Is Europe a Fit for Your Franchise?
June 2010 Franchising World
Europe is made up of many neighboring countries, each home to a variety of different cultures, customs, societies, economies and markets.
By Sean McGarry
According to the European Franchise Federation, there are more than 10,000 franchise brands operating across Europe. While some markets in Europe might not be as developed as others, the British, Irish, Spanish, German and French markets lead the way in terms of franchising.
THE UNITED KINGDOM AND IRELAND
The U.K. franchise market is one of the most appealing to U.S. franchisors because of the commonality of language. It is also the most active and developed in Europe. According to a NatWest/British Franchise Association survey conducted in 2009, the British franchise industry accounts for £11.4 ($17.1) billion annually (in comparison with £1 ($1.5) billion in 1984). There are 838 franchisors actively operating in the United Kingdom with an estimated 34,600 franchisees.
As neighboring countries with a shared language and cultural similarities, the Irish and U.K. markets have become somewhat intertwined. Dr. Stephen Anderson, commercial counselor with the U.S. Commercial Service in Dublin explains: “Until the 1990s, American companies often went to the United Kingdom as a gateway to Ireland thus the potential of the Irish market remained undeveloped. The reverse is happening today with ambitious Irish companies acquiring the rights for both Ireland and the United Kingdom. The reason why these companies have a better chance of succeeding is that they refine their plans as they establish a franchising network in Ireland, and then are ready to introduce it to the larger U.K. market.”
The U.S. food franchises, in particular, transfer well into the U.K. and Irish markets. With a reasonable amount of shared language and cultural traditions, the resulting major presence of the United States in the U.K. and Irish media makes some U.S. brands already recognizable in these countries. U.S. franchises currently operating in the U.K. and Irish markets include the Zoo Health Club, Subway, McDonald’s, Orkin Pest Control, Burger King, Mr. Pretzel’s, Juice Zone, AIS Media and Alloy Wheel Repair Specialists, among many others. Yet, before successfully entering any foreign market, one must first carry out a significant amount of research on the economy, market and society.
Some U.K.-based franchise consultants say the biggest problem for outside brands looking to invest in the United Kingdom is a lack of local knowledge. For example, not knowing the correct placement of advertising to generate the target number of inquiries at an acceptable cost-per-lead is a common error. One of the most important aspects of franchise recruitment in the United Kingdom (when being handled by U.S. brands) is to either work closely with an experienced franchise recruitment consultant who can handle and prequalify the inquiries or to directly employ a U.K.-based franchise consultant who understands the culture and decision making process of British and Irish nationals. A franchise consultant based in the United Kingdom is a reliable choice for U.S. franchisors and is likely to increase the probability of the brand achieving success in its target market.
With a significant downturn in the British economy and an increase in the amount of skilled workers becoming unemployed, the quality of potential franchisee leads has improved.
Previously the lack of suitable franchisees had been the biggest complaint among franchisors; however, this slipped to third place in the survey. First and second place complaints were: a lack of business due to a downturn in the economy and a lack of financing options. According to the NatWest/BFA survey, a significant amount of franchise research is conducted online with 43 percent of potential franchisees consulting the franchise’s Web site when considering a franchise opportunity.
As for legal differences, there is no specific franchising legislation in the United Kingdom and no need for registration or formal disclosure documents, which can make franchising in the United Kingdom easier for franchisors compared to the United States (although there are general contract and competition laws that apply). If they want to have their agreements accepted by the market, however, U.S. franchisors will need to have their franchise agreements adapted or rewritten to conform to U.K. laws and norms. The U.K. market has a well-developed network of legal professionals who specialize in franchising, so finding an experienced legal professional should not be a difficult task.
As its economy exits the recession, the U.K. franchise industry will continue to grow. While the Irish economy has not yet exited its recession, it will hopefully experience some growth as a “knock on” effect from the increasing optimism in the United Kingdom. The U.K. franchise market remains the first stepping stone for many U.S. franchisors entering the European market and will most likely remain so for years to come.
France has a well-developed franchise industry with 1,234 franchisors and 49,094 franchisees operating (as of 2008). It’s estimated that there are 37 U.S. franchise brands operating in France with Century 21 ranking as the third most popular franchise, according to Journal de Net. Franchises in France are obliged to provide potential franchisees with a Document d’Informations Precontractuelles (DIP) at least 20 days before signing the contract. But U.S. concepts are not always suitable for the French market, and language can be a huge barrier. Documents provided by the franchisors are often in English, yet the DIP and contract must be provided in French. While many U.S. franchisors are more interested in recruiting master franchisees for the French market, financing is not always easy for French master franchisees to secure, and this can be seen in some ways to have hindered the growth of the U.S. franchises within the French franchise industry.
Franchising is not very developed in Germany. In fact, not many German people are familiar with the concept of a franchise system. Regardless, franchising is still growing there. From 1998 to 2008, the total number of franchisors in Germany grew from 630 to 950. Germany now employs 450,000 people in comparison to 250,000 in 1998. The German Franchise Association estimates that U.S. brands represent between 5 percent and 7 percent of its franchises. There are significant differences in German legislation that U.S. franchisors should consider before entering the country’s market. Trade industries such as carpentry, for instance, are subject to strict Crafts and Trade Codes, which limit the potential group of people who could take up a franchise. There are specific requirements that must be met before an individual can run certain businesses, such as apprenticeships and master craftsmen diplomas. This can restrict individuals from taking on a franchise opportunity in these industries; the franchise’s own training in some cases will not suffice.
The Spanish economy is developing to embrace more franchises each year and will most likely become a larger contender in international franchising in the future. According to the Spanish Franchise Association report, there are 919 franchise brands in Spain, while 18 percent are from other countries. It is estimated that about 40 of these are U.S. brands such as Burger King, Subway, Haagen Dazs, Midas, Mail Boxes Etc., RE/MAX, ServiceMaster, Jani-King and Curves. Spanish law dictates that a franchisor must register a franchise with the Franchisors Registry three months prior to opening. There are also additional rules and principles that exist within the Spanish Civil and Commercial Codes.
Overall, a wide range of factors influence the growth and success of a franchise system in any market. It is clear that language and cultural similarities are significant factors in the success of U.S. brands in Europe. And this is not just in terms of target markets, but also affects communication with franchisees or master franchisors. The availability of financing and an active franchise community, however, are also influential factors. In addition to researching European franchise markets, any U.S. franchisor seeking to enter the European market should contact the relevant advisor for their target country in the U.S. Commercial Services.
Sean McGarry, founder and CEO of Franchise Direct, launched the company in 1998. Today it has a network of Web sites dedicated to the United States, Canada, the United Kingdom, Ireland, Spain, France and Germany. He can be reached at