Models of Franchising
Franchising in the Economic Crisis
Franchising Specifics
The Franchising Market in Southeastern Europe
Randall Nelson
Country Manager Curves Bulgaria and No + Vello Bulgaria
What is Franchising?
 Franchising is a method in which the owner of a
business or service, known as the “franchisor”, offers
the right to operate and manage his product & service
to others, the “franchisees”, in return for a fee and
ongoing royalty payments.
Franchisor
Franchisee
Know How
Initial Fee
Support
Monthly Royalty
Trademark
Infrastructure
Why is Franchising Effective?
 Franchising works as a network of interdependent
business relationships that allows a number of people
to share:
1. Brand Identification and recognition
2. A successful and proven business model.
3. A proven marketing and distribution
system.
4. Access to training and operational support.
5. Access to a specific product, equipment &
technology.
Overview of Franchising
 Modern franchising began in the 1950s after Dunkin Donuts,
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Kentucky Fried Chicken and McDonald’s are founded.
Today franchising accounts for 50% of all retail sales in the
United States.
Prior to 1980 over 90% of franchises were from the United States.
Now less than 50% of franchises are from the United States.
A 1999 study by the United States Department of Commerce
found that 97% of franchises were still operating after 5 years of
opening. The same study found that 62% of independent
businesses closed after 6 years of being opened.
Today food remains the leader in the franchising sector with 60%
market share.
Service industries are having very strong growth in the
franchising world.
Models of Franchising
 Master Franchise
 Area Developer
 Direct Franchising
 Joint Venture Partnerships
 Direct Licensing and Distribution
Master Franchise Model
 Master Franchisee Develops a Country or Region
 Master Franchisee can sub-franchise
 Master Franchisee and Franchisor establish franchise
fees, royalty fees, training fees, etc.
 Master Franchisee is responsible for distribution of
products, equipment, etc.
Franchisor
Master Franchisee
Sub-Franchisee
How are initial fees determined?
 Size of the territory or area
 Potential of the market
 Number of possible units
 Possible sub-franchise fees
 Cost for the initial training and support for sub-
franchisees
Area Development Franchising
Model
 Area Development Model is sometimes used in larger
markets or geographical areas.
 Franchisor directly controls market through a local
presence or office.
 Area of defined population.
 Option for sub-franchising.
 Controlled growth.
Area Development Model
Franchisor
Franchisor
Area
Developer
Area
Developer
Corporate
Units
SubFranchisees
Unit Franchising Model
 Franchisor sells the franchise directly to franchisee.
 A regional office is responsible for operations and
training.
Franchisor
Unit
Franchisee
Joint Venture Partnerships
 The Joint Venture partnership is followed by large
companies that do not franchise directly but expand
internationally through partnerships with well developed
companies.
 Starbucks has joint-venture partnerships in Europe, i.e.
Grupo Vips in Spain and Portugal and Marinopoulos Group
in Greece for development in the Balkans, Cyprus, Austria
and Switzerland.
Starbucks USA
Marinopoulos
Greece
Starbucks
Bulgaria
Direct Licensing & Distribution
 Common for clothing retailers that license a
distributor or producer in a respective country to
produce, distribute and market their clothing line.
Retailer
A
Producer
A
Franchising in the Global Economic
Crisis
 The franchising sector has proved to be one of the most
successful and dynamic sectors during the current crisis.
 Although there have been declines in the USA, emerging
markets in Latin America, Asia, Africa and parts of Eastern
Europe have experienced strong growth in the franchising
market.
 According to Franchise Development Services (FDS) in the
United Kingdom which publishes the Franchise Magazine
and the Franchise Directory in the UK, there has been
strong growth in the franchising market in the UK
primarily from people who have been made redundant.
Franchising in the Global Economic
Crisis
Why is franchising succeeding in the global crisis?
1. Proven Business Model and Brand recognition.
2. Marketing program.
3. Many qualified people have lost their jobs and are looking for self-employment.
4. Many qualified specialists have been laid off and are looking for employment even
with lower salary requirements.
5. A large amount of unoccupied commercial real estate gives a chance to find attractive
offers for leases.
6. Buying a franchise allows consumers to open a business in a shorter period of time
thus allowing faster diversification.
7. The competition is likely to be weakened in a recession and consumers are looking for
a brand and concept they can trust.
8. Franchises selling low cost products and services are seeing strong growth in the
current economic crisis.
9. Sectors like food, health and beauty are among the least affected.
Franchising in the Global Economic
Crisis
Challenges:
1. Access to credit.
2. High unemployment in many markets affects
demand.
3. Consumers in some markets have reduced spending.
4. Though the safest way of opening a business
franchising also has risks.
Franchising Contract Duration
 All franchise contracts have a period of validity.
 The average industry contract is 5 to 10 years. Some
companies have contracts that are between 15 and 20
years.
 Most contracts are renewable after expiration.
Franchisors and franchisees discuss the operations and
management of the franchise before deciding to
renew.
Applying to become a Franchisee
What do Franchisors look for in a franchisee?
Business experience and entrepreneurship.
2. Financial background.
3. Commitment.
4. Belief in the concept.
1.
Franchising in Southeastern Europe
 Southeastern Europe is a very dynamic market for
franchising.
 Greece is one of the leading markets for franchising in
Europe with multiple international franchisors present
in the market.
 The accession of Bulgaria and Romania to the
European Union in 2007 has made both countries very
attractive for international franchisors.
Franchising in Southeastern Europe
 What do franchisors look for before expanding to new areas?
 1. Political Stability: With Bulgaria and Romania in the EU and
NATO and the expected entry of Croatia, Macedonia, Serbia and
Montenegro into the EU, international franchisors feel secure.
 2. Economic Development: Although income levels in both
Bulgaria and Romania and the Western Balkans remains below
that of Western and Central Europe disposable income has
grown strongly in the last 5 years creating a new and dynamic
consumer base.
 3. Consumer Attitudes and Market conditions: Consumers in
Southeastern Europe generally place important value in brands
and although there are a number of international franchisors
present in the market there is still significant market potential.
Franchising in Southeastern Europe
 American franchises present in the market:
Fast food:
Coffee:
Real Estate:
Franchising in Southeastern Europe
Fitness:
Others:
Thank you