A new style
When Jean Louis David, the French network of express hairdresser salons, entered the Polish market in 1994, the company decided to apply the technique it had already been using in the 10 countries it was operating in - franchising.
Today, there are 11 Jean Louis David salons in Poland, nine of which are operating as franchisees.
"To be part of a franchise network means that here, in Warsaw, we can offer our customers exactly the same haircut and the same customer service they would get in Paris," said Bolena Trzaskowska, executive director of the CCM company, Jean Louis David's franchisee in Poland.
Although franchising is becoming more popular among would-be entrepreneurs, it is still limited as a way of breaking into business, especially compared to the United States where almost 80% of small businesses are involved in some sort of franchising.
Still, economists are convinced that franchising is going to catch on and that it will help fuel the small and medium-sized business sector.
"The period of unrestricted economic growth is over, I'm afraid," said Maciej Grabowski, a researcher with the Gdansk-based Institute for Market Economics. "In the early '90s, the risk of running the business was extremely low. Now the situation is changing."
This means that it's not enough to simply open up just any business. Brand image, quality of service and backing become especially important in a more competitive environment. Many feel franchising lessens the risk of taking the business plunge by adding these elements to a venture.
McDonald's, the granddaddy of franchising, operates 134 restaurants in Poland, of which 34 are operated by franchisees. Krzysztof Klapa, McDonald's public relations manager, agreed that the market is showing signs of maturing and that will mean increased demand for franchises.
"This means the do-it-yourself times are over," Klapa.
"And that's why franchising is so attractive," Grabowski said. "It means being connected to a strong brand and know-how. Thus, it provides stability."
The experience of photo-store operator and film manufacturer Kodak shows how both companies and entrepreneurs are starting to catch on to franchising here. When the company first entered the market here in 1993, it started with a careful balance of company-owned and franchised mini-labs.
In 1996, Kodak switched gears and moved to franchise-only outlets. Today it has 309 mini-labs in Poland.
"At the beginning, we had to establish industry standards," said Waclaw Piekarski, marketing director with Kodak Express Polska. "Now, we are past this stage."
That's not to say such a switch is a smooth or easy process. The development of franchising, although inevitable, is going to be a long and painful process, for both sides - franchisers and franchisees.
While well-known international brands don't have problems convincing entrepreneurs to cooperate with them, they have to put in a great deal of effort to ensure that their own high standards will be maintained.
And companies that don't have a worldwide image, which adds marketing clout, such as Austria's Demmer's Teahouse, often find it difficult to convince worthy partners that franchising is something worth pursuing.
"I've kept looking for possible franchisees since we opened the first store in Warsaw in October 1996," said Andrzej Latoszek, general manager of Demmer's Teahouse stores in Warsaw. "My impression is that people are afraid that they are going to lose their independence."
Don't fret
But such fears are actually unfounded say those familiar with franchising. Rather than forcing entrepreneurs to heel to a large company, franchising allows an independently run concern to run its own business and enjoy some of the benefits of a large corporation, Grabowski said.
"We can define franchising as an agreement between two parties where a franchisee, being an independent entity, uses the brand name and know-how of a franchiser," he added.
Ryszard Twarowski, who runs seven Kodak Express mini-labs in Warsaw, strongly disagrees with the opinion that taking the franchise route means losing autonomy or control of the business.
"I do run my own business," Twarowski said. "And talking about interfering, in Kodak's language that means assistance."
The flip side, Twarowski said, is that while he runs his own business he holds a worldwide brand that draws customers in. In addition, he said he has access to training programs that boost customer-service standards and improve marketing.
Bolena Trzaskowska, executive director with Jean Louis David franchisee CCM, which operates four salons in Warsaw, said that opening a franchise doesn't guarantee success and can mean some strain.
"We feel the close quality control," Trzaskowska said. "It could be, for instance, that somebody from the Master of Franchise (the main company) comes and asks us to change the hairdressers' T-shirts into long-sleeved blouses. For us it means additional costs."
On the other hand, cooperation with Jean Louis David means access to the company's know-how, regular training for hairdressers, promotional support, advertising and merchandising, she added.
"Overall, it works very well," Trzaskowska said.
Wojciech Szpila, who runs two McDonalds's restaurants in Bydgoszcz, agrees that there are trade-offs. The first is losing complete control. But he was willing to make the trade to cooperate with a strong partner.
"That's exactly the type of cooperation I expected when I decided to open a McDonald's restaurant," said Szpila, who in 1996 returned to Poland after 15 years abroad.
"I was looking for business opportunities for myself," he added, saying that franchising was a natural choice since he was used to it after living in South Africa.
"I was convinced from the beginning," Szpila said. "It's a good combination of your personal independence with the know-how offered by large companies. And why McDonald's? Because it's a leader."
The trade-off? On the daily operational level, the franchise headquarters decides about the products he sells, their pricing and different promotions.
"One could call it a lack of independence," Szpila said. "But on the other hand, I don't have to worry about finding the right suppliers and delivery dates."
At the same time he feels the restaurant's success depends on him and his employees, not on some mythical bosses in Warsaw, he added.
Two-sided risk
Gaining the advantages of a franchise relationship does have a price. In Szpila's case, it cost him $50,000 to open his first McDonald's.
"I treat it as a long-term investment, with a low, but stable return," he said.
The Institute for Market Economics' Grabowski admitted that heavy financial requirements set up by global franchisers could be one of the main reasons why franchising isn't growing faster here.
At the same time, franchisers agree that operating under their brand name means clearing operational as well as financial hurdles.
"We act as a partner, but we also demand an open-book policy," McDonald's Klapa said. "On the other hand, we can't guarantee a high and immediate profit. That's something the franchisees have to work on by themselves."
According to its franchise agreements, McDonald's provides the premises that the franchisee will rent for the next 20 years. The required financial input is $50,000-$60,000, which is, according to a McDonald's official, a rather insignificant amount compared to the $800,000 it costs to open a restaurant. Still, the $50,000 level can be high because the funds have to come from the franchisee and the license can only go to an individual, not a legal entity.
After bearing startup costs, the franchisee pays monthly rent, a percentage of sales and royalties as well as contributions for advertising and promotion.
In terms of startup costs, Kodak has similar requirements. The franchisee is required to equip the mini-lab, which costs $50,000-$80,000.
In Kodak's case the premises are owned by the franchisee, but need certain characteristics, such as a primary location, size of at least 45 square meters and easy access from the outside.
At McDonald's, there are also other requirements, such as a franchisee's only source of income can be from his or her McDonald's operation.
"Our franchisees have to make an obligation that they won't have any other jobs," Klapa said. "I understand that it might not be easy."
Another requirement is the successful completion of a 12-month training program, he added.
Other franchisers, with more limited operations, have smaller starting requirements. The famous Warsaw-based bakery Blikle applies rather liberal initial requirements that include ownership or a long-term rent agreement for a property in a prime location and financial input to decorate and equip the store.
"That would be about zl. 300,000-zl. 400,000," said Slawomir Chrzczanowski, sales and marketing director with Blikle.
In return, the company, after taking a one-time license fee of zl. 10,000, doesn't collect any other payments. The only condition for the franchisee is to buy exclusively from Blikle and to maintain the company's standards.
That final provision isn't as simple as it sounds, however, and causes many problems, Chrzczanowski said.
Since 1992, Blikle has operated seven company-owned stores in Warsaw and three franchised in lodz, Wroclaw and Poznan. But over this same period, Blikle had to terminate five franchise agreements.
"The main reason was that franchisees were unable to keep the quality standards and did everything possible to bypass our guidelines," Chrzczanowski said. "For instance, in order to save money they tried to use different packaging from those we recommended."
Another fault was inappropriate customer service standards, he added.
These bad experiences have made the company rather cautious in choosing new franchise partners. So although Blikle has received inquiries from many potential partners, Chrzczanowski said the company was moving cautiously with its expansion method.
"It's very difficult to find the right people who understand the company's mission," Chrzczanowski said. "Besides, we have a company image in mind and we prefer to remain exclusive."
Jean Louis David franchisee CCM is equally cautious.
"We had to close our salon in Poznan due to problems with quality control," Trzaskowska said. "At the moment, we plan to focus on building the brand in Warsaw."
Today, there are 11 Jean Louis David salons in Poland, nine of which are operating as franchisees.
"To be part of a franchise network means that here, in Warsaw, we can offer our customers exactly the same haircut and the same customer service they would get in Paris," said Bolena Trzaskowska, executive director of the CCM company, Jean Louis David's franchisee in Poland.
Although franchising is becoming more popular among would-be entrepreneurs, it is still limited as a way of breaking into business, especially compared to the United States where almost 80% of small businesses are involved in some sort of franchising.
Still, economists are convinced that franchising is going to catch on and that it will help fuel the small and medium-sized business sector.
"The period of unrestricted economic growth is over, I'm afraid," said Maciej Grabowski, a researcher with the Gdansk-based Institute for Market Economics. "In the early '90s, the risk of running the business was extremely low. Now the situation is changing."
This means that it's not enough to simply open up just any business. Brand image, quality of service and backing become especially important in a more competitive environment. Many feel franchising lessens the risk of taking the business plunge by adding these elements to a venture.
McDonald's, the granddaddy of franchising, operates 134 restaurants in Poland, of which 34 are operated by franchisees. Krzysztof Klapa, McDonald's public relations manager, agreed that the market is showing signs of maturing and that will mean increased demand for franchises.
"This means the do-it-yourself times are over," Klapa.
"And that's why franchising is so attractive," Grabowski said. "It means being connected to a strong brand and know-how. Thus, it provides stability."
The experience of photo-store operator and film manufacturer Kodak shows how both companies and entrepreneurs are starting to catch on to franchising here. When the company first entered the market here in 1993, it started with a careful balance of company-owned and franchised mini-labs.
In 1996, Kodak switched gears and moved to franchise-only outlets. Today it has 309 mini-labs in Poland.
"At the beginning, we had to establish industry standards," said Waclaw Piekarski, marketing director with Kodak Express Polska. "Now, we are past this stage."
That's not to say such a switch is a smooth or easy process. The development of franchising, although inevitable, is going to be a long and painful process, for both sides - franchisers and franchisees.
While well-known international brands don't have problems convincing entrepreneurs to cooperate with them, they have to put in a great deal of effort to ensure that their own high standards will be maintained.
And companies that don't have a worldwide image, which adds marketing clout, such as Austria's Demmer's Teahouse, often find it difficult to convince worthy partners that franchising is something worth pursuing.
"I've kept looking for possible franchisees since we opened the first store in Warsaw in October 1996," said Andrzej Latoszek, general manager of Demmer's Teahouse stores in Warsaw. "My impression is that people are afraid that they are going to lose their independence."
Don't fret
But such fears are actually unfounded say those familiar with franchising. Rather than forcing entrepreneurs to heel to a large company, franchising allows an independently run concern to run its own business and enjoy some of the benefits of a large corporation, Grabowski said.
"We can define franchising as an agreement between two parties where a franchisee, being an independent entity, uses the brand name and know-how of a franchiser," he added.
Ryszard Twarowski, who runs seven Kodak Express mini-labs in Warsaw, strongly disagrees with the opinion that taking the franchise route means losing autonomy or control of the business.
"I do run my own business," Twarowski said. "And talking about interfering, in Kodak's language that means assistance."
The flip side, Twarowski said, is that while he runs his own business he holds a worldwide brand that draws customers in. In addition, he said he has access to training programs that boost customer-service standards and improve marketing.
Bolena Trzaskowska, executive director with Jean Louis David franchisee CCM, which operates four salons in Warsaw, said that opening a franchise doesn't guarantee success and can mean some strain.
"We feel the close quality control," Trzaskowska said. "It could be, for instance, that somebody from the Master of Franchise (the main company) comes and asks us to change the hairdressers' T-shirts into long-sleeved blouses. For us it means additional costs."
On the other hand, cooperation with Jean Louis David means access to the company's know-how, regular training for hairdressers, promotional support, advertising and merchandising, she added.
"Overall, it works very well," Trzaskowska said.
Wojciech Szpila, who runs two McDonalds's restaurants in Bydgoszcz, agrees that there are trade-offs. The first is losing complete control. But he was willing to make the trade to cooperate with a strong partner.
"That's exactly the type of cooperation I expected when I decided to open a McDonald's restaurant," said Szpila, who in 1996 returned to Poland after 15 years abroad.
"I was looking for business opportunities for myself," he added, saying that franchising was a natural choice since he was used to it after living in South Africa.
"I was convinced from the beginning," Szpila said. "It's a good combination of your personal independence with the know-how offered by large companies. And why McDonald's? Because it's a leader."
The trade-off? On the daily operational level, the franchise headquarters decides about the products he sells, their pricing and different promotions.
"One could call it a lack of independence," Szpila said. "But on the other hand, I don't have to worry about finding the right suppliers and delivery dates."
At the same time he feels the restaurant's success depends on him and his employees, not on some mythical bosses in Warsaw, he added.
Two-sided risk
Gaining the advantages of a franchise relationship does have a price. In Szpila's case, it cost him $50,000 to open his first McDonald's.
"I treat it as a long-term investment, with a low, but stable return," he said.
The Institute for Market Economics' Grabowski admitted that heavy financial requirements set up by global franchisers could be one of the main reasons why franchising isn't growing faster here.
At the same time, franchisers agree that operating under their brand name means clearing operational as well as financial hurdles.
"We act as a partner, but we also demand an open-book policy," McDonald's Klapa said. "On the other hand, we can't guarantee a high and immediate profit. That's something the franchisees have to work on by themselves."
According to its franchise agreements, McDonald's provides the premises that the franchisee will rent for the next 20 years. The required financial input is $50,000-$60,000, which is, according to a McDonald's official, a rather insignificant amount compared to the $800,000 it costs to open a restaurant. Still, the $50,000 level can be high because the funds have to come from the franchisee and the license can only go to an individual, not a legal entity.
After bearing startup costs, the franchisee pays monthly rent, a percentage of sales and royalties as well as contributions for advertising and promotion.
In terms of startup costs, Kodak has similar requirements. The franchisee is required to equip the mini-lab, which costs $50,000-$80,000.
In Kodak's case the premises are owned by the franchisee, but need certain characteristics, such as a primary location, size of at least 45 square meters and easy access from the outside.
At McDonald's, there are also other requirements, such as a franchisee's only source of income can be from his or her McDonald's operation.
"Our franchisees have to make an obligation that they won't have any other jobs," Klapa said. "I understand that it might not be easy."
Another requirement is the successful completion of a 12-month training program, he added.
Other franchisers, with more limited operations, have smaller starting requirements. The famous Warsaw-based bakery Blikle applies rather liberal initial requirements that include ownership or a long-term rent agreement for a property in a prime location and financial input to decorate and equip the store.
"That would be about zl. 300,000-zl. 400,000," said Slawomir Chrzczanowski, sales and marketing director with Blikle.
In return, the company, after taking a one-time license fee of zl. 10,000, doesn't collect any other payments. The only condition for the franchisee is to buy exclusively from Blikle and to maintain the company's standards.
That final provision isn't as simple as it sounds, however, and causes many problems, Chrzczanowski said.
Since 1992, Blikle has operated seven company-owned stores in Warsaw and three franchised in lodz, Wroclaw and Poznan. But over this same period, Blikle had to terminate five franchise agreements.
"The main reason was that franchisees were unable to keep the quality standards and did everything possible to bypass our guidelines," Chrzczanowski said. "For instance, in order to save money they tried to use different packaging from those we recommended."
Another fault was inappropriate customer service standards, he added.
These bad experiences have made the company rather cautious in choosing new franchise partners. So although Blikle has received inquiries from many potential partners, Chrzczanowski said the company was moving cautiously with its expansion method.
"It's very difficult to find the right people who understand the company's mission," Chrzczanowski said. "Besides, we have a company image in mind and we prefer to remain exclusive."
Jean Louis David franchisee CCM is equally cautious.
"We had to close our salon in Poznan due to problems with quality control," Trzaskowska said. "At the moment, we plan to focus on building the brand in Warsaw."
