THINKBIG INTERNATIONAL: Retail and food franchises will grow, to the detriment of luxury franchises

The Romanian market for franchises has seen only slight fluctuations, since the beginning of the year, compared to last year"s similar period, said Adrian Gheorghe, general manager of "ThinkBig International" - a franchise consulting company - referring to the most popular fields: "The economic sectors which have the highest demand for franchises are food and retail. As a concrete example, we have the contract signed with < Magic Factory >, which licenses < Disney > products. The stores will be opened in all the towns with more than 100,000 residents. Another example would be the < Brooks > franchise - an Italian brand of casual clothes for youngsters. The first store was opened in < AFI Palace Cotroceni >, with a total investment of 50,000 Euros, with an average surface of 70 sqm".

Franchises in the food sector play an important role in the Romanian economy and remain an attractive investment, said Adrian Gheorghe: "The food industry serves over 21 million people a day, and generates approximately 400 billion lei in annual sales. Sales in this segment have surpassed those in the other major industries, as the food industry creates almost 7 million jobs".

The franchise system is used in many sectors, which include fast-food, restaurants, cafes, stores, beauty salons, real estate, services, education, internet, automobiles, cleaning, security, advertising, finance, shipping, training, travel etc.

Out of the 76,000 new companies created in Romania in Q1 2010, the number of companies that opted to start with a franchise has increased 10-15%, according to the experts of "Thinkbig International".

Concurrently, the number of businesses that went bankrupt remained constant, the aforementioned sources said. They stressed that the success of a franchise does not depend only on the ability of the franchiser to adapt to the customers" needs, but on the ability to speculate those needs. The main factors that can cause a franchise to fail are the insufficient capitalization, the lack of a careful study of the business prior to its launch, the drop in the activity and the potential of the market".

A tell-tale development on the franchising market is the expansion to other cities besides Bucharest. Until now, 75% of the franchises were located in Bucharest, but in the medium term, franchising is expected to expand to other cities, such as Timişoara, Constanţa, Arad, Suceava or Iaşi.

The luxury franchises were the most affected by the economic crisis, which have dropped constantly, in spite of the price cuts operated by some of them. Luxury franchises have experienced another effect of the crisis: an increase in the time it takes to break even. According to Adrian Gheorghe, whereas a few years ago, a franchise would break even in 2-3 years, it now takes around 5 years to do so. Also, whereas in the past the most sought after franchises were those of 75 to 100,000 Euros, now the interest of franchisees is turning towards which require an initial investment of approximately 30,000 Euros, because they pose a lower risk and because many investors still consider Romania an uncertain market, causing them to favor smaller investments and quicker profits.

Lately, foreign investors have also reconsidered their perspective on the countries where they choose to invest. Thus, the major franchise groups, such as "Inditex", are now choosing to expand their franchises in SE Europe, whereas until recently this was not a priority for them.

"The opinion of our experts concerning the evolution of franchising in 2011 is that the number of companies that will opt for opening a franchise business will increase, and companies that are already franchisees will resume their expansion to new locations. Statistically, we expect luxury franchises to see a contraction, and conversely, retail and food franchises to increase", the official of "ThinkBig International" said.

• Benefits of franchising

According to Adrian Gheorghe, there are three steps for a company to become a franchiser - investigation and analysis, understanding the franchisor, the launch and the development of the franchise. He said: "Those who invest in franchises do so because of the considerable advantages that franchises have over businesses started from scratch, especially now in this time of crisis, which an increasing number of entrepreneurs view as good time for expanding. Franchisees receive benefits such as extensive training for developing a successful business, guidance on the potential future directions for the business, training and plans received before starting the business, the reduction of risk for franchisors and franchisees alike, the fact that the products or the services already have a reputation with consumers, the availability of a business model, a reduction in the risk usually associated with launching a business, the fast expansion of the distribution network etc. Also, such a business does not require franchisees to have prior experience, as they receive financial support, through a type of consulting, as well as immediate local brand awareness".

Location is very important to the success of a franchise. Its selection is determined by the level of economic development of the area, the number of people, the transport infrastructure, demographic characteristics, workforce, the level of traffic, the city planning, production costs, the location of the competitors, the attractiveness of the region and the compatibility with the base customers" profile. That is why, the most adequate location for a successful franchise would be a central street, with a large number of passers-by, in a city with 2 to 300,000 inhabitants.

Many franchisers choose to open franchise businesses in Romania, because it represents a new, yet untapped market, Adrian Gheorghe says: "The rate of success of a franchise network is 80%-90%. Romania remains a location where franchises are still profitable, as the country still has the largest potential for growth in Europe ".

The mediation between the franchisor and the franchisee is performed by a consulting company specializing in franchises, which can draw up the documentation - the franchise manual, the working procedures manual, the marketing and training manual, the business plan - providing assistance for opening the business and all throughout the duration of the contract.