Franchises go low cost in crisis

Prior to the economic downturn, entrepreneurs were typically seeking to develop luxury businesses through franchise. However, since the crisis hit, low-cost franchises have risen to the fore. The phenomenon is a direct result of the financial crunch, since entrepreneurs want to invest only small sums of money and recover their investment quickly and safely. 

Otilia Haraga

Franchises in the food domain are and will continue to be the most popular, while luxury franchises will be less sought after. “This prediction is based on the consumer’s switch towards his or her basic needs, to the detriment of discretional spending. For more than 40 years, this segment has proved its success and longevity on the market, and it is even more popular during a recession. Whether we are talking about pizza, hamburgers, coffee, sandwiches or pasta, these ‘tasty’ franchises continue to expand worldwide and business opportunities are on the menu,” says Adrian Gheorghe, managing director of Thinkbig International.  

In order to attract more investors, an increasing number of franchisors are offering benefits to those who wish to take on this type of business, such as zero franchise fee or no royalties. Also, some franchisor companies now provide money for marketing.

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Romanian franchises are gaining importance on the local market, and are also starting to gain ground in the face of international ones, which still enjoy a faster growth pace, however.

The main difference between a Romanian and foreign franchise is the legal stipulations. “There are countries that have special laws regarding this field, Romania being one of them, while others rely on stipulations in commercial law and EU law. Secondly, depending on the field of activity, each franchisor imposes strict conditions regarding the location and surface, the visual identity of the space, the implementation of certain behavior patterns with clients and the strict compliance of certain suppliers or raw material,” says Constantin Anton, the president of the Romanian Franchise Association.

What a Romanian franchise has to offer, as opposed to a foreign one, is lower costs – both the cost of the franchise per se, but also investments and rent expenses – and more flexible conditions.

“Prices start from EUR 2,000 for a franchise like Spalare in Parcare, can reach EUR 5,000 for one such as GS Bet and can even surpass EUR 10,000 for Eco Refill or Romstal. For restaurant franchises the sums can be even higher, surpassing several tens of thousands of EUR,” says Anton. Conditions are more flexible since a Romanian franchise has other aces up its sleeve: there is better communication between the two parties, the offers are adapted to conditions on the local market, plus the concept has already been tested on the market – and this means minimum risks and a higher degree of predictability.

Franchise will increasingly become a key element in consolidating the market economy of countries that are still not very developed, say experts. The numbers of both national and international franchises on the Romanian market are predicted to grow. Their estimated turnover for this year will be around EUR 910 million, originating from franchises in food, specialized retail, real estate, services, clothing and accessories. Nonetheless, the expected 2011 turnover, like the 2010 and 2009 figures, is lower than the turnovers posted by the franchise industry in 2007 (in excess of EUR 1.2 billion) and in 2008 (over EUR 1.4 billion).

“In countries such as the USA for instance, it is estimated that franchises will generate around 50 percent of the jobs within 15-20 years. The importance of this business concept is also proved by the rate of success: 95 percent.  The success rate of a business that one starts from scratch and on one’s own, especially in less auspicious periods, is significantly lower, and lack of experience can clearly result in bankruptcy,” said Anton.

The success rate of a franchise in Romania remains very high, at 89 percent. “We estimate that there are approximately 120 Romanian businesses that are franchises,” he added.   Successful examples on the Romanian market include Romstal, Jolidon, Eco Refill, GS Bet, Agroland, Startonight, Shanghai Restaurant, City Grill, Wu Xing, Millenium Insurance Broker SA (Myinsurance) and Euroins, says the association president.

The Thinkbig pundits cite others that have a good chance of riding the wave of the financial crunch. One is Bella Pizza, with a franchise tax of EUR 10,000, a global investment of EUR 75,000 and royalties of 2 percent of the turnover. Another potential successful venture is beauty salon Perfect Nails, with a franchise tax of EUR 5,000 and royalties of EUR 100 per working table, the global investment being EUR 25,000. Still in the beauty industry, other examples of franchises with good expansion outlooks are Gett’s Hair and Ciufolici. In the fashion industry, Thinkbig representatives mention Tina R, with a franchise fee of EUR 5,000, royalties of 5 percent of the turnover and total global investment amounting to EUR 100,000. Other renowned Romanian franchises include Cristian Tour and Elvila.

The lifespan of a local franchise is increasing, while Romanian ventures also are expanding abroad. At the moment, more than 2 percent of franchises that were very successful at a local level have successfully expanded outside the country. Anton mentions Spalare in Parcare, Startonight, Eco Refill, Romstal and Jolidon.

Last year, franchises in distribution-retail represented 55 percent of the total while the food industry made up another 25 percent. The other 20 percent were split between services, industry, hospitality and other fields.

In 2011, there will be new brands on the Romanian franchise market in domains such as retail, fast food and services, which will have a strong impact on several niche segments of the market. Currently, discussions are at an advanced level for these franchises to enter Romania, according to Gheorghe.  “What I can tell you is that this year there will be some Romanian franchises that will command great interest. One of them will be in the construction industry, and will come with an innovative Made in USA concept but adapted to the local market. There will be another one in Horeca. Of the foreign brands, H&M, Subway, T-Beks, Leroy Merlin and Hampton by Hilton will also appear,” says Anton.

otilia.haraga@business-review.ro

CHEAPEST ROMANIAN FRANCHISES

FAST-FOOD

Gaufre Petit Piere        1,300

Fitosica     3,000

Chipstix     5,000

King Kebab        5,000

Mr. Kumpir        5,000

Noodles Bar       5,000

RESTAURANTS

New York Pizza 5,000

CAFES

Leonidas    5,000

STORES

Brooks       5,000

Doppelganger     5,000

Effetti Moda       5000

Lollipops   5,000

Original Marines         5,000

Skiny          5,000

Tina R        5,000

BEAUTY

Hera Body Care  3,000

Cleo Nails 5,000

Ciufolici    5,000

Fresh Line 5,000

Perfect Nails       5,000

IT

Troubleshooters 5,000

Guide2Romania 2,500-5,000

SERVICES

Jumbo Screen     0

FirstDryWash     1,970

DryWallTeam     2,000

Lyoness      2,000

Fereastra Cora    2,500

Fereastra Suki    2,600

Danymond 3,500

Safety Broker     5,000

CAR INDUSTRY

Eleven One         2,350

Rent a Benz        5,000

All sums are expressed in EUR