Franchising in the time of crisis

Business New Europe

With a euro collapse and recession looming, entrepreneurs are treading carefully. Starting a new business seems reckless and even expanding might be a bit foolhardy. Franchising, however, is one option that, at least in the Czech Republic, has weathered the economic storm and shows excellent potential.

“Franchises, at this time, are a good formula for success; it is low-risk, highly profitable and offers quick success,” says Dr Jaroslav Tamchyna, managing partner of the Czech Franchise Institute (CFI). “We saw more interest in franchising during the economic crisis; entrepreneurs wanted more clients and money, but less risk.”

Tamchyna adds that franchisees have five or six times less risk than individual business owners; after five years, only 15% of new independent businesses are still operating compared with 92% of franchises.

Tamchyna believes the Czech market is a good one for franchises for a number of reasons, including a business-oriented population who not only are interested in owning businesses, but like the idea of a “proven concept.” There are no barriers to franchises legally, and in fact the CFI is attempting to insert a small article in the Czech business code stating that franchisors must provide full disclosure documents to their potential franchisees. They are also trying to get banks to offer special financing for franchises and the government to support small business through franchising, offering bank guarantees and access to EU funds. “There are really no obstacles, especially acquiring a brand which is established in EU. But let me just say this – the Czech Republic as a country definitively does not support small business,” says Jana Mařicová, co-owner of Selective, which operates the franchise Crabtree & Evelyn in the Czech Republic.

The CFI recently coordinated the third American Franchise Day in conjunction with the American Embassy’s US Commercial Service. Here about 200 people, including prospective or current franchisees and franchisors, attended the conference and trade show. One of them was Dan Benton, director of International Development for the Global Franchise Group (GFG), who is looking for master licensees for three of their brands – Pretzelmaker, Great American Cookies and Marble Slab Creamery.

Benton believes the Czech Republic, and Central and Eastern Europe as a whole, offer conditions right for his brands. “The CEE nations in general and the Czech Republic specifically have a growing middle-class consumer population,” he says. “We also have observed that the Czech marketplace likes global, well-known brands and our franchise brands are in this category.”

Benton adds that GFG learned a lot about the Czech consumer market while attending Franchise Day and they found several potential master franchise partners from the Czech Republic and Slovakia. “Our international business model is the Master Franchise concept, whereby an individual, group of partners or a company acquires the franchise license to operate our franchise concept throughout the country,” he says. “Each of these franchise brands already has a proven record of international success since we began developing them and we believe there are excellent opportunities for these brands to grow in the Czech Republic and the entire CEE region.”

Food and land

While gastronomy is the most popular sector for franchising, Tamchyna says the second most popular is realty, with the RE/MAX and Century 21 chains finding great success in the Czech Republic. He expects this sector to continue growing – one of the visitors at the Franchise Day was A Buyer’s Choice, a home inspection company – though says the next big franchise enterprise will be services for seniors. “We don’t have these types of franchise services here and it is a good franchise business,” he says. “We believe the government should create a special programme to support franchises in this sector.”

Franchising isn’t a solely imported enterprise. Tamchyna points out the first Czech franchise after the revolution was AAA Radio Taxi. Since then, other companies have used the model, often to grow their business. “The franchise model is a perfect expansion model,” he says. “For example, one year ago UniCredit Bank began a pilot franchise project and now there are 20 new UniCredit franchise branches in the Czech Republic.”

Bushman, a Czech-owned clothing company, used franchising to grow at home and is now looking for more markets in the region. They have 26 shops in the Czech Republic; 10 owned by them and 16 which are franchises. “The franchise method was a crucial decision for the company’s growth and one of the main reasons was faster expansion,” says Antonin Dymak, Bushman’s sales manager. “We still plan to open a few more stores in the Czech Republic, especially in Prague, but the Czech market starts to be too small for us. The CCE countries especially offer new markets and new possibilities.”

Entrepreneurs need to make the decision if the business support they’ll receive is enough to justify the start-up money they’ll have to raise. Maricova of Crabtree & Evelyn says that while the franchising concept provides strict guidelines from the brand you must follow – on staff training, advertising, merchandising – which simplifies setting up and running the business, “on the other hand, there are costs which are rather high and you should have a good margin to be able to pay off the investments.”