Having a strong brand is not always enough. Ensure success in Europe by doing your homework on the local market and complementing it with the expertise of a good local consultant or broker
Despite most European countries working closely together as a single trading bloc, the region can be incredibly complex and diverse. With over 100 languages spanning 50 countries, each with their own distinct culture and history, meeting the challenges of expanding a franchise in Europe requires a thorough understanding of how the local markets work.
A recent survey in Germany that ranked concepts such as guest experience, satisfaction and quality showed that local brands beat international ones by a huge margin. Foreign brands did not even feature in the top ten! Of course, this does not mean that European investors should treat the continent as their home turf, as they also face strong competition from non- European systems. For example, further research suggests that North American systems are faster and more successful at growing their brands internationally.
However, it is clear that local brands seem to have the edge over foreign concepts and this is surely down to their increased understanding of the local market. Here are some pointers to help franchises looking to enter Europe, or expand their operations there:
Adapt to the local culture
Do not enter a new market assuming you can attract customers for your product or service in the same way you do in your domestic market. This same principle applies to marketing franchise opportunities to local investors. Despite the above research, foreign concept penetration can be very high in Europe among franchise brands, exceeding 70 per cent in places like Croatia and Slovenia. Their success comes from accepting and managing local adaptions. For example, in Europe, the McCafé is indeed a café, serving coffee in china cups with saucers. The product line at a Starbucks in the U.K. will be different from the one in Greece. It sounds like a given, but too many franchisors still believe in the one-size-fits-all strategy, despite the competition on the ground. Having the right local contacts is essential in understanding how to adapt your brand, and how to maximize its potential in any given market.
Understand local laws and politics
No matter its origin, every franchise needs to overcome political, economic and cultural challenges to successfully market their brand to consumers and investors.
Although the EU is supposedly a unified market, franchises are faced with a total of 5,000 national regulations protecting the delivery of different services. In some cases, these may render some business models unviable. For instance, the German master craftsmen system can make it very hard to create sustainable trade businesses like plumbing and carpentry. Depending on your business model, you also will need to keep in mind regulations around opening hours. In many countries on the continent, retail and services hours are restricted. On Sundays, many shops will be closed or there is a trade-off day during the week.
Franchises also need to be aware of different laws regulating the way they run their business. Most European countries do not follow the common law, but rather the civil law. One result of these codified statutes is that continental European franchise contracts tend to be half as long as agreements based on the common law. These differences can be a minefield, so working with an experienced franchise lawyer who knows both sides of the equation can help you avoid early misunderstandings.
Be aware of regional economics and labor markets
For the purposes of financial modeling, it is essential to understand the impact of opening locations in different regions. Each state within Europe has its own distinct economy and labor market that must be taken into consideration.
“Too many franchisors still believe in the one-size-fits-all strategy, despite the competition on the ground”
For example, Ireland experienced the fastest economic growth between 2008 and 2018, but franchises should not rule out smaller countries or assume that lower GDP means lower market potential. For example, Romania has become one of the fastest-growing countries in the EU, and its capital, Bucharest, now has a GDP comparable to that of other western European cities.
The ease of opening a new business also plays a major factor here. For instance, Armenia ranks first in Europe, and eighth globally, followed by Ireland at second, and 10th globally. By contrast, Europe’s largest economy, Germany, comes in at 16th place, and a lowly 114th globally.
Non-European systems also need to consider the varying labor markets. While Germany, the U.K., and several central and eastern European countries, have tight labor markets, the situation is very different in Italy, Spain, and Greece. Also, European social benefits, vacation times and health insurance benefits tend to be generous compared to some other regions. Wages and taxes in Scandinavian countries are eye-wateringly high even by European standards. However, consumers are far more willing to accept higher prices for what they consider the right reasons, such as better pay for unskilled workers and environmental issues.
Attract the right kind of investors
The experience of attracting multibrand or corporate franchisors and franchisees in Europe can be very different from other regions. Contrary to the U.S. or Asia, you will often be looking for high net-worth individuals, and they are very hard to find. This is why some international franchisors are looking at joint ventures as a vehicle to enter the European market.
As always, a strongly performing brand is your best calling card, regardless of whether franchisors pursue a proactive international strategy or take an opportunistic approach. Research shows that about 50 per cent of brands that enter a new country were approached by a local investor, and strong systems will attract stronger candidates.
Investing in local expertise for quality and advice and support will obviously increase your initial outlay, but will pay huge dividends in terms of effective market penetration and brand awareness. Understanding your target market is absolutely essential to success in Europe.
Farrah Rose is head of international development at The Franchising Centre, and is a long-term member of the British Franchise Association.
Peter Schwarzer is managing director of LeOS Franchise Consulting and an associate partner of Franchise Pool International.