Buying a piece of the pie
By Timothy Sifert
Beata Wirecka's eager future business plans are comprised of two parts: entrepreneurial spirit and security. As she studies for a master's degree in psychology, having completed her bachelor's in marketing, she is considering joining the growing legion of locals ostensibly forming their own businesses - but via the back door of investing in a franchise.
Labor groups, politicians and economists tout the need to nurture the country's small and medium-sized enterprise sector to heal the economy. It's the country's most important natural resource, they say. And while the government has continued stutter stepping on its pro-SME proposals, recognized enterprises and prospective entrepreneurs are shoring up franchising as a safe alternative for those seeking to carve out a stable career and, in effect, give a much-needed jolt to the country's GDP growth.
"Buying the ideas and know-how from other people is a better, safer idea than starting from scratch," Wirecka said.
National and international companies, such as McDonald's, Kodak Express, EF English First and TelePizza, all enable willing businesspeople to launch their own businesses. But instead of crafting operations, platforms and strategies from the ground up, franchisees are offered more stable foundations in the form of well-known trademarks, a tried business strategy and organizational know-how. The price tag for that package usually includes an initial fee, ranging from €9,000-€1.8 million, and a slice of the monthly revenues.
At present, Wirecka is deliberating opening an English-language school in Kielce using the EF English First name. She explained that she thought of the idea while living in England, where franchising is de rigueur.
There are many more like Wirecka, according to PROFIT System, a franchising consultancy that recently published a report on the sector. Today some 120 companies operate franchising systems in the country. Michał Wiśniewski, a member of the management board of PROFIT System, said there would be as many as 150 systems by year-end.
More familiar
Wiśniewski is sanguine that through education, European Union membership and government initiative, especially via the Polish Agency for Enterprise Development, the franchise market here will begin to mirror that of the West.
"Franchising is now becoming more and more familiar to Poles," he said. Companies operating in the country recognize it as a sound model for expanding business, while the business community takes heed of it as a safer - though more costly - alternative to starting from scratch.
"Three to four years ago no one knew what franchising was," Wiśniewski said. "Still, many people don't know about it, but many Polish companies are beginning to look at it."
He added that he expects EU membership to spark exponential growth in this sector, as it did in Spain, where the number of franchise systems doubled on the heels of the country's accession. "Now (potential) franchisers are waiting," Wiśniewski said.
As such, shortly after Poland's accession, the number of franchise systems will expand to 300. In the meantime, the slow economy is pushing some to consider becoming franchisees.
A Warsaw-based businessman, who asked not to be named lest it affect his negotiations with local franchisers, said that economic realities nudged him into weighing the benefits of a franchise.
"I am looking for a new way for my future," said the businessman, who was recently laid off due to industrial consolidation. "I am MBA-educated, and I would like to find a career. I haven't got any good ideas for my own business. I have some money in the bank. So from my point of view, it's good to look for a franchising business. In a franchising model the risk is lower, which is good because of the poor economic situation in Poland."
It is also people like him - and Wirecka - who have some executives watering at the mouth at the prospect of expanding their names.
In 2001, the U.S. had 2,294 franchise systems, while Germany and the U.K. counted 950 and 671, respectively, according to PROFIT System. Wiśniewski said that companies from those countries are the ones seeking larger roles here as franchisers.
One cup at a time
Based in Washington state in the U.S., café chain Starbucks has been expanding rapidly throughout Europe and is expected to enter the country soon, though there are no confirmed plans.
"We are in the early stages of our strategic growth in Europe," said Peter Maslen, president of Starbucks Coffee International. "We are expanding into Europe, one country at a time, one cup at a time. We are encouraged about opportunities for Starbucks in Poland, but currently have no announcements to make regarding the market."
In addition, Greece-based mobile communications shop Germanos, which has 60 franchises and 120 shops in total here, plans to add 60 more franchise outlets this year. Germanos sells wireless devices and services provided by Polska Telefonia Cyfrowa, the country's largest mobile operator.
"We would like to be the number-one mobile retailer in all of Poland," said Rafał Waszak, the retail manager for central Poland at Germanos. "Franchising is a good way to achieve that."
He added that most prospective franchisees here have the "skill and will" to be entrepreneurs. He said a Germanos franchise costs €23,435 as an initial fee plus often a cut of the revenue, but assured that the cost structures vary from shop to shop.
Changing models
Many franchisers appear to be as ambitious as Germanos, but they note that the country's economy has forced them to rearrange their business models.
Maciej Poniatowicz is franchise operations director at EF English First, which has five franchises and two self-owned businesses through its company EF Education.
"At the moment we are having more and more interest in franchising," Poniatowicz said, before offering one possible reason why. "We changed our strategy about a half a year ago. We were quite expensive and the market was quite saturated then."
But forced to reckon with these realities, he said he opted to lower EF's initial fee for opening a language school to €9,000. It used to be between €28,000-€41,000, the exact fee depending on the number of potential students to be served in a locale.
In the first year EF takes 8% of turnover from franchisees and then 10% in following years. These fees, Poniatowicz said, pay for the company's trademark, support, academic supplies, marketing and advertising.
For Wirecka, EF's rates are an enticing way to embark on a post-graduate career. "I prefer to have my own business," she said. But she also prefers to know that the business is already established.
Poniatowicz described typical franchisees: "They are people who want to find a solution for personal careers." He contrasted this with the businessperson who just focuses on making a quick buck.
Poniatowicz's goal is to have 20 schools in 2004 and 50 in 2007. Like many others in the franchising trade, he said that the EU and globalization would help. He said that at least two or three people each week inquire about a franchise. "The conversion rate is not that good," he admitted, but he expects to close two agreements by next month.
He also proffered his rationale as to why franchising is becoming popular now.
"There is a shake-up," he said. "The economy is bad, so people are looking for new horizons; that's why they are looking for stable businesses that can give long-term profits."
The customer is king
McDonald's is probably the most popular franchised name in the world, but it is also one of the most expensive to establish here, said Grzegorz Chmielarski, the company's local director of franchising.
"We have quite a number of franchises in the system," he said. "When it comes to McDonald's, not that many people would be interested (in a franchise). Financially, they would not be able. They would need €140,600-€234,400, which is substantial."
But they would also need to put forth an effort to adapt to a globally weak economy, Chmielarski added.
To this end, McDonald's has developed a "business facility lease concept," whereby franchisees are given a loan to put down on their franchise, and after running it for three years, they can then buy it.
However, Chmielarski said that franchising is not in any way a cure-all for the country's economy.
"When it comes to franchising we have cases of success (and) we have cases of not so much success," he said. "It's not necessarily the model itself - it's the execution. In the end, the customer is king."
