In addition, the paper discusses crucial economic and legal
issues and prerequisites, when expanding a franchising network abroad. The paper focuses on Polish market,
which is subject to dynamic franchising systems expansion. Strong influence of global economic situation as
well as the trend towards supporting entrepreneurship at the dawn of Poland’s accession to the European Union,
suggest that Poland will remain an attractive market for franchising network growth. Finally, a synthetic and upto-date picture of Polish franchising industry is presented. What is more the paper describes specific cases of
franchising network expansion in Poland (i.e., inbound, outbound and internal systems growth) gathered and
prepared by the author in course of her research.
Keywords
Franchising Networks, International Management, Growth Strategy, Poland, system expansion
Acknowledgements
I would like take this opportunity to thank all the experts that have contributed to this paper during
interviews and consultations; through their insights on franchising industry, illuminating suggestions; direction
to further sources of information and – last but not the least – encouragement throughout the research process.
What is more, I would like to thank Mr Josef Windsperger for giving a young franchising adept a chance to
participate in the EMNET Conference and share insights on Polish franchising market at such a prestigious
forum.
I.
Introduction
Franchising has been long an unknown formula in the Polish market. It is still
a mysterious topic to many would-be entrepreneurs or business students. Meanwhile
franchising has become a significant and successful business method in many industries and
many countries. It will most probably continue to grow in importance in the coming years.
Adapted as a growth strategy in some 75 industries, franchising is now practiced in more than
100 countries1. The leading franchise market – United States - witnesses a new franchise unit
opening every eight minutes and every twelfth start-up business operates within franchise
network2.
The thesis of this paper is that franchising – when understood and treated
as a business philosophy and operational method - is a phenomenon with growth potential
in emerging markets such as Poland, especially suited to current economic trends
e.g., globalisation, growing uncertainty and increased demand for specialised products
and services.
Primary evidence for this thesis is the number of local franchising systems that
in Poland surpassed the number of foreign systems operating in 2002 (55.7% over 44.3%) 3.
Number of direct franchising sector employees exceeded 100 thousand. What is more,
recently, Public Relations initiatives as well as lobbying for better legal franchising
environment have become much more frequent and visible. Just a few days ago (24-26th June
2003), the First International Franchising Fair took place in Warsaw. There are many
reputable systems to choose from – together with their experience and strategies. With good
practice in place, adherence to a franchise system takes on average only 6 to 7 months.
1
Source: Franchise Group Urges Modernising business Rule. PR Newswire, 2002, 25 th June. Available at
global.factiva.com.
2
P.Domarecki, Firma pod obcą marką. Profit, 2003, June, pp.90.
3
Compare S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport o Polskim Rynku
Franchisingu, Profit System, Warsaw 2003, pp.1.
2
A. Franchising definition in Polish market
Franchising might be described as a strong strategic alliance, favouring long-term success,
where each of partners should invest resources and competences in order to gain strategic
advantages. In franchise relationship, these resources and competences are not only sustained
but
also
protected.
According
to
M.Siebert
companies
franchise
for
one
of three reasons: time, people, or money4. Franchising is a growth strategy relying
on three elements: (1) exploitation of original idea of a product or service; (2) capacity to
pass the know how onto partners; and (3) capacity to mobilise human resources.
As the paper describes Polish franchising reality, it is necessary to understand the nuances
of franchising definition functioning in Poland, as suggested by Polish Franchisers’
Organisation5. It is based on the European Code of Ethics definition and completed with
several Polish characteristics6. These are, for instance:
(1) Stable, contractual relationship binding the franchiser and franchisee, resulting in
franchiser’s obligation to provide the franchisee with know how – throughout the
contract period – and obliging the franchisee to pay franchising fees to franchiser and
to render various services according to the contract provisions.
(2) Economic, legal and organisational independence of parties involved, in Poland
reflected, for example, in proprietary fiscal counters.
Franchising definitions are multiple. Another one suggested by Polish authors (A.Koch 7)
describes franchising as a market expansion method of a given business activity via an
organised network of uniform units, operating the business on territories distant from the
initiator’s headquarters. Third parties run the units at their own account and on their own
4
Compare M.Siebert, Should You Franchise Your Business, www.ifranchise.net.
Compare section dedicated to the Polish Franchisers’ Organisation (POF) at www.franchising.info.pl.
6
As the secondary purpose of the paper is to present Polish market considerations for franchising – reference is
mainly given to Polish literature and press. Nevertheless the paper is based on a thorough review of international
bibliography.
7
See A. Koch, Umowa franchisingowa, Ruch Prawniczy, Ekonomiczny i Socjologiczny, zeszyt 3/1980, s.51.
5
3
behalf. The initiator authorises them to use successful operations technique and uniform
external image, which symbolises the technique for consumers in exchange for financial
remuneration.
B. Advantages and disadvantages of franchising
Whole new sectors in Poland and worldwide are embracing the franchising formula that
can effectively combine a foreign concept with local understanding of the market and
necessary adaptations. Franchising aggregates the core competences of a large enterprise
(resources and approaches such as R&D or professional marketing) and of an independent
small business (motivation and understanding of local market). Thus franchising especially
boosts the development of small and medium enterprises and increases self-employment.
Benchmarking of best practices can be applied throughout whole systems and cross-border
learning and testing is facilitated. The general decision to franchise requires a trade-off
between potential benefits arising from lower costs, rapid market expansion and risk sharing,
and the disadvantages of reduced financial upside, strategic freedom and brand control. From
the franchisee perspective, beginning in franchised business is much easier than with an
independent start-up - even in the same sector – but without the possibility to use a
recognised name. Thus the multiplicity and extension of franchising systems. Nevertheless,
franchising is not a magic formula and analysis of many failures shows that clear vision,
preparation, and proper feasibility study are indispensable elements of success. M.De
Mendez8 notes that even the best franchising strategy requires constant care and
improvements, as both the external market circumstances and internal specificity of franchise
relationship constitute a challenge. The key to success in franchising are successful
franchisees – notes M.Siebert9 – and many experts confirm the idea. Therefore equilibrium in
every aspect of the franchise relationship is a key to success of the whole network. See
8
9
M.De Mendez, Comment reussir en franchise, Dunod, Paris 1989, pp.119.
M.Siebert, Should You..., op.cit.
4
Appendix 1 for a detailed comparison of advantages and disadvantages for parties involved in
franchising relationship.
M.Strzyżewska10
a
relatively new
notes
that
phenomenon
internationalisation
that
recorded
of
franchising
especially fast
operations
growth
in
is
1990s
with development of information technologies, dynamisation of communication between
markets and uniformisation of some lifestyles and consumer behaviours. Franchising suits the
processes - with integrity of business concept expressed, for instance, in product, brand,
enterprise identity, enterprise image, promotion, staff behaviour.
II.
Franchising as a growth strategy
Growing worldwide presence of franchise systems used as principal or auxiliary expansion
mode,
suggests
that
the
formula
is
gaining
importance
and
appreciation
in the range of international development strategies. Grouping independent entities under the
same brand and the synergic effects of their motivations benefit the whole system
and accelerate the growth of the network. Large multinational companies more and more
often choose franchising option and it constitutes a sure choice for smaller enterprises that
possess limited resources. In this respect this modern strategy might be well called a strategy
of the future. Successful global development requires more attention to be given to
infrastructure issues related to suppliers, dependability of franchisees, as well as the political
and economic stability of the foreign country.
M.Romanowska and A.Zorska present basic sets of expansion or growth methods in
foreign markets. The company might choose organising direct or indirect export, opening a
subsidiary, acquisition of an existing local company, finding a strategic ally – a local or
international partner. The methods vary in level of costs and risk as well as in direct benefits
to the company (compare Fig. 1a). Franchising is located in the middle of the graph,
M.Strzyżewska in M.K.Nowakowski (ed.), Biznes międzynarodowy – obszary decyzji strategicznych,
Wydawnictwo KeyText, Warsaw 2000, pp.211.
10
5
representing a reasonable strategy that involves substantial benefits to the company as well as
acceptable risk level and mid-level costs. T.Gołębiowski ranks similar strategies by level of
control as well as risk and time involved in expansion (compare Fig. 1b).
Figure 1: Foreign markets entry methods.
a) by level of economic benefits and costs/risk involved;
high
subsidiary
merger or
full acquisition
low
economic benefits
partial
acquisition
joint-venture
franchising
licensing
supply contracts
or assembly plants
export
low
costs and risk
high
Source: Based on M.Romanowska, Zarządzanie strategiczne firmą, Centrum Informacji Menedżera, Warszawa
1996, pp.98 and A.Zorska in M.K. Nowakowski (ed.), Biznes międzynarodowy – obszary decyzji strategicznych,
Wydawnictwo KeyText, Warsaw 2000, pp.287.
b) by level of control and time/risk involved.
control
high
branch export
or subsidiary
sole-venture
franchising
or licensing
joint-venture
low
agent or distributor
export
indirect
export
low
time and risk
high
Source: Own elaboration based on T.Gołębiowski, Materials For International Business Management, Szkoła
Główna Handlowa, Warsaw 2002.
6
Licensing and franchising offer a decent level of control while minimising uncertainty and
time necessary to achieve success. E.Baranowska-Prokop11 notes that risks associated with
franchising are mainly connected with trust relationship built between partners, their
qualifications and commitment to standards set by franchiser – also given varying mentality
of consumers in different markets.
In broad terms, the decision to set up a franchise operation abroad will usually arise out of
one of the possible situations:
(1) An existing franchiser, who previously: (a) has developed a specific product/service
and wishing to quickly establish an extensive distribution network, has build a
franchise system at local/country level; (b) has specifically set out to develop a
business concept that he would be able to franchise; and is now wishing to grow
internationally and expanding the franchise system seems a logical consequence of
past experience and evolution of the enterprise. Having developed the business
concept the franchiser must be absolutely convinced not only that he has a
franchisable business proposition, but also that franchising is the optimal method of
international expansion.
(2) The prospective franchiser is currently operating a successful established business
which (s)he now wishes to expand internationally. For some specific reason
franchising appeals to him as a method of achieving this expansion.
In considering various conditions of growth, a company - potential franchiser should be
aware that there are two possible expansion drivers. The Push option implies that franchiser
through marketing efforts, following a strategic franchise development plan, drives the
expansion. The franchiser will actively search for new franchisees (proactive). In a Pull
option a domestic franchiser, who attained a significant market presence, attracts the attention
E.Baranowska-Prokop in T.Gołębiowski (ed.), Marketing na rynku instytucjonalnym, Polskie Wydawnictwo
Ekonomiczne, Warsaw 2003, pp.114-116.
11
7
of foreign investors, who approach him. In such a case, international expansion is driven by
the international demand (reactive) for a suitable product or service. International expansion
of locally successful franchise system as well as decision to choose franchising for foreign
growth should be based on economic calculation. There might be push and pull factors –
changing, less favourable situation in home market (market saturation, decreasing spending
power) as well as opportunities appearing in foreign or/and global environment (global sing
consumer segments, economic upturn and increasing demand for specific products/services)
may force or induce an entrepreneur to go abroad. When making strategic decision to
franchise it is important to bear in mind that the idea that anything at all can be franchised
with the minimum of effort is completely unfounded, and that in fact the franchiser will have
to give very careful consideration to all aspects of his operation. Especially the legal and
economic environment of franchised operations need to be carefully considered before
decision to launch franchised operations in particular market is taken. Finally, when
international franchising strategy is being designed, there are several prerequisites and best
practices that could contribute to franchiser success or at least prevent failures in major
strategic areas, such as: franchisee selection or start-up assistance. There are no fix-it-all
solutions in the world of franchising and success factors depend heavily on the type of
franchised business.
An analysis conducted in line with my research goal, shows that franchising used in local
and international growth proves effective, provided that the strategy is thoroughly designed,
carefully implemented and supported by a relationship of trust and mutual commitment of
partners to their interdependent success.
8
III.
Franchising in Poland
This Chapter gives a detailed picture of franchising sector in Poland, which might be
especially interesting for foreign systems willing to understand its situation as well as
international franchising associations or consulting companies that prepare market analysis
for their members and client companies.
Although the Polish market might serve as an model for Central and Eastern European
Countries (CEEC), taking into account the degree of market economy development, longterm priorities (e.g., EU membership); general consumer awareness and lifestyles; it is
necessary to point out that Poland is to much extent specific in the region, given the country’s
size (40mn population; 12 large cities; geographic distance) and culture. For instance,
cosmetics and body care retailer - Drogerie Natura, may consider Czech Republic or Hungary
too small to enter, while Poland has the potential to make the concept profitable – with at
least 300 interesting locations. Thus the description of Polish franchising sector might serve
as an initial tool, while a detailed market analysis is a must when choosing to expand in
another CEEC.
Michał Wiśniewski names the following global trends as the most influential for
franchising networks growth: (1) growing demand for branded products and services –
further enhanced by global communication and access to information as well as
uniformisation of lifestyles; (2) counter-cyclical interest in franchising operations reflected by
increasing franchise acquisitions during recession and unemployment growth as well as
expansion of franchise networks via consolidation of individual businesses that wish to
compete in stagnating economy thanks to central purchasing, advertising and business
development.
Mark Siebert suggests that there is a life cycle of global franchising (see Fig. 2 below).
9
Figure 2: Life cycle of global franchising.
Introductory Stage
Franchising is first introduced to the population as a whole, usually by strong global franchisers such as
McDonald’s and KFC. A few progressive local companies may begin exploring franchising. Examples:
China, Moldova.
Early Adoption
Arrival of secondary foreign brands and the initial development of local franchise concepts – usually by
large and established local companies responding to the influx of franchised competitors. Examples:
Indonesia, Peru, and Spain.
Rapid Vertical Expansion
Similar to the US franchise boom in 1960s – franchising expanding rapidly, but primarily within a limited
number of traditional categories (e.g., fast food, automotive, hotel). In global markets, this stage is
characterised by accelerated introduction of foreign franchises along with the development of smaller
domestic franchise companies. Examples: Argentina, Chile, and Philippines.
Horizontal Proliferation
Like the US in 1980s and 1990s – an increasing number of domestic business categories utilising
franchising for expansion. Franchises from around the world aggressively target these markets for
expansion. Early domestic franchisers begin targeting global markets of their own. Examples: the UK,
Brazil, Japan.
Export
A number of mature franchise categories and aggressive efforts by domestic franchisers to franchise within
the global marketplace. Example: the USA.
Source: Own elaboration based on M.C.Siebert, Global Franchising – The Surf Is Up!. The Successful
Franchising, 1998, October, pp.58.
A. Franchising sector in Poland – an overview
The CEEC, with emerging market economies are popular targets for global franchisers. In
1998 it was forecast that franchise networks in Europe would grow by 30-40% by 200412.
Emerging markets are ample and provide real growth potential. Experienced franchisers are
easily able to discount their competitive advantages here, although the investment risk is
higher than in stabilised, mature markets. Scarce information or business assistance as well as
poor communication infrastructure are the most common risk factors. Use of franchising for
growth of inbound systems in Poland as well as expansion of outbound networks is
influenced by transformation processes in Polish economy - on macroeconomic scale - as
12
The European Franchise Federation (EFF) forecasts. B. Pokorska, Franchising w Polsce: stan i kierunki
rozwoju, Instytut Rynku Wewnętrznego i Konsumpcji, Warsaw 2000, pp.97.
10
well as lack of experience of Polish entrepreneurs (potential franchisees and franchisers) – on
microeconomic scale.
Next to well-known global networks such as McDonald’s, 5 à Sec or Midas, there are local
systems such as Molton, Vistula, Troll (clothing); Drogerie Natura (cosmetics and body
care); Pożegnanie z Afryką, A.Blikle (cafeterias); Chata Polska, Groszek, Piotr i Pawel
(grocery convenience stores); and PKN Orlen (petrol stations and car service13) – to name
just a few. This proves that the Polish franchising sector enters maturity stage with more and
more Polish companies realising that franchising might be a good growth strategy. At present
68.7% of franchisees operate in local systems, while 31.3% have bought a foreign
franchise14. Franchising sector in Poland has been recording fast growth of at least 12
systems per year since 1997 (see Fig. 3). However, the industry has not been free from
spectacular failures such as Norwegian Rema 1000 supermarkets system inability to build
successful relationships with Polish franchisees15. Nevertheless, as much as 15 systems plan
to sign their first franchising agreements in the nearest future.
Figure 3: Number of first franchising agreements signed per year (1989-2003).
16
14
12
10
8
6
4
2
0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003f
Source: Own elaboration based on S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport o
Polskim Rynku Franchisingu, Profit System, Warsaw 2003, pp.17.
Currently two petrol manufacturers and distribution operators – PKN Orlen and Rafineria Gdańsk operate
franchised petrol stations. The difference is that the latter relies entirely on franchise network – thus treating it as
strategic business format and investing heavily in development of best practice rules; while PKN Orlen uses
franchising as complementary method both in Poland and in Germany.
14
S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport o Polskim Rynku Franchisingu,
Profit System, Warsaw 2003, pp.9.
15
See A.Kondratowicz, Remą w płot. Gazeta Wyborcza. Available at www.franchising.info.pl.
13
11
According to B. Pokorska16, franchising globalisation process is as well reflected in Polish
market. It is a virtual laboratory where we are able to watch new, strong systems expand in
various niches and already existent networks improve their operations by investment in
logistics, brand building, and service development. Polish franchising landscape changes very
fast. In 2000 B.Pokorska stated that foreign franchise systems were already an element of
Polish economy, while the interest of Polish individual investors and companies in growth
through franchising was growing very slowly17. Meanwhile, current figures as well as
increased media coverage prove that the last three years brought a real boom in Polish
franchising. The main franchise actors in Poland are: (1) global networks focused on
reinforcing their market position and territorial expansion – they may be limited by difficulty
in new, profitable sites localisation; (2) master franchises of foreign systems concentrating on
own-units development and brand building; (3) experienced newcomers in fast food and retail
sectors, entering market niches; (4) Polish franchisers and SME operators with growth
projects, looking for high quality franchisees and alliances with other systems.
Apart from research papers published by Polish franchising experts such as Barbara
Pokorska, Agnieszka Tokaj-Krzewska or Krzysztof Zięba18; interesting publications and the
most ample franchising information for both franchisers and franchisees operating and
willing to start a business in Poland is available from portal www.franchising.info.pl run by
Profit – a consulting group specialised in franchising, belonging to Horwath Franchise
Services Group based in London. They have recently published the first report on franchising
16
Compare B.Pokorska, Franchising w Polsce..., op.cit., pp.6 and 100-103.
Ibidem, pp.100.
18
Ibidem. Compare as well B.Pokorska, Rynek franchisingowy w Polsce. Handel Wewnętrzny, 1999, nr 1;
A.Tokaj-Krzewska, Franchising. Strategia rozwoju małych firm w Polsce, Difin, Warsaw 1999; K.Zięba,
Działalność franchisingowa w Polsce i w wybranych krajach Europy. Zeszyty Naukowe Politechniki Gdańskiej.
Ekonomia, 2000, nr 38.
17
12
in Poland, giving the most up to date picture of Polish franchising sector19 and launched the
first Polish magazine specialised in franchising20.
Franchising is attractive for both the Polish entrepreneurs and consumers, who still
perceive franchise network consistency and service standards as important value added.
Therefore most of the systems quickly gain client confidence and loyalty, further enhancing
franchising success. According to the report mentioned, franchising systems in Poland
contribute 3.2% of the GDP, which is still little compared to developed franchising markets
(up to 15%).
There were more than 120 systems operating in Poland in 2002 with distribution leading
the race (50.8% - with the following categories leading the ranking: grocery; clothing and
footwear; petrol; luxury goods) and services following it (48.8% - respectively: cafes, pubs,
restaurants and hotels; hairdressers and beauty parlours; education and training)21.
The growing number of service franchising in Poland might be a locomotive for growth of
this sector as a whole and restructuring of Polish employment. Although franchising is
present in most of the areas, the report suggests that the white-collar franchising niche (direct
services to business – e.g., tax advisory; stationery suppliers; cleaning services) is almost
S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport o Polskim Rynku Franchisingu,
Profit System, Warsaw 2003. Available from www.franchising.info.pl.
20
The franchising portal operators claim it is visited by 6 th Internauts per month. The magazine as well - is said
to have quickly gained attention and become widely recognised source of information, In addition, franchising
issues are being well covered in other business press such as Profit – a magazine that has recently published an
ample dossier on franchising opportunities in Poland.
21
The largest systems operated respectively: Avans (RTV and household appliance stores) – 408 units; Kodak
Express – 400; Drogerie Natura – 276; Big Start (jeans and casualwear) – 250; and Groszek (supermarkets) –
216 units. Franchise systems in Poland vary in terms of number of units operated; employment; revenues; and
preferred location. Recent Profit magazine dossier on franchising presents franchises in three “investment
required” categories: (1) under 30th EUR – e.g., National Car Rental, ‘Together’ matrimonial agencies, Mr.
Hamburger fast food, Eurostop travel agencies, Five o’clock coffee and tea shop, Yogen Fruz, JDJ language
schools, Mamuśka Cheesecake Shop, Yves Rocher; (2) 30-75th EUR – e.g., Cezar multi-service points, Chata
Polska stores, Drogerie Natura retail outlets, A.Blikle cafeterias, Camille Albane hairdressers, Cafe Nescafe,
Jean Louis David, TelePizza; and (3) over 75 th EUR – e.g., Avans stores, Subway, vegetarian restaurants Green
Way, Perfect Clean laundries, Palmers lingerie boutiques, Kodak Express, Dr Irena Eris Cosmetic Institutes,
Midas, McDonald’s, Etam, Leader Price, E.Leclerc, Mexx, Quiosque, etc. Authors analyse as well which type
of advantages each of categories offers and what kind of competitive edge it requires in order to succeed. See
P.Domarecki, B.Możdżyński, J.Stępień, Dossier – najlepsze franczyzy do wzięcia. Profit, 2003, June, pp.92107.
19
13
empty22. Poland still lacks enterprises specialised in new generation services such as fullservice legal and financial consulting; house-office cleaning services; on-line translating
agencies. These B2B service niches together with production franchise sector still offer
potential for growth.
Most of franchisees operate in distribution (71.6%), which may result from a relevant ease
of building a distribution network as compared to service outlets (27.7%), which require time
and money consuming preparations, training and operational manual creation. Polish
franchising sector is quite concentrated with 5 largest systems (4,1% of all franchisers)
gathering 42.9% of all franchisees. At the same time distribution systems possess most of
company-owned outlets (81.3%), while service systems focus on developing franchised units
(only 18.6% of company-owned outlets operating in Poland). Additionally, distribution
systems dominate as far as revenues are concerned with 91.1% (with petrol stations and
grocery chains at the top of the ranking) of the total franchising sector revenues, while service
systems bring 8% of the revenues. The proportion seems reasonable as retail chains achieve
higher revenues at lower margins. Michał Wiśniewski (Profit System)23 stresses that the
dominance of distribution is one of Polish franchising sector characteristics resulting from the
country’s economic history. Small and medium retail outlets were traditionally present in the
market. Poles have always been entrepreneurial and had so called “guts for commerce”.
Witnessing fiercer internal competition and strong external chains entering the market, many
traders decided to consolidate force and learned how to operate in franchise networks. At the
beginning of the 1990s they created small wholesale centres, which later started to organise
An interesting example of successful B2B (or white-collar) franchise is Dokumenta – enterprise specialising
in office paper files electronic archivisation and physical destruction. Dokumenta is a Polish concept based on
similar US franchises. It now operates 12 units (1 own + 11 franchised) in the largest Polish cities, covering
most of the market. It is one of Polish concepts that have strong potential for out-bound success, as all
businesses need to cut archivisation costs and rent. Source: interview with M.Wiśniewski, Profit System,
Poland, 23rd May 2003.
23
M.Wiśniewski, Profit System, Poland, 23rd May 2003, op.cit.
22
14
they own retail units, thus becoming wholesaler-retailer franchisers. For instance Pożegnanie z Afryką – coffee shops and cafeterias grew from coffee wholesale centres.
Additionally, it is worth mentioning that Polish franchise systems had brought 17.8bn PLN
of revenues in 2001 (i.e., 4.86bn EUR; 4.35bn USD24 - 76.3% of total), while the foreign
systems had total revenues of 5.3bn PLN (i.e., 1.45bn EUR; 1.29bn USD - 22.7%)25. As
evidenced by the report, networks between 500 and 1000 units generate the highest revenues.
Meanwhile, as far as employment is concerned, the number of persons employed directly in
franchising exceeded 100 thousand in 2002, which corresponds with 2.5% of enterprise
sector employment. Franchisees employ almost 70 thousand people (an average of 7
employees per unit), while over 33 thousand are employed in franchise system headquarters
and company-owned units (270 employees per system). This shows that operating a franchise
system requires not only proper franchisee recruitment but also substantial mobilisation of
franchiser’s human resources.
Figure 4: Localisation of franchise network headquarters in Poland.
5.7%
50.8%
12.3%
7.4%
4.9%
8.2%
Source: Own elaboration based on S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport o
Polskim Rynku Franchisingu, Profit System, Warsaw 2003, pp.11-12.
24
2001 average annual exchange rates: 1PLN=0.273095EUR=0.24445USD. All exchange rates come from
www.oanda.com.
25
S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport..., op.cit., pp.7-9.
15
Fig. 4 shows that most of franchise network headquarters (50.8%) are located in
mazowieckie voidvoiship, with Warsaw market (department stores, shopping centres) being
the biggest advantage. In addition, Polish franchising systems are bit more dispersed and only
38.2% operate in mazowieckie voidvoiship; with other traditionally entrepreneurial regions
following: wielkopolskie (13.2%); malopolskie (8.8%); upper and lower Silesia (7.4% each).
B. Franchise networks in Poland – inbound versus outbound potential
Fig.5 presents the number of franchise systems in Poland compared to selected countries.
The number of systems operating in Poland is still low compared to other European
countries. For instance, there are already 595 systems in Spain, where population is
comparable to the Polish one. See Appendix 2 for a more detailed statistics.
Figure 5: Number of franchise systems in Poland compared to selected countries.
Latvia
Ireland
Czech Rep
Poland
Norway
Finland
Denmark
Belgium
Hungary
Sweden
Portugal
Austria
Netherlands
Spain
Italy
France
UK
Germany
USA
15
20
40
122
125
140
145
170
220
230
320
320
415
595
606
653
671
950
2294
0
500
1000
1500
2000
2500
Source: S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski Raport o Polskim Rynku Franchisingu,
Profit System, Warsaw 2003, pp.18.
It is possible that Poland’s accession to the EU will encourage many foreign systems to
enter Polish market. Foreign systems will gain more confidence in Polish economy, overall
political and business risk will decrease. Companies will no longer face completely different
16
legal, monetary and social environment. Thus first 2-3 years after EU enlargement might
distort current domination of local systems as many new systems would be interested in
conquering the ample market. The movement may be especially visible as many systems go
in groups – and successful entrance of one hairdresser franchise (e.g.., Jean Louis David) is
likely to encourage others to come and benefit from the overall increase of market pie (e.g.,
Franck Provost, Jacques Dessange). The number of franchising systems in Spain increased by
100% over the first two years of EU membership26. Nevertheless Polish systems will be
appearing as well in response to competition and as a result of better market communication
and concept transfer27. Meanwhile, Polish systems will rather expand locally before deciding
to export the concept. In such case market size will be deceiving and may cause loss of
international expansion opportunities to systems originating in small markets such as Czech
Republic, Slovenia or Hungary (which would be comparable to the dynamism of some
Belgian systems versus slow international expansion of French concepts). Take Fornetti, for
example, a system that had to go abroad to grow, as Hungarian market was quickly saturated.
At the moment 57.4% of inbound systems in Poland come from the EU. In general the
ranking of foreign systems is led by France, the US and Germany. Many franchisers choose
Poland as a foothold for expansion in Central Europe, Middle East and Russia. Surprisingly,
although Mediterranean life and fashion style is popular in Poland, Italian, Spanish and
British systems are not very active here. It seems that there is much more market and cultural
proximity between Poland and the US or France, than Poland and Germany or the UK
(usually exporting to Commonwealth markets prior to other directions). Fig.5 presents the
split of inbound franchise systems in Poland by the country of origin.
26
27
See P.Domarecki, Firma pod obcą marką. Profit, 2003, June, pp.89.
Drogerie Natura, for instance, are said to start the franchise network in response to Rossmann market success.
17
Figure 6: Inbound franchise systems in Poland by country of origin.
TOTAL = 54
Other
France
19%
15%
Hungary
4%
Austria
4%
Australia4%
USA
17%
Japan 4%
Spain 4%
Switzerland 7%
7%
Sweden
15%
Germany
Source: Own elaboration based on S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport o
Polskim Rynku Franchisingu, Profit System, Warsaw 2003, pp.10.
Currently, most of foreign systems in Poland are developed through local office of the
mother company, but the number of Polish master franchisees is growing – they now develop
15.6% of the systems. Global franchisers are looking for master franchise partners in Poland
– the largest potential market in Central Europe. Management delegation to master
franchisees and compliance with global standards provide high effectiveness whatever the
distance between franchiser and franchisees, allow to individualise the network supervision
and growth, taking into account local market cultural and economic characteristics.
Although retained at home by the size of local market, many Polish systems have good
potential for export. Take Dokumenta (see footnote); Mamuśka Cheesecake Shop28;
Drogerie Natura (planning to grow in CEE region); or PKN Orlen petrol stations (acquired
German chain and now is converting it into two franchise networks).
28
Started by Polish expats in Australia in 1993 and now growing in New Zealand and Europe from a Polish
foothold of 12 units – out of which 10 are franchised. The system opened 140 units during its first three years in
Australia. One of its main advantages is probably that franchisees are offered ready-to-operate units. Source:
www.franchising.info.pl.
18
C. Franchising growth barriers in Poland
B.Pokorska draws attention to new challenges Polish economy faces, such as improvement
of legal, organisational and economic franchising environment. As far as barriers and
prospects for franchising in Poland are concerned, the most important problems faced by
franchisers are: (1) lack of potential franchisees with minimum capital for initial
investment29, combined with skills and managerial experience as well as knowledge of
franchising industry and operations of a given system; (2) lack of general information on
franchising as a business method as well as on specific systems 30; and (3) lack of modern
legal regulations facilitating set-up and operations of franchise networks as well as
guaranteeing rights of parties involved. Michał Wiśniewski mentions lack of basic business
education at high-school level (still the highest many future franchisees attain)31. There is no
consistent education program on franchising that small and medium entrepreneurs could
follow. The capital barrier also results from unclear legal regulations – e.g., definition of
property that often excludes mortgage collateral and limits credit availability. It is important
to mention that what constitutes a low initial investment in developed economies, is often a
29
Ongoing franchising fee as well as initial fee is often calculated into the price of goods delivered by
franchiser. This solution helps the franchisees to adhere to a system without required capital at hand. See
S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski, Raport..., op.cit., pp.20-23.
30
It would be interesting to investigate how many foreign franchisers have intention to export their system to
Poland (or to Europe in general). This may be conducted in cooperation with foreign Franchising Associations.
Another survey could check if the influx of foreign systems into Poland would be counterbalanced by an
increasing number of Polish franchisers expanding locally or/and exporting to tap foreign markets. A concluding
postulate would also be to transform the way franchising – a very practical domain – is taught to students and
entrepreneurs at universities, in business schools and in specialised courses. Igor Pavlin from Slovenian
Franchising Association suggests a laboratory with hands-on experience in franchising to be the best method to
educate future managers and entrepreneurs. Instead of teaching solely ex cathedra, Professor Igor Pavlin added
practical cases, business plan and other elements of real franchise development to his courses. I.Pavlin,
Slovenian Franchise Association, General Secretary, (Telephone interviews), 6 th and 12th November 2002. In
addition, national franchising organisations that will be described in the next Section might launch specialised
franchising universities or ally with reputable higher education establishments to create franchising programs
for graduate or post-graduate students.
31
This results in poor franchisee awareness of potential pitfalls and tricks used by franchisers, who aim to
dominate the franchise relationship. It is often too late to advise to disappointed franchisees, when they come at
problems with franchise contracts that were not previously consulted with neither lawyer nor business advisor.
Interview with M.Wiśniewski, Profit System, Poland, 23 rd May 2003, op.cit.
19
high entry barrier for entrepreneurs in Poland32. Unfortunately, financial institutions do not
offer any products tailored to franchise networks, as they do not perceive franchisers and
franchisees to be attractive customers – which proves Polish franchise market development
gap to the EU or US. In addition, Polish legal system is still underdeveloped as far as
franchising regulations are concerned (e.g., disclosure requirements)33. It is only recently that
a ban on sublicensing has been removed after an active lobbying actions undertaken by Polish
Franchisers Organisation and Private Employers Confederation. Such obstacles discourage
franchisers from expanding their networks as any financial aid to franchisees means loss of
main franchising advantage – financial risk reduction. These barriers add to general problems
of Polish economy at the moment. As the government fails to implement any
entrepreneurship facility tools, common business approach is that authorities are unable to
help and should therefore at least try to minimise their negative influence. With reference to
information gap, it is important to stress the need for active franchising promotion via
specialised trade shows or franchising information centres.
Analysing the British franchising sector in the 1980s, P.Hall suggested, for instance, that
the press would have an important role to play in the development of the industry, which at
that point lacked widespread public understanding. Almost fifteen years later, we might
observe similar situation in Poland, where media in general supporting the idea of small
business development, do not cover real alternatives for such entrepreneurship. Thus
franchising information is focused in several specialised media such as the franchising portal
and the Franchising magazine mentioned above or regional business guides such as Warsaw
Business Guide34. Apart from these, there are not many actions that promote franchising
32
Initial investment may vary from 10th USD to 100th USD; ongoing fees are of 3 to 6% of gross sales on
average while marketing fee equals 1-3% respectively.
33
Compare K.Bagan-Karluta, Umowa franchisingu, C.H.Beck, Warsaw, pp.86-118 and 145-146.
34
Compare Business and Economy Guide – Warsaw – Local Business Network, Biznes Warszawski, Warsaw
2003, pp.71-73, for contact information of franchise systems such as: A.Blikle, Kodak, Dr Irena Eris,
Marks&Spencer, McDonald’s, Yves Rocher.
20
image among would-be franchisees. Dossier published by the Profit magazine is probably the
first one to give such ample and explicit coverage to franchising in view of explaining the
method to entrepreneurs and attracting franchisees aware of the network challenges.
Finally, taking into account Poland’s accession to the EU and structural funds available to
SMEs, national and regional agencies supervising the funds could help to open and run
franchising information points. Any forms of assistance to franchisers and other investors are
especially scarce in emerging markets. Therefore it could be crucial for Polish Franchise
Association or Polish Franchisers’ Organisation to benchmark its foreign and international
counterparts. Adhesion to the European Franchise Federation and creation of Polish Code of
Ethics in Franchising are among first tasks. B.Pokorska stresses that a useful role of
franchising associations would be as well to create a model franchise agreement taking into
account current legal environment and creating an even position for franchiser and his
franchisees35.
Established features of foreign franchise industries are franchise brokers and consultants36.
They are often associated with or recommended by franchising associations approached by
prospective franchiser or franchisee. Arnaud le Grelle from the BFF37, stressed that the nonprofit Federation does not want to serve as a consulting company to individual franchisers,
therefore it developed a special membership status for all kinds of reputable advisory entities
(associate member), which provide individual consulting to BFF members and other
35
Given volume constraints and business profile of the author, the need for up-to-date legal regulations is not
analysed in this paper. Meanwhile it seems that legal environment adjusted to international standards could have
positive impact on the image of Poland as target franchising market, as well as help Polish systems to export
their concepts. Compare B.Pokorska, Franchising w Polsce..., op.cit., pp.104-107.
36
For instance, iFranchise Group – a US consulting company – provides its clients with research and feasibility
services; franchise development; implementation services for new or existing franchisers; international
expansion services and other growth services; as well as franchisee services such as franchiser suitability
analysis36. According to M.Siebert36, 40% of iFranchise US clients are companies new to franchising wishing to
establish a network; 40% are well established franchisers looking for international growth opportunities and
20% are large manufacturers converting their distribution channels into franchised networks – with higher level
of control. Nick Bibby from Bibby Consulting Group emphasizes that most of his clients need clarity, focus and
direction in establishing and implementing a growth strategy via a franchise network. Nick Bibby, Bibby
Consulting Group (USA), (Telephone interview), 16 th August 2002.
37
Arnaud le Grelle, Belgian Franchise Federation, Executive Director, (Belgium), 4th September 2002.
21
enterprises seeking assistance. In Poland the initiator of franchising portal – Profit System
(established in 1998 – now associated with Horwath International and Martin Mendelsohn’s
Eversheds) – claims to be the only consultancy to offer complex legal and business services
(including PR) to franchisers throughout their concept development and network operations.
Michał Wiśniewski complains that although Profit works with the most successful Polish
systems, it has been less successful in attracting foreign clients. What is more, the company
competes with many dispersed advisory boutiques – lawyer, advertising and research
agencies.
D. Franchising systems in Poland – practical comments
During my research, I have examined several companies that have been growing and that
are going to successfully grow using a franchise system. They represent various concepts and
types of franchising, starting with retail distribution franchise of Marks&Spencer, through a
business format innovative Dr Irena Eris Cosmetic Institutes, to traditional fast food network
of McDonald’s restaurants. Each of the companies is at different stage of growth and has
been applying franchising in a unique way – adapted to their business characteristics. See
Appendix 3 for detailed description of a chosen case – Dr Irena Eris Cosmetic Institute.
Interesting enough, each of the businesses puts a special emphasis on the value and
importance of key elements such as brand image, selection of franchise partners and complete
package of franchiser’s support services. This confirms the importance of universal
prerequisites and issues crucial for establishing a sound franchise network in Poland and
internationally in general. What is more, we might notice that in each of the cases – the
franchise system does not only sell a product or a service – but a whole philosophy expressed
in brand identity. Thus Marks&Spencer provides its customers with broad range of garments,
accessories, home furnishings as well as financial and information services, combined with
convenient terms of sale. Dr Eris Institute offers complex beauty care completed with a take-
22
away set of products. McDonald’s adds value through quick service, children entertainment,
or drive-through option. The philosophies are inscribed in the franchise packages and
franchise relationship is a unique media of transferring the philosophy onto consumers38.
Having seen success of worldwide-recognised systems coming to Poland, many of new
franchisers start to target Poland for a successful expansion. Yogen Fruz – frozen desserts
points of sale franchiser present in 80 markets and operating over 5000 units – has opened
almost 20 units in Poland since May 2002. Portuguese Jeronimo Martins that operates
Biedronka discount stores system, plans to invest heavily to reach 2000 units and saturate
Polish market in 6-7 years – growing from current 638 points of sale. Nestle – global food
concern that has 60% stake in global instant coffee sales and controlling over 20% of global
coffee market – basing on company’s experience in the UK started a chain of Nescafe
Cafeterias in Poland in 2002 and now operates 8 franchised units with a view to grow
dynamically.
Meanwhile, there is no need to look far for franchise opportunities. There are also multiple
examples of franchisable business concepts in Poland. Take a rare example of production
franchise – Indeco – that manufactures customised wardrobes and doors. Indeco operates 2
own production units and 74 franchised ones with over 250 exposition offices around Poland.
Drogerie Natura, mentioned above, represents a wholesale-retail system with 58 own selfservice cosmetics and body care retail outlets and 250 franchise licences issued. The network
– started in 2000 and managed by a successful wholesaler Polbita Sp. z o.o.(set up in 1990) –
is now a leader in its sector in Poland. It is also one of franchise systems, which support
franchisees with credit facilities designed in cooperation with chosen banks. Drogerie Natura
38
Furthermore these example companies will be able to diversify and stretch their concepts as long as they suit
the main philosophy. This goes in line with FFF forecast that competitors will switch from price-wars to
service-wars38. Therefore, for instance, we may see, one day, yoga classes at Dr Eris Institutes; kids’ theatres or
kindergartens run by McDonald’s; and Do-It-Yourself or gardening accessories sold at Marks&Spencer. All of
these – provided that the consumer wants it. What is more franchise systems will be the best possible channels
to respond to the demand in time.
23
plan to open 150 new units over the next 2-3 years, and after the period wish to expand
abroad. A typically Polish concept is Chata Polska network of convenience stores. It
distinguishes itself from foreign-owned competitors by associating its brand with traditional
Polish values such as close relationship with clients, hospitability, openness, wealth. The
network (at the moment comprising 130 outlets that generate about 90mn EUR of annual
revenue) was established in 1997 by an association of retailers from Western Poland. In order
to gain good coverage and overcome obstacle of scarce prime locations, Chata Polska takes
over existent outlets. Another advantage of the network is centralised purchasing (60% of
product range – the remaining 40% come from regional contracts) and marketing. An
additional incentive for franchisees is that they hold stakes in the system and co-decide on its
long-term strategy.
Such cases could be multiple. For sure, success in franchising should no longer sound as
science fiction to Polish companies.
IV. Conclusions
In Poland, at present, each enterprise is faced with constant transformation of socioeconomic environment. In order to survive, business has to react quickly to consumer needs;
guarantee the quality in most detail possible; innovate constantly and increase freedom of
initiative left to partners. The number and percentage share of systems operating and growing
their networks internationally has been increasing steadily. Many of these systems have
already entered Polish market welcome by enthusiasm of local entrepreneurs. However,
international factors present additional burden, requiring a more careful approach that can be
time and energy consuming. Franchisers often follow a similar expansion pattern, first and
early on are often countries with geographical, cultural or language proximity. It is therefore
clear that Polish market might be long underestimated by franchisers, who deny taking the
risk of launching into unknown, culturally distant country. What is more, the general
24
economic and political uncertainty associated with emerging markets might add up to the
situation.
In case of emerging markets and especially in light of the CEEC accession to the EU, it is
in the interest of private and public sector to collaborate more on franchise popularisation.
Summing up – it is necessary to discount the opportunities created on one hand – by external
factors such as the EU expansion – on the other - by internal transformation such as growing
entrepreneurial spirit and business awareness of the Polish society.
Although
on
the
global
level
information
and
education
on
franchising
is improving, it is still poor at local level – as illustrated by Poland. Even accurate statistical
data is limited and still needs some improvement to be collected in a standardised and
ongoing manner. Similarly, a more integrated approach to franchising legal regulations could
be beneficial to the sector and its sound growth.
Finally, although a lot remains to be done in terms of franchising environment in Poland, it
is necessary to acknowledge that we have witnessed substantial development over the last
years. Not only has Poland attracted world-class systems, but it has also allowed local
concepts to grow and gain recognition.
I am convinced that further research into franchising as well as other growth strategies in
Polish and other CEE markets could enrich my conclusions and add more specific
recommendations to what I have presented. I hope to be able to improve my own knowledge
on the topic and present it in my future academic papers.
25
References
Interviews
 Arnaud le Grelle, Belgian Franchise Federation, Executive Director, (Belgium), 4th September 2002.
 Igor Pavlin, Slovenian Franchise Association, General Secretary, (Telephone interviews), 6 th and 12th
November 2002.
 Mark Siebert, iFranchise Group (USA), (Telephone interview), 22nd July 2002.
 Michał Wiśniewski, Profit System, Poland, 23 rd May 2003.
 Nick Bibby, Bibby Consulting Group (USA), (Telephone interview), 16 th August 2002.
Books and articles
1. Bachfeld A., International Franchising In The USA And In The EU, UCL, Louvain-la-Neuve 1996.
2. Bagan-Karluta K., Umowa franchisingu, C.H.Beck, Warsaw 2001.
3. Business and Economy Guide – Warsaw – Local Business Network, Biznes Warszawski, Warsaw
2003.
4. De Mendez M., Comment reussir en franchise, Dunod, Paris 1989.
5. Domarecki P., Firma pod obcą marką. Profit, 2003, June.
6. Domarecki P., Możdżyński B., Stępień J., Dossier – najlepsze franczyzy do wzięcia. Profit, 2003, June.
7. Franchise Group Urges Modernising business Rule. PR Newswire, 2002, 25 th June.
8. Gołębiowski T. (ed.), Marketing na rynku instytucjonalnym, Polskie Wydawnictwo Ekonomiczne,
Warsaw 2003.
9. Gołębiowski T., Materials For International Business Management, Szkoła Główna Handlowa,
Warsaw 2002.
10. Hasani S., Krawczyk A., Rejtner M., Słodkowski A., Wiśniewski M., Raport o Polskim Rynku
Franchisingu, Profit System, Warsaw 2003.
11. Hubicz K., Piękno w pięknie. Gazeta Wyborcza, Supermarket, 2001, 12th April.
12. Koch A., Umowa franchisingowa, Ruch Prawniczy, Ekonomiczny i Socjologiczny, issue 3/1980.
13. Kosmetyczny Instytut Dr Irena Eris (CD-ROM), Dr Irena Eris 2002.
14. Niewinowska M., Właściciele sieci chętniej dają licencje fachowcom. Puls Biznesu, 2002, 7th
November.
15. Nowakowski M.K. (ed.), Biznes międzynarodowy – obszary decyzji strategicznych, Wydawnictwo
KeyText, Warsaw 2000.
16. Pokorska B., Franchising w Polsce: stan i kierunki rozwoju, Instytut Rynku Wewnętrznego i
Konsumpcji, Warsaw 2000.
17. Pokorska B., Leksykon franszyzy, Difin, Warsaw 2002.
18. Pokorska B., Rynek franchisingowy w Polsce. Handel Wewnętrzny, 1999, nr 1.
19. Romanowska M., Zarządzanie strategiczne firmą, Centrum Informacji Menedżera, Warsaw 1996.
20. Siebert M.C., Global Franchising – The Surf Is Up!. The Successful Franchising, 1998, October.
21. Tokaj-Krzewska A., Franchising. Strategia rozwoju małych firm w Polsce, Difin, Warsaw 1999.
22. Toute la franchise 2002: les textes, les chiffres, les resaux, Federation Francaise de la Franchise, Paris
2002.
23. Zięba K., Działalność franchisingowa w Polsce i w wybranych krajach Europy. Zeszyty Naukowe
Politechniki Gdańskiej. Ekonomia, 2000, nr 38.
Internet
1. www.eris.pl
2. www.franchising.info.pl
3. www.ifranchise.net
4. www.oanda.com
26
Appendices
Appendix 1: Benefits and drawbacks of franchise system.
Subject concerned
Franchiser
Benefits
Drawbacks
Rapid expansion
Loss of control
Capital formation
Risk – forming a competitor
Incremental income and ongoing fees
Hassles
Feedback on market, idea generation, etc.
Highly motivated franchisee manager
Resource pooling for advertising, R&D
Mitigation of risks (financial, commercial)
Continued control over goods/services distribution
– consistency
Quick response to changes (consumers, market)
Reduction of product costs
Reduced management responsibility at outlet level
Gain of prestige, especially through international
presence
Less costly expansion
Franchisee
Known but own business
Loss of independence
Proven/tested know how and product
Conflict of interest
Often widely well-known product/service
Decision-making limited
Economical purchasing and other economies of
scale
Higher likelihood of survival and success
Larger scale advertising and R&D
Transfer of training, support, consultation, other
assistance and professional approach
Financing: third party is easier, possibly franchiser
assistance; better investment, easier resalable
Certain mitigation of risks
Immediate consumer credibility
Time savings
Can focus on sales
Consumer
Product/service variety
Less individual approach
Known brand product
Decreased personalisation
Competitive prices
Decreased uniqueness
Increased/guaranteed quality
Economy
Stabilised employment
Expansion of large,
Small and Medium Entrepreneurship
international systems at the
Economic growth
cost of traditional, local
Inter-brand competition
enterprises.
Professional standards
Redistribution of wealth
Source: Own concept based on A.Bachfeld, International Franchising In The USA And In The EU, UCL,
Louvain-la-Neuve 1996, pp.vi-4.
27
Appendix 2: Polish franchise sector compared to selected countries.
Country
Year
Systems
(number)
Franchised Units Average
Employment
Revenues
(number)
Number of (thousands)
(bn EUR)
Units
USA
2001
2294
449917
196
Germany
2001
950
56000
59
368
31.7
UK
2001
671
30500
45
325
14.6
France
2001
653
32240
49
30.5
Italy
2001
606
36547
60
99
13.8
Spain
2001
595
Netherlands
2001
415
16250
39
160
20.4
Austria
2001
320
4525
14
Portugal
1999
320
3700
12
Sweden
1998
230
9150
40
71
5.7
Hungary
1998
220
5000
23
45
2.6
Belgium
1998
170
3500
21
29
2.4
Denmark
2000
145
4000
28
3.6
Finland
2001
140
2.9
Norway
1998
125
3500
28
3.0
Poland
2002/2001
122
10213
84
104
5.8
Czech Rep
1998
40
80
2
1
0.8
Ireland
1998
20
Latvia
2001
15
Source: S.Hasani, A.Krawczyk, M.Rejtner, A.Słodkowski, M.Wiśniewski Raport o Polskim Rynku Franchisingu,
Profit System, Warsaw 2003, pp.18.
Appendix 3: Dr Irena Eris Institute - franchising case 1.
In 1998 Dr Irena Eris Cosmetic laboratory has been the first Polish cosmetics company to start operating a
franchise network of beauty parlours – Cosmetic Institute Dr Irena Eris. The idea of the Institute is to provide
every client with an access to professional, modern cosmetic services. Its philosophy is summarised in three
words: reliance, safety and reputation. Institutes offer a broad range of dermatological and beauty care
treatments; hand and foot care, as well as relaxation (massage, aromatherapy), hairdressing (in partnership with
Wella) and make-up services. The offer is holistic/complex and individual/personalised at the same time –
with possibility to consult specialists and doctors before any treatment is applied. Responding to current life
style trends – rush, stress and pressure to remain young and beautiful - Dr Eris targets both women and men,
aged 30–50, with stable financial situation. The company manages a computerised database of its clients that
not only allows to continue treatment in accordance with previous diagnosis, but also – above all – to mine
consumer data and target clients with appropriate marketing campaigns.
The success of Institutes relies heavily on the reputation of Dr Eris cosmetic products, which are now sold
in each of the Institutes for continued beauty care at home. Dr Eris – established in 1983 – is now a leading
cosmetics manufacturer in Poland with 250 employees and 17% market share. Eris cosmetics are sold in all
continents (except Africa) – building brand awareness in potential Cosmetic Institutes’ expansion markets.
Fig. 7 shows Dr Irena Eris franchise system logo, which will be probably adapted for language differences,
if successful expansion into foreign markets is to take place.
One of Dr Eris success factors are advanced R&D supported with heavy investment that allows to conduct
expensive research, which often breaks even only in 5-6-year time. Thus customer confidence is boosted with
strict adherence to top safety and quality standards. As a consequence, Dr Irena Eris brand awareness is growing
28
and the brand is gaining a base of loyal and satisfied customers. This is especially rewarding in business relying
heavily on word-of-mouth publicity.
Figure 7: Dr Eris Beauty Institute Logo – Growing Recognition.
Source: www.eris.pl.
Agata Bielecka, who claims that franchising has been the best method to protect and develop the brand of
Institutes, manages Dr Eris franchise business. At the same time a solid and proven brand determines the
success of franchisee business undertaking. Franchising agreement precisely formulates both parties’ obligations
and guarantees full commitment of a franchisee, which is not always true in case of own unit and a hired
manager39.
There are 3 company-owned units as well as 5 franchisees at the moment (total of 10 units) 40. A model pilot
Institute is situated in a stylish palace in Mokotow district together with Research and Development (R&D) and
training centre. Franchiser – present in the online franchising forum www.franchising.info.pl - sets clear
requirements for franchisees. The parlours are to be located in large cities (i.e., over 100 thousand inhabitants)
– in elegant and calm districts rather than shopping centres. The premise should be at least 130 square metres
and 3 metres high, at ground floor, with large display windows. It should be owned or on lease for at least 5
years. Franchisees are obliged to take part in initial business training as well as regular training aimed at
increasing customer service standards (e.g., effective response to client complaints 41). Medical or cosmetic
education and qualifications are welcome as well as experience in service sector, but the franchisee should be
first of all able to run an independent enterprise and follow franchise relationship rules. A.Bielecka mentions
three basic franchisee selection requirements: (1) financial resources; (2) brand awareness and (3)
understanding the company’s mission and strategy - which are confirmed by other Polish franchisers (e.g.,
Drogerie Natura and Chata Polska) 42. Promotional materials of Dr Eris Institutes support that philosophy as
well, as they are meant to present the whole idea behind the business before entering into details of the
agreement43. Eris assists franchisees in organising their units. This sometimes includes help in taking out a loan
or leasing. Nevertheless these are non-standard practices, not provided for in franchise agreement and dependent
on specific franchisee situation. Meanwhile the agreement provides for business plan tools, consulting as to
localisation and personnel recruitment, premise adaptation project, training package, promotion. Eris provides
franchisees with ongoing support via know how sharing, open dialogue on cooperation and functioning of the
institutes, and integration events.
Estimated franchise costs44 include: premise adaptation 500-2000 PLN/sq.metre; cosmetic cabinet equipment
7500 EUR; hairdresser stand 13000 EUR; dermatologist’s cabinet 9000 EUR; plus furniture and other
equipment. The total cost depends on the number of cabinets, which is a function of the size of the city.
39
A. Bielecka during Online Franchising Expo at www.franchising.info.pl.
Ibidem. See as well B.Pokorska, Leksykon franszyzy, Difin, Warsaw 2002, pp.65.
41
K.Hubicz, Piękno w pięknie. Gazeta Wyborcza, Supermarket, 2001, 12th April, pp. 3.
42
M. Niewinowska, Właściciele sieci chętniej dają licencje fachowcom. Puls Biznesu, 2002, 7th Nov, pp.21.
43
Kosmetyczny Instytut Dr Irena Eris (CD-ROM), Dr Irena Eris 2002.
44
A.Bielecka at www.franchising.info.pl.
40
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Eris plans to dynamically increase the number of Institutes in 2003 with 10 new units in Poland and 3
abroad. According to A.Bielecka - with none of competitors following Eris strategy - there should be no major
impediment to attain this goal45. The system uses push approach and is actively seeking adherents in Germany,
the USA, Lithuania, Russia and Columbia. As far as preliminary economic analysis is concerned A.Bielecka
stresses that Eris faces varied competitive environment in each of markets. It has strong position in the US
professional beauty care sector, while facing difficulties in Russia. The company’s unique proposition has
always been top quality products and guarantee of results when using them.
Appendix 4: Polish brand with potential – franchising case 2.
Wedel – Polish chocolate manufacturer could expand its Chocolate Cafeteria concept. It has well-established
brand name that the company is proud to worship; as well as connotation with the best Polish chocolate
manufacturer, who uses unique know how and controls the whole production process - starting with the cocoa
grain – thus assuring high standards. The Chocolate Cafeteria (combined with a shop) in Szpitalna St in Warsaw
is reputable for top quality hot chocolate and currently is adding some other products based on chocolate
recipes to the menu. It has specific stylish interior (that could still be upgraded to match the brand identity) –
especially given the architecture of the building. It is immediately associated it with elegant Vienna Cafeterias,
which enjoy popularity and in the past - similarly to Wedel – waited long to enter the franchising industry.
Wedel could use downtown locations, for instance, in old squares that are being elegantly refurbished in many
Polish cities. Having said this, we should remember that cafeterias, fast foods and other restaurants have been
and will be the most popular and successful franchise systems; therefore there is high probability of positive
results and lots of benchmarking opportunities for Wedel. Furthermore, customers get value for money at
Wedel – prices of hot chocolate are competitive compared to non-branded drinks in other Warsaw cafeterias. In
addition, combining the cafeteria with corner-franchise or simply a small chocolate shop in a room next door
could leverage and boost the brand loyalty. The only obstacle to establishing Wedel franchise is that the
cafeteria would need to carefully select suppliers of additional products such as coffee or sodas – in order to
avoid cannibalisation or teaming up with potential competitors in chocolate sector (e.g., Nestle, Kraft). Thus the
concept may not be flexible enough to compose an attractive product assortment. M. Wiśniewski mentioned that
such an impasse situation is often characteristic to manufacturers who wish to establish a franchise network.
Nevertheless, there is already a successful Polish system based on family business and traditional brand
name, which combines cafeteria format with sales of top quality cakes, sweet snacks and ice-cream – A.Blikle –
that now operates 7 company-owned units in Warsaw and 3 franchised cafeterias outside Warsaw46. Although it
might compete with Wedel in terms of upper-shelf clientele and traffic in midday hours, there is large difference
in terms of pricing as well as consumer segments that both systems would target (with Wedel concept having
wider recognition thanks to its lower prices).
45
Ibidem.
Three franchised units operate in Płock, Gliwice, Częstochowa. Blikle was planning to open 2 cafeterias in
2002 in Toruń and Kielce; and further 7 franchised units in 2003 (Łodź, Poznań, Cracow, Radom, Gdańsk,
Warsaw and its surroundings). Initial franchisee capital investment varies from 150 to 250 thousand PLN
depending on location and size of premises. Initial franchise fee is of 20 thousand PLN and Blikle does not
require any ongoing fees. Source: www.franchising.info.pl.
46
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