Across Europe, we are hopefully, finally, coming out of our varying versions of lockdown for the last time. Now I know these words might come back to haunt me, but I’m staying positive and listening to the many leading scientists and government advisors who are confident that the worst is behind us.
If their assertions are indeed true, that science has “defanged” the virus, then all that pent-up demand out there will need somewhere to go, and it is likely that consumers will continue to stay true to the brands they trust. Brands who built up loyalty during the pandemic by staying focused on serving customers, and not cutting corners in their approach to public health.
Franchising endures
We can all be proud that the franchise model showed its worth during these past two years. If anything, business thrived for many sectors that proved their resilience and flexibility during COVID, responding together to meet the challenges of changing customer behavior and business regulations, staff absences and store closures.
Being in an association helped others brainstorm solutions or find best practices from completely unrelated sectors – an exchange of experience that we at the EFF will continue on a permanent basis through our regular webinars.
As we come out of lockdown, we can see a labor market that includes a number of highly qualified and skilled executives looking for new challenges. For them, franchising is a perfect fit.
They have acquired the necessary skills to run a business, and don’t particularly want to return to corporate life. We think the ingredients are there for a high growth period for the franchise industry in Europe.
At the EFF, we intend to do more this year to communicate to first-time entrants to the industry about where the opportunities are, and where the growth potential lies. Many future entrepreneurs don’t know where to start and are often surprised at the sheer number of franchise opportunities that are available. We will look to squaring that circle for many new entrants to our industry.
New rules for franchisors
On the regulatory side, given our primary responsibility in the EFF is to ensure our sector has a strong voice with government, things are looking quite favorable. The rulebook on franchising, known as the Vertical Block Exemption Regulation, is updated every 12 years, and 2022 will see the next version of the law coming into force.
We spent most of 2021 on a bit of a rollercoaster ride with the European Commission, the body responsible for overseeing competition law in Europe. The Commission was all set to regulate franchising through the lens of its ongoing antitrust dispute with Amazon, particularly in an area surrounding how Amazon shares information within its sales network.
It was looking for a time that many of our members would have found themselves subject to competition law rules which required them to justify how and why they shared information within a franchise network – even in areas as benign as updating franchisees on stock availability or consumer feedback. This could have cost a fortune in legal and economic analyses for franchisors and would certainly have halted future growth for a number of our brands.
Thankfully we believe we have avoided being dragged down that road, and the next version of the Block Exemption should not see any significant changes to day-to-day business for franchising. The new rules will come into force in June 2022, so watch this space for a more detailed update on what this will look like. But the overall message is that you can be reassured about the legal framework remaining consistent and clear.
Agile adaptation
The EU is not usually thought of as an organization that moves quickly but the pandemic called for rapid decision-making and decisive actions both on vaccine distribution and in rebuilding the economy.
In December 2020, governments agreed to a €750bn EU budget and recovery program, much of it aimed at small business, particularly those seeking to transition to more environmentally sustainable and digital-friendly business models. These funds are being distributed in the form of loans repayable at a subsidized rate, and its growth impact is mainly expected in 2023 and 2024.
Will this be sufficient to make any real contribution to small businesses? The jury is still out on that; much will depend on how much of these funds are new spending. Certainly, the mood amongst many small business groups that I interact with in Brussels is on the gloomy side.
Citing a 2021 McKinsey survey of 2,000 companies in France, Germany, Italy, Spain and the U.K., more than half anticipated closing some operations within a six-month timeframe, and 10 per cent even expected to file for bankruptcy. This was before omicron so it will be interesting to see what the mood is now.
Governments will pursue varying approaches to supporting SMEs depending on local market conditions. But at E.U. level there is a consensus that both the immediate survival of SMEs as well as long-term strength needs to be factored in, hence the focus on digitization and environmental sustainability.
SME productivity clearly does need to grow to match that of large companies. Our message to the E.U. is to help SMEs focus on their resilience by finding new markets or digitize more rapidly. Franchising has the potential to be an economic and employment engine after the crisis, but governments’ responses could prove critical.
Collaboration is crucial
At the EFF, we need to play our part as well in helping connect franchisors and franchisees across different markets and sectors. This will be a real priority for us in 2022, starting by investing in the information we provide on our website and by going out more and talking to the industry, and making sure new entrants are not missing out on the numerous opportunities that franchising provides.
Between all of the uncertainty and disruption we have encountered, a franchise system enables each franchisee to focus on what’s most important to their individual business, obtain support and advice, invest in resources where necessary and use the franchisor as a source of the most important information that needed to improve operations and the customer offer.
This is surely the time for franchising to prove its worth in rebuilding the economy and pointing us all to a more optimistic vision of the future.
The author
Alisdair Gray is the executive director of the European Franchise Federation.
