The Nordic region is a very attractive marketplace for franchise brands for a number of reasons including their stable economies with high consumer purchasing power, consumers’ curiosity and appetite for international brands and trends, as well as societies that foster entrepreneurship.
Sweden and Finland in particular have strong franchise communities, with a variety of unique local concepts and international brands within service, food and beverage and retail sectors. Both are served by well-established franchise associations providing regulation, training and insights which have raised the profile of franchising and made it a well-considered investment opportunity.
Sweden is often the testbed for brands to first enter the region to understand if their concepts should be refined prior to expanding further within the country and other markets within the region. Some of the market’s potential had previously seemed restricted due to the distance between larger urban areas which have a significant proportion of the total population.
However, this barrier is being eradicated by the huge transformation of the logistics segments and the continued development of new places and neighborhoods being created as nodes to major urban areas, providing franchise brands the opportunities to serve local communities.
What are some key considerations when entering into a commercial lease in the Nordics as a franchisor or franchisee?
First and foremost, it is essential to ensure the lease term under the lease agreement is aligned with the agreement term of the franchise agreement. For example, lease terms for premises in Norway can be freely negotiated, including any notice period.
That is not the case for Swedish and Danish leases. If a franchise brand owner is seeking multi-unit operators within the Nordic markets, we always identify the best mechanism to reach an applicable lease term that can be used for all these agreements.
A franchisor often requests a right to terminate the lease if the franchise agreement is terminated, along with the right to exclude any security of tenure protection rights that may be applicable. A franchisee will generally want more flexibility, such as a tenant-only break right in case the business thrives (necessitating larger premises) or fails, leaving the tenant with payment obligations it cannot satisfy. These examples are not specific only to the Nordics; they are applicable in many jurisdictions across Europe.
For a franchisor, it is also important to be clear on the permitted use of the franchise operations and to link this to the operations conducted under the lease. A franchisee will, on the other hand, request a broad definition of the franchise brand and business and possibly also reduced rent in case the business fails.
Ideally, both parties would share the burden but also the success from a strong brand and prime location. Turnover rent is one example of where the traditional base rent is accompanied with a variable part of the rent in the form of a percentage of the tenant/franchisee’s annual revenue from the premises.
Kristina Dunbring, senior associate, Baker McKenzie Stockholm
Why are mixed-use hubs a very predictable and stable location to do business?
Citycon has a total of 34 mixed-use centres in the biggest cities in Nordic and Baltic countries with dozens of franchisees as tenants. In fact, most international brands enter the Nordic market through franchising.
Citycon’s centres are strategically located in urban cross points and experience high footfall regardless of the time of the day or the day of the week. This comes from the mixed-use nature of our centres as well as from the fact that they are always connected to public transport stations and terminals.
Our centres have a versatile retail, restaurant, entertainment and service offering including living and working. In fact, they act as platforms for any business looking for catching the everyday life of the people in our region. We recommend that new tenants consider this during the fit-out stage as even though they are not open for business, there are many opportunities to promote their offer such as using the shop window to build excitement or recruiting VIP guests for a soft launch to text concept or create PR.
For tenants’ benefit, the number of visitors and sales at Citycon centres are disclosed publicly every year, and for the tenants even weekly. This all gives a potential tenant a good indication of the customer flow which is critical when evaluating the premises options available and making the right decision on the ideal location to open business.
Now the whole shopping centre industry is experiencing a big shift from pure retail to a mixed-use service platform as a way to meet the changing consumer buying and working behaviours. We have seen this in the transformation of the role of a physical premises and that its’ value now goes way beyond a simple customer transaction. It provides the business owner a variety of ways to develop loyal and more customers through experiences of discovery which digital alone cannot provide. There is the potential for it to be part micro / local logistics hub where, for example, fashion brands have click and collect services so shoppers can try on and return product in a more sustainable way as well as possibly shopping while in-store.
Restaurants should also consider dedicating some of their space to operate a delivery service for corporate businesses nearby or people in the surrounding catchment area.
Jussi Vyyryläinen, vice president, leasing, Citycon
Learn more at the event!
The Completely Retail Marketplace events facilitate brand entry or expansion in specific markets across Europe. Through discussions you may also forge new partnerships to help secure ideal spaces quicker, in the best locations, and in the shortest amount of time.
Next events taking place:
- Nordics: Stockholm on June 8, 2022
- U.K.: London on 27 September, 2022
For more information, visit crmarketplace.com
Simon J. Mills is responsible for partnership and business development at The Completely Group