Franchisers take more of the expansion burden on themselves
Yves Rocher has been more successful than most in finding individuals willing to become franchisees of its chain of cosmetics stores roughly half of the company's 39 outlets in Poland are individually owned.
Despite that, though, to continue its expansion the company is having to open new stores itself. The company will start up and run its latest location at the Kings Cross Trzy Stawy shopping center in Katowice. The problem, the company said, is that while retail activity is blossoming across the country, franchisers still can't find enough individuals capable of scraping together the capital needed to open a store, restaurant or service outlet.
"The investment is pretty sizeable and private owners don't always have the cash to be able to finance that," said Anna Krupa, director of Yves Rocher Polska. According to Krupa, the cost of opening an outlet in a shopping center can run more than zl. 200,000.
Those difficulties in finding capital have prompted some franchisers to change their approach. Yves Rocher, for example, has decided not to charge the normal fee for the rights to use the brand. Instead, it is requiring franchisees to bring a prime location to the table, and start-up capital of zl. 50,000-zl. 70,000, Krupa said. It is also taking on the risk of starting stores itself in targeted cities with a population of 100,000, with the idea of eventually turning profitable enterprises over to franchisees.
"The location must be very good, it has to be on the No. 1 shopping street," Krupa said. "Right now for example in Bialystok it's (plac) Kosciuszki and ulica Lipowa. In Kielce we know it's going to be ulica Sienkiewicza."
Yves Rocher is also taking its concept to the scores of shopping malls springing up across Poland, where retail traffic is a sure thing. That change in approach, Krupa said, could help to up the number of Yves Rocher stores expand exponentially. The company has 20 stores this year, up from 16 on the Warsaw Business Journal's (WBJ) ranking of franchisers last year. (See the List, page 14).
Activity in the franchising arena, though, is substantial enough to encourage one publishing company, Pierwsze Polskie Wydawnictwo Franchisingowe (PPWF), to start a bi-monthly magazine devoted exclusively to the subject, called Franchising. The magazine debuted last month.
Andrzej Skakowski, president and editor in chief of the magazine, said that right now as many as 100 franchisers exist in Poland. He was unsure as to how many franchisees exist or how the market has grown in recent years.
"(That's) according to our research and we haven't been able to get to all of them," Skakowski said.
He added that eventually franchising should take hold in Poland, as there is a great desire by individuals to start their own small businesses. Franchising is a somewhat less risky way of doing that, he said.
"Franchisees are small and medium-sized companies, but they are companies that are exceptional: They rarely go bankrupt; they have good business plans; and they easily get credit at banks," Skakowski said.
Early next year, the magazine will publish a catalog of all retail concepts operating in Poland. Skakowski said that the catalog would not only list foreign franchisers, but up-and-coming Polish companies as well. The largest franchiser in the country, for example, is tire maker Debica, according to the WBJ's ranking. Other major franchisers are also Polish, such as travel agency Orbis and coffee shop Out of Africa.
Some Polish companies have only really begun their franchising push within the last year. Cosmetics firm Eris now has four franchises.
"There are several very interesting Polish concepts," Skakowski said. As indigenous brands take hold, they will be looking to fund expansion by selling franchises, he added.
Another newcomer to the list this year is EF Education, which provides language training. After starting two company-owned schools in Warsaw, in the past 18 months the company has also opened three franchisee-owned schools in Bydgoszcz, Wroclaw and Lodz. The company is looking to add four more franchises in the year 2000.
"A lot of investors don't associate profit with education," said Maciej Krajewski, franchise sales manager at EF Education. "It's hard to convince people that this is a good and safe investment."
To take on an EF Education franchise, investors need about $100,000 in cash, Krajewski said. Half of that is the franchise fee, and the other half is used as start-up capital. The franchisee also pays a 10% monthly royalty fee on revenue.
In exchange, the franchisee gets a wide range of support in opening the school, which includes market analysis, financial plans for the business, designs for the school and computer programs tailored to help with administration. Franchisees also get advice on how to recruit teachers.
"From my point of view, I wanted to find a good potential partner. I am not just interested in selling a license," Krajewski said. "I have to work with these people for the next 10 years. I have to be very careful what kind of partners I have."
Based on the flagship schools in Warsaw, franchisees can expect to see a return on their investment in about three years.
But not all franchising ventures in Poland have ended in success. Xerox Polska, for example, disappeared from this year's list altogether. While at one point the company had 17 Xerox Document Centre copy shops open around the country, the firm found that the copy-shop concept with Xerox machines wasn't profitable in Poland.
The company-owned store in Warsaw, the remaining location, is now geared toward corporate customers. "Our copy center department is a closed department now," said Monika Markowska, PR executive at Xerox Polska. "We are geared toward mass production and not individual services."
Being focused on bulk contracts hasn't left much room for individual customers coming in off the street, Markowska said. She said that such customers were better served through small, mom-and-pop shops.
"A lot of small companies have appeared that are focused on individual customers," Markowska said. "In their case it's profitable. In our case, it's not profitable."
