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A guide to franchising in Europe

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A guide to franchising in Europe

Franchising may have been founded in the States, but vibrant markets can be found in several regions across the pond. Join us as we explore the latest trends among the EU’s primary development destinations

Europe’s franchise market is considerable, and brands are increasingly looking at taking their concepts into untapped regions brimming with possibility. For some, the unregulated haven of Germany has proven attractive, while others may find the Netherlands, and its newly-introduced Dutch Franchise Act, a reassuring platform on which they can build a successful empire of multinational franchisees.

We’ve previously touched on key European markets as part of our regional features, but this time around, we’ll be taking a closer look at the impact of the coronavirus and what makes particular regions of Europe stand out when compared to the rest.

First up is Germany. It’s a market that has matured since international brands first entered over 50 years ago, with Germany’s franchise industry remaining selfregulated – even in the face of other European locations introducing strong legal backing to the franchise model.

To truly understand German franchising and the appeal of such a self-regulated region, we spoke with Torben Broderson, CEO of the German Franchise Association, and Dr. Benedikt Rohrßen, a partner at law firm TaylorWessing. Both are strong believers in the honesty and integrity of the country’s franchisors, and both doubt that we’ll see any strict laws introduced for many years to come.

We’re also exploring France this time around, which has proven to be particularly resilient against the problems caused by the pandemic. Jean-Paul Zeitline, the Paris contact for global consultancy firm Progressium, spoke to us about why the French government is so favorable of the franchising business model. He also delves into the market strategy that brands should undertake when penetrating the Parisian populace, and stresses the importance of undertaking a regional study beforehand.

And last but certainly not least, we delve into the Dutch industry and cover the essentials that you’ll need to know about the Dutch Franchise Act – a new legal requirement that came into effect January 1, 2021, and governs all past, present, and future franchising contracts signed in the country. Charlotte Oude Reimer, director of the Dutch Franchise Association, explains the intricacies of the Act and enthuses why Dutch consumers are among the most receptive in Europe to international brands.

Germany: The self-regulated franchising haven

Franchisors operating in Germany aren’t governed by a specific franchising law, but there are still several considerations to be made before gung-ho expansion

Germany’s history with international franchising can be traced back to the 1970s, when McDonald’s became one of the first international systems to try its luck with opening in the country.

Today, many franchise networks exist within the country; both of domestic origin, and from overseas. German consumers are familiar with the biggest global names, but ‘made in Germany’ is still seen as an international seal of quality. Foreign brands need to truly bring their A-game in order to compete with local talent.

“Franchising in Germany is well-known because lots of people understand the model and now have the possibility to combine franchising with popular brands that they know; especially in the restaurant, trades, and fitness sectors,” explains Torben Broderson, CEO of the German Franchise Association.

As it stands, most franchised systems in Germany are in the services sector (43 per cent), followed by trade (29 per cent), gastronomy, tourism, and leisure (20 per cent), and crafts, construction, and refurbishment (eight per cent).

“We have some compounded rules which altogether form not franchise laws, but several general rules from which case law is then deducted”

An appealing opportunity

Germany’s franchise market is one of the largest in Europe, and this is thanks to a collection of factors that have boosted domestic brands, and have also enticed large international franchisors to seek out German master franchisees.

According to the country’s Association, the German labor force is the largest in Europe, and the overall business tax rate for companies is 29.8 per cent – a lower figure than many other European or North American regions.

One of the biggest appeals of opening a franchise in Germany, however, is that the country doesn’t have specific franchising laws that govern how a business can operate, negotiate, and grow. This doesn’t mean that it’s a completely lawless market, of course; Germany forms part of a group of countries worldwide with the most comprehensive and advanced protection of intellectual property rights.

Instead, Germany’s franchising culture is based on numerous good faith agreements, as well as rigid case law which has been successful in protecting both franchisors and franchisees for decades.

“Even during the pandemic, franchise networks have grown closer. They’ve exchanged experience and know-how”

“We have some compounded rules which altogether form not franchise laws, but several general rules from which case law is then deducted,” explains Dr. Benedikt Rohrßen, a partner at law firm TaylorWessing. “Disclosure is a very important one that’s based on this idea of good faith between the parties. The courts ask the franchisors to have a level playing field of information with franchisees, so they disclose the most important issues which might affect the business or franchisee.

“If not disclosed, as in many other countries, the franchisee may then later – during the progress of the franchise agreement – claim that they weren’t disclosed some points and they subsequently want to withdraw from the agreement. And, in the worst case, may even claim damages.”

When it comes to the kinds of things that franchisors must disclose, there isn’t a law which provides a standardized list. But Rohrßen insists that this isn’t a complicated process that should dissuade brands, and shouldn’t differ from what they’d be used to in other Western countries.

“The German Franchise Association has published an abstract guideline on disclosure. I usually give clients a list tailored to their business, and franchisors should check with me what is really relevant; they don’t guarantee any turnover, for example, and they don’t have to take over the franchisee’s need for due diligence,” he explains. “They disclose standard things like whether there’s been a pilot, how existing stores are doing, and the idea behind the business.”

Germany in a post- COVID world

At the time of writing, 55.7 per cent of Germany’s population is fully vaccinated against COVID-19, and the country is showing strong signs of social and economic recovery.

This extends to Germany’s vibrant franchise industry, which is bouncing back from a particularly tough 2020 and looking ahead to more prosperous times.

As part of the German Franchise Association’s latest Franchise Climate Index study for example, which is conducted twice a year to get a perspective on how the country’s franchisors feel about the market, 93 per cent of respondents said that franchising remains a particularly crisis-proof business model. “That’s a great statistic, isn’t it?” says Brodersen. “Even during the pandemic, franchise networks have grown closer.

They’ve exchanged experience and know-how. I recently spoke with franchisors at a hospitality meeting, and they pointed out that franchisees felt lucky to have a partner to share information with.”

Other numbers to come from this latest study also show promising signs that Germany is firmly back on track. 45 per cent of respondents perceive the effects of the pandemic as ‘positive’, compared with only 35 per cent in the previous study. Furthermore, general mood among the franchise industry is up a reported 145 per cent in the first half of 2021 – a level it hasn’t reached since the second half of 2019, before the effects of the pandemic took hold.

“When is a business model successful? It’s successful when franchisees are satisfied. When the franchisees are happy. That is one of the main focuses in our quality management at the German Franchise Association,” says Broderson. The question remains: will Germany implement franchise laws in the future? With the introduction of regulatory laws across Europe like GDPR, this seems possible. But among the country’s franchising experts, the sentiment is a resounding ‘no’.

“We don’t need it! We don’t need franchise legislation and there’s no attempt from the government to create something like this,” explains Broderson. “The government has always invited the franchise industry to self-regulate, and that’s what we did. We contribute to self-regulation through our quality management of new members to the German Franchise Association.”

Key event: FEX21

The single largest German speaking franchise expo in Europe is set to take place in Frankfurt this year, with FEX21 returning after a digital edition of the expo last year

What: Franchise Expo Frankfurt 2021

When: November 4 – 6, 2021

Where: Frankfurt and online

France: A resilient European hotspot

Of all the European countries, France’s franchise community is among the most optimistic for the future

France’s franchise industry has exploded over the previous decade, as more French entrepreneurs recognize the benefits of the business model – and more international franchisors bring their brands to this country’s diverse and exciting shores.

In 2010, for example, 1,477 franchisors operated in the country, comprised of 58,351 franchisees. Just 10 years later, these figures have grown to 1,927 franchisors and a total of 78,032 individual franchise owners. Collectively, these franchisees employ almost 670,000 individuals across a variety of in-demand sectors.

“In Europe, France is one of the more effective countries when it comes to franchising,” says Jean- Paul Zeitline, the Paris contact for global consultancy Progressium. “We have very strong organizations in France to assist franchising, including Franchise Expo Paris, which is one of the strongest franchise events in the world.”

Evolution propelled by the pandemic

The coronavirus pandemic accelerated many elements of business development and operations, and it wouldn’t be inaccurate to say that several silver linings could be found from the previous year when examining the effects that COVID-19 had on the business landscape.

These positives could be felt throughout French franchising, with the industry as a whole experiencing something of a digital transformation as a result of lockdowns and challenges. In a study published by Banque Populaire in partnership with the French Franchise Federation, for example, 70 per cent of franchisees reported that they were equipped with digital tools that allowed them to seamlessly exchange information with their peers; 24 per cent of which were installed or reinforced during the pandemic.

In fact, just under half of all franchisees in the country reported that the support and resources made available through the franchise model were primary reasons as to why they got into franchising in the first place. Not only this, but 67 per cent of all franchisees in France believe that they resisted the coronavirus crisis better as franchisees than if they were to operate an independent business.

“The government is very in favor of franchising,” says Zeitline. “In general, all of the authorities are favorable to franchising, because they know that it’s a great model to help people build businesses.”

Perfecting your market entry

The majority of franchises within France are located in the South- East (27 per cent), followed by the West (25 per cent). And despite the country being considerably smaller than somewhere like the U.S. – at around 643,801 square kilometers – many incoming franchisors tend to divide its markets into five or six segments when planning for future expansion.

“In our experience, master franchising is generally the most popular form of expansion for international brands,” explains Zeitline. “Sometimes, as it can be a risk for both parties, we divide France into five or six areas and give the master franchisee the North of France, for example, so that it’s not as big a risk for both parties. If they’re good and perform as expected, then they can expand and buy another area in the country.

“That’s generally the easiest way. We also have some franchisors that use direct franchising. A franchisor from the Netherlands or Spain could look directly for franchisees in France. That’s not as straightforward as master franchising, however.”

Due to France’s familiarity with the franchising model, it won’t be too challenging to find a handful of prospects for your Francebased master franchisee. Zeitline cautions, though, that completing a market study is an essential first step if you plan on sticking around for long.

“We’d recommend doing a market study of France. If we are talking about food, then the French aren’t eating like the Americans, for example, so we’d prefer that the franchisor tries to understand the key figures and business plans that they’d need for French franchisees.

“Generally, it’s very difficult to explain this to American franchisors. The Europeans are more open to doing a franchise market study and understand its importance. Americans are very confident in their concepts and think that we have to adapt to them.”

Lack of regulation

One of the biggest draws for franchisors coming to France is that franchising isn’t regulated under French law, with the business model instead being governed by elements such as the French Commercial Code.

The only registration requirement in France is that a franchisor must deposit and register its trademark that will be granted to franchisees.

Under the French Commercial Code, franchisors must also provide franchisees with a pre-contractual information document, at least 20 days prior to signing a franchise contract. This is very straightforward, and doesn’t differ hugely from disclosure laws elsewhere in the world.

“There is the need for disclosure between franchisors and franchisees,” says Zeitline. “They need to provide a dossier to franchisees three weeks before a contract is signed, which contains a lot of information about the brand. You have to provide a market study, your balance sheet, and around 15 other pieces of information to present exactly who you are to the franchisee. It’s not very difficult to fulfil, however.”

This level of transparency between the franchisor and its franchisees is very important for entrepreneurs in France, and is something that should be considered by all brands looking to enter the country. In fact, according to the Banque Populaire study, ‘network ethics’ is one of the first pieces of information that franchisees seek out when joining a franchise brands; with this figure sitting at 82 per cent for retail franchisees inquiring about joining a new network.

Key event: Franchise Expo Paris

Taking place at the end of September, Franchise Expo Paris is one of Europe’s leading events bringing together the entire franchising community. This year’s show will be paired with an online platform, Franchise Expo Online, so that exhibitors and visitors can connect digitally if they cannot attend in person

What: Franchise Expo Paris 2021

When: September 26 – 29, 2021

Where: Paris, Porte De Versailles, Pavilions 2.2 & 3

The Netherlands: Europe’s newly-regulated franchising hub

Dutch franchising has proven resilient for decades, but a brand-new franchising law needs to be considered before expansion

The Dutch franchise industry is one of the largest in Europe, and both domestic and international brands have found success among its consumers for a number of years.

The latest figures to come from the Dutch Franchise Association indicate that 903 franchises operate in the country, and in 2020, these generated upward of €37.8bn across 33,566 locations. In total, the Netherlands’ franchise industry employs more than 375,000 people – around two per cent of the country’s total population.

“The Netherlands has an attractive business climate for international organizations,” says Charlotte Oude Reimer, director of the Dutch Franchise Association. “We have a very diverse population, and the location between Germany, Belgium, and the North Sea is ideal for reaching every part of Europe.”

“The Netherlands has an attractive business climate for international organizations”

Dutch consumers are also very familiar with international brands thanks to the country’s reliance on foreign trade, and 90 per cent of the population speak English, with many being multilingual in addition. Put simply: don’t let the language barrier put you off, because if your concept is worth consideration, then odds are it has the potential for success in this thriving European gem.

The new Dutch Franchise Act

But before you pack your bags and head to the Netherlands, be mindful of recent regulatory changes in the country which affect all franchisors.

On June 16, 2020, the Dutch parliament voted in favor of a proposed new franchising law that came into effect on January 1, 2021. Referred to as the Dutch Franchise Act, this marked the first occasion in Dutch history that franchising was governed by a specific set of laws. Prior to this, many franchise disputes were governed under general Dutch contract law.

“The franchise law became effective for new franchise contracts in January 2021 and has a transition period of two years for current contracts,” explains Reimer. “The law is mandatory and affects pre-contractual information provision, information exchange on changes during the contract period and postcontractual agreements. It is important that all franchisors and franchisees are aware of the franchise law and that they agree with each other on the changes that the law entails.”

One of the key things that the Dutch Franchise Law introduced was the legal definition of a franchise: “an agreement whereby, in exchange for a fee, the franchisor provides the franchisee the right and obligation to exploit a franchise formula in a designated manner for the production or sales of goods or the performance of services.” This shouldn’t contain any surprises for established franchising professionals, but the legal definition’s sheer existence is an important factor that differentiates the Netherlands from other European markets that remain largely unregulated.

As well as providing this definition, the Dutch Franchise Act stipulates that franchisors must provide franchisees with a disclosure document at least four weeks prior to the date that the agreement will be concluded. It also requires that the franchisor must inform franchisees of any intended amendments to the franchise agreement, as well as any information that is important to the franchisee when carrying out the agreement.

A lot of these requirements will be familiar to international franchisors, but are commonly seen as good faith requirements elsewhere in Europe. Part of the reasoning behind the Dutch parliament introducing the Dutch Franchise Act was because franchising as a model was seen as highly valuable to the Dutch economy, but franchisors were previously viewed as much more dominant in the agreement than franchisees. The new act seeks to rebalance that dynamic, and moves the Netherlands from a completely unregulated franchising market to arguably one of the most regulated countries in the world for franchisors

Bouncing back from a pandemic

Each and every country’s economy around the world was impacted in some way by the coronavirus pandemic, and this is no different for the Netherlands. However, while the Dutch undoubtedly took a hit in 2020, it seems that the resilience of the franchise model has protected its entrepreneurs from suffering the worst outcomes.

“The Dutch franchise sector has of course been affected by the COVID pandemic. Several branches in the Netherlands, such as fitness, hairdressing, clothing and shoe stores, and restaurants were forced to close for a longer period of time. Other franchise organizations, on the other hand, had higher sales, such as supermarkets and DIY stores,” says Reimer.

The numbers certainly back up this confidence. The Dutch franchise industry’s turnover fell by around €400m between 2019 and 2020, but the number of franchisors declined by just 14 brands.

“Overall, the franchise sector has remained stable, but specifically for this year there is a lot of difference between the branches. We do expect that, as previous crises have shown, franchisees will recover faster if the economy picks up again. The franchisee goes the extra mile to make his business a success.”

Key event: Dutch National Franchise Expo

Taking place just 45 minutes from Amsterdam, the Dutch National Franchise Expo is set to bring together franchisors from all over Europe for a two-day showcase of what makes this country special.

What: The Dutch National Franchise Expo

When: September 23 – 24, 2021

Where: Hart Van Holland, Nijkerk

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