The market

Franchising, booster of international retail

Franchising, how it works
Whilst e-commerce, mail order or door to door selling are all expanding, the “shop”, from the stall to the hypermarket, remains the traditional symbol of commerce for the consumer. However, behind this seemingly simple façade there is a whole range of possible ways of organizing the relationships between suppliers, distributors and resellers. Franchising is just one of many. In order to understand its features better it is useful to describe the different forms of commerce that coexist in France.

A : Integrated organizations (branches, subsidiaries, agencies...) are hierarchically organized. In general, the salesman is an employee
of the distributor. There is only a single decision making centre and very often only a single legal entity.

B : Franchised commerce
1/ Groupings of shopkeepers (groupings of economic interest, co-operatives) that bring independent businesses under the umbrella of a joint organization so that the individual members can share their expertise, organize joint services or obtain better terms of business from suppliers.
2/ Franchising is a form of network in which the respective roles of the franchisors and the franchisees are clearly defi ned.
Franchising is a form of collaboration between, on the one hand, a company, the “franchisor” and, on the other, a person, the “franchisee”, who is responsible for one or more shops in the same franchise. His aim is to exploit a franchising concept developed by the franchisor.

Distinguishing features of franchising:
The franchisor owns or has the right to use the symbols designed to attract customers: trade mark, brand name, quality guarantee, sign, company name, commercial name, initials, symbols, logos;
The transmission of the franchisor’s experience and know how to the franchisee. Traditionally, the know how consists of a body of practical information that is not patented and that is the product of the franchisor’s experience. It must have been tested by the latter, be secret, substantial and identified;
The supply by the franchisor to the franchisee of commercial or technical assistance throughout the period the contract remains in force.

The European Community Court of Justice distinguished three forms of franchising:
service franchise contracts, «by virtue of which the franchisee offers a service under the sign, the commercial name or brand of the franchisor and in accordance with the instructions of the latter»;
Eg.: Adhap services, Illico Travaux, l’Onglerie, 5 à sec, Car’go, Midas, Speedy, l’Elephant Bleu,...
production franchise contracts, «by virtue of which the franchisee itself manufactures in accordance with the instructions of the franchisor, products that it sells under the brand of the latter» ; Eg. : Amorino, Maison Mikit, Dal’alu, La Boucherie, Tryba, Jardin des Fleurs, Monceau Fleurs,...
. distribution franchise contracts, «by virtue of which the franchisee confines itself to selling certain products in a shop that bears the sign of the franchisor». Eg.: Comtesse du Barry, Jeff de Bruges, Atac, La Compagnie des Petits, The Athlete’s foot, Cuisines Plus, Geneviève Lethu, Carré Blanc, Soho, Yves Rocher, Easy Cash, Aviva,...


Franchising, the benefits
The advantages for the franchisor
Expansion through a franchise network offers the franchisor several advantages. It allows:
. territorial coverage to be achieved rapidly and for a limited investment;
. full control the development of the concept;
. the creation of a powerful economic force that can increase competitiveness (terms of business, substantial logistical resources offer economies of scale);
. the organization of advertising campaigns, and more generally the promotion of the name and the brand at a national level.

The advantages for the franchisee
For the franchisee, the formula also offers many advantages:
. It offers legal independence. The franchisee remains an independent shopkeeper and manager who is responsible for the future of his business;
. It offers him the benefit of a brand or a name recognized by customers but also by banks;
. It provides a conduit for the transfer of know-how from the franchisor and for constant assistance, which makes it easier for a franchisee without experience to start up in business;
. It allows the franchisee to benefit from all the positive effects of a network (reputation, but also prices, synergy, sharing of innovation...).

The advantages for the consumer
. familiar forms and types of purchase,
. identical matches,
. quality guarantees,
. familiarity with the atmosphere and style,
. assured customs, ethics, security and pleasure.

Europe, a continent of franchises!
Franchising, a strategy without frontiers*
With 6,370 franchisors* and 266,000 outlets in 2004, Europe leads Americas and Asia. (each of which has around 5,000 franchisors).
This survey comes seven years after the NatWest/EFF study, and differs from the previous one in including several dynamic Eastern European countries and Greece, which is forging ahead.
The result is clear: with the exception of Belgium and Hungary, all the European countries covered by the EFF study have seen their franchises grow and multiply, sometimes impressively so.
Two countries have more than doubled the number of franchises in 7 years: Portugal (+ 122%) and Spain (+ 126%). Sweden (+ 74%) and Italy (+ 49%) also recorded very strong growth.
They were followed by the United Kingdom (+ 47%), the Netherlands (+ 38%), France (+ 37%), Austria (+ 32%), Denmark (+ 31%) and Germany (+ 17%).
Total growth averaged 66% over the 7 years or nearly 10% per annum.

A qualitative analysis by the EFF reveals the following facts about the European franchise industry:
. About 80% of European franchises develop in their countries of origin;
. 10 to 20% of the franchises expanding in European countries originated in other countries: Europe, United States, Canada and Australia;
. This fact is, however, little appreciated by Europeans, who associate the term “franchise” with American brands;
. The United Kingdom is traditionally serves as the first European base for franchises originating from the United States, Canada and Australia seeking to expand in Europe. It is the country where most of the franchises originating from the latter three countries are to be found;
. In most cases, the international development of franchises originating from continental Europe begins in neighbouring countries. Exports to more distant countries are either the result of the franchises’ strategy (exports to the Middle East or China, for example), or opportunities...
. The proportion of franchises involved in the distribution of products or services varies very substantially from one European country to another. For example, the United Kingdom has a highly franchise oriented culture and about a third of the chains of shops (products or services) are franchises. In Belgium, on the other hand, where shops are often family businesses, franchising only accounts for 10%.
*Source: European Franchise Federation - 2006
** Figure obtained by combining national statistics with a 15% correction factor to take into account franchises developing in several countries (the method used by Carole Chopra, Managing Director of the EFF).

Current economic position of franchising in France*
Franchising is a force in every sector, whether it be bakery, clothing and accessories, entertaining at home or buying and selling property!
Franchising fosters choice and new ideas and it is now an integral part of French life.
At the end of 2006, there are 1037 networks and 43 680 outlets for a global turnover of more than 45 000 000 000 Euros.

Daily life in France and French shops
The three sectors, excluding services, with the largest number of franchised shops in France are:
1 – foods: 6,900 franchised shops
2 – personal equipment: 6,507 franchised shops
3 – other specialised commerces (flowers, toys, perfumes …) : 4,586 franchised outlets
There are 3,687 shops specialised in household equipment…
There are almost 20,000 service outlets in France in all sectors. Hairdressers and beauty salons top the list, with 5,545 salons; followed by estate agencies (4,276), and automobile services (3,941). Next come restaurants, hotels, building companies, One emerging trend is represented by new commercial locations, such as stations, stadiums,... Franchising provides reassurance and enables purchasers to make an informed choice based on known quality and price.

Franchising: concepts that export well
There are a total of 1,141 franchises, which is a little more than in 2006.
They fall into two major categories:
. Product distribution/retail franchises accounted for 569 in 2007.
. Service franchises: cars, building, cleaning, personal services, services to companies, hotels, catering, property, travel… totalled 572 franchises in 2007.
French franchising exports well, with 279 franchises established abroad in 2007.

Franchising: trends and consumption in France
The three sectors that have enjoyed remarkable growth in terms of new franchises are:
- Real Estate
- Personal services
- Business services
*Source: FFF 2007 study

The FFF

The purpose of the French franchise federation (FFF) is to "represent, promote and defend franchising". The franchising code of practice drawn up by the FFF in 1972 has become the European Franchising Code of Practice, which came into force on 1st January 1991.

The FFF runs training, awareness and information programmes for franchisors and franchisees. It is in permanent contact with the world franchising bodies and it encourages and assists French franchises in their export efforts. It also seeks to develop every aspect of franchising (marketing, legal, economic) and it works with universities, research centres and think tanks to achieve this.

See the website of the French franchise federation