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Trust is everything in franchising ̶ especially in Germany

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Trust is everything in franchising ̶ especially in Germany

Considering expansion into Germany? Established franchisor and vice chair of the German Franchise Association, Matthias H. Lehner, tells us everything you need to know

Considering expansion into Germany? Established franchisor and vice chair of the German Franchise Association, Matthias H. Lehner, tells us everything you need to know

When did franchising take off in Germany and who were the pioneering brands?

Matthias H. Lehner: Franchising in Germany found its actual upswing in the early 70s, when Manfred Maus, the founder of OBI the DIY superstore chain turned an independent business into a franchise system that grew sustainably. OBI has an annual revenue of 8 billion USD. Maus also founded the German Franchise Association. The German franchise association represents almost 400 franchise brands and sees itself as the quality controller of the fast-growing German franchise industry, which employs more than 720,000 people. Another franchise pioneer is Dr. Hubertus Böhm who founded the consulting firm Syncon International. Today, Syncon is one of the leading franchise consulting companies in Germany and Austria.

Which franchise sectors are succeeding in Germany right now?

Matthias H. Lehner: There are four main areas in German franchising: gastronomy, trade, crafts and services. In the USA, gastronomy is the leading sector. In France, the main sectors are fashion, cosmetics brands and retail. The franchise economy in Germany reflects what is happening in the German economy as a whole; there is growth in senior care, coaching, and travel agencies.

The latest growth trend is in the fitness sector, where Bodystreet not only serves as a role model for many fitness concepts but also has a signal effect in franchising. The brand has opened 300 studios in seven countries and that total has been achieved in less than 12 years, making it a real success story. Bodystreet’s success can be explained above all by its understanding of franchise relationships, brand management and a high degree of innovation and digitization.

Also important in the franchising industry are travel agencies such as TUI or Lufthansa City Center and private tutoring institutes, such as Schülerhilfe, which has over 1,000 locations.

The rapidly-expanding german keep-fit franchise Bodystreet
The rapidly-expanding german keep-fit franchise Bodystreet

What are the current trends in German franchising?

Matthias H. Lehner: Multi-unit franchising, digitalization of headquarters and processes, internationalization (or globalization) are all trending in Germany, as they are worldwide. In Germany, a major focus currently is the issue of sustainability. Franchises need a clear sustainability strategy in environmental, economic and social aspects if they are to win franchisees.

Companies, associations, foundations, or projects which have a large social impact use the franchising model to increase that effect, profit maximization being secondary. It is all about maximizing social impact at a time when Gen-Y and Gen-Z are attaching great importance to this. Keywords to bear in mind are climate change, fairness and equal opportunities.

How healthy is the fitness franchise market in Germany?

Matthias H. Lehner: The German fitness industry leads the world in matters of diversity and competition. The variety of concepts and the standards of quality can be compared with the quality of German car brands or German hotel chains. Besides Bodystreet and Mrs. Sporty in the boutique fitness sector, there are Cleverfit, Injoy, and Easy Fitness in the budget sector. In addition, there are new players from the USA who have only recently entered the German market, such as OrangeTheory or Anytime Fitness. The fitness franchise market in Germany is extremely healthy.

Bodystreet is proud to be in a sector that is currently growing worldwide and is extremely sustainable: boutique fitness. Boutique Fitness Studios differ from the big-budget chains mainly in that they address a very specific target group. This does not slow down growth and financing as initial investment is feasible to the general population. Above all, younger people can also afford to enter such systems. Millennials as franchisees are very important for the innovative power of a franchise system.

Which regions of Germany have proved fertile ground for foreign brands?

Matthias H. Lehner: The GfK Gesellschaft für Konsumforschung (Society for Consumer Research) shows this very clearly in a chart. The propensity to consume and purchasing power are particularly strong in the south and southwest. Understanding this is crucial for franchise systems when choosing the first pilot location. Basically, the location distribution of most franchise systems on the map of Germany looks like a banana: many franchise locations are located in the north – Hamburg, for example – and are spread across the map of the number of inhabitants in the strong west, southwest and southeast, i.e. Bavaria. If you add in Berlin, Germany’s multicultural, pulsating heart, and number one hub for start-ups, the banana becomes an ‘S’ shape.

Are there laws or regulations governing franchising?

Matthias H. Lehner: A special feature of the German franchise market is so-called self-regulation. Unlike rigid franchise law, case law responds to a liberal interpretation. The main difference between Civil Law and Common Law is also reflected in relatively slim franchise agreements. Since the law books already cover a great deal of legal interpretation, does Germany need franchise legislation? So far, no. A study of the TU Chemnitz states that countries without franchise legislation obviously have fewer conflicts in franchising. Perhaps this can be compared to a football referee who does not whistle the game to pieces but reacts and weighs it up according to the situation. Franchising simply has to radiate trust. The German Franchise Association is the ideal contact point for foreign systems. It offers model contracts, advice and can recommend appropriate German lawyers with franchise knowledge. There is also a pool of proven experts who can be contacted via the German Franchise Association.

Which German brands have done notably well in establishing themselves overseas?

Matthias H. Lehner: The luxury real estate brand Engel & Voelkers, as well as the pet food trade Fressnapf/MaxiZoo, but also Lufthansa City Center, the beer brands Paulaner and Hofbräuhaus, the spirits trade brand Vom Fass and hopefully soon the fitness brand Bodystreet. But one thing is for sure: German franchise systems have potential for expansion abroad. Perhaps this is actually connected with the fact that the German market has so much potential. Nevertheless, attractive employer brands simply have to have an international presence. This way you are in pole position in the competition for talented employees. This is a must for future-oriented franchise systems.

Which are the most important franchise expos to attend?

Matthias H. Lehner: Definitely the Franchise Expo Frankfurt. After all, that’s my baby, too. I can still remember when I thought up the idea with Tom Portesy of MFV at the IFA Convention in Las Vegas 2017. The first fair in 2018 was a complete success. The next Franchise Expo will take place from 14th to 16th of November at Messe Frankfurt. Parallel to this, the U.S. Commercial Service is carrying out the Trade Mission in Frankfurt. The main aim here is to simplify the first step for American companies to Germany. The fair offers the ideal platform for this. After Frankfurt, US Trade Missions will follow in Budapest and Madrid.

How do you see franchising progressing in the future?

Matthias H. Lehner: The change has already begun with a clear focus on Fair Play franchising. The strong participation of franchisees today is a clear franchise competitive advantage. Allowing interaction, empowering advisory boards and committees and seeing the franchisee as an integral part of the franchise system is certainly the most important and biggest step forward in the last 30 years. In addition, of course, there are the great opportunities offered by digitization and automation. And, of course, in franchising as well.

What can incoming brands learn from local franchises?

Matthias H. Lehner: I’d say the level of franchise support. What do German franchisees expect in terms of services? What do others offer? And how do I optimally integrate them? Because trust is everything in franchising ̶ especially in Germany. Quality is the DNA of the German Franchise Association. The system check as a basic requirement for full membership is certainly unique worldwide. Only those who pass this system check every three years may remain a member. Not only the manual, the know-how documentation and the franchise contract are checked, but also the satisfaction of the franchisees is measured. And that independently and neutrally. In my opinion, this is certainly one of the reasons why the relationship quality in German franchising is good to very good.

What advice would you offer to a brand considering expansion into Germany?

Matthias H. Lehner: I’m neither a consultant nor a speaker. I am a franchisor myself and have a franchisor heart and soul. Of course, the German Franchise Association is the top contact point. My two favorite consulting firms that I can personally recommend are Master Franchise Germany (Franz-Josef Ebel) and Syncon (Waltraud Martius). I am also happy to help and find the right people and experts for international brands.

GERMAN FRANCHISING: NEED TO KNOW

  • The turnover generated by the German franchising industry grew by 4.8% in 2016 to reach a total of €103.9bn
  • Around 950 franchisors operate in Germany
  • Approximately 120,000 independent franchisees employ around 700,000 people

* Data taken from a 2016 report by German Trade & Invest



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