Lack of capital, know-how holds back franchising business
Franchising has become big business in Poland with franchisers cashing in on new businesses setting up around the country. But despite the recent growth, the industry's development has been hampered by a lack of capital among businesspeople and an underlying ignorance of what franchising actually means.
Franchisers provide independent businesspeople with knowledge and equipment to start a venture. These businesspeople then pay an initial investment and later the full franchise fee. A franchiser provides know-how, a brand, corporate image and staff training.
About 100 companies in Poland award franchises, according to Andrzej Skakowski, editor in chief of Franchising, a bimonthly magazine. He said about half of these franchising companies are Polish, while the remainder are foreign companies such as McDonald's and Coca-Cola, whose franchisee, Coca-Cola Beverages, supported by the $73-billion Coke brand, last year sold 467 million liters of the soft drink in Poland.
Last year, 1,789 franchisees took licenses from 48 franchisers, according to the Institute of Domestic Market and Consumption (IRWiK) in Warsaw, which conducted research on the companies. Although the institute found a 20% increase in the number of companies offering franchise licenses, the quantity of franchisee outlets almost tripled between 1998 and 1999, according to Barbara Pokorska at IRWiK. The existing companies have been rapidly developing their networks, Pokorska said. Franchisers are mainly concerned with trade, which makes up 50% of franchise networks. Services account for 28% and catering comprises 22%.
Unlike many giant companies from the West, Polish franchisers do not have the necessary capital to develop their expertise or to attract franchisees and clients. But an important plus for Polish-owned franchise companies is their knowledge of the local market and clients, said Pawel Korobacz, retail network director at Yes, a Polish-owned jewelry trader.
Yes is proof that knowledge can be a big asset. Last year, the jewelry retailer had 14 outlets owned by franchisers and 10 company-owned ones. Within a year, the number of franchise shops increased to 70% and the company now has 24 franchisee outlets.
Gabriel, a cosmetics company, is another example of a developing franchiser. The Kalisz-based company set up as a family business in 1990 and has since launched 43 beauty parlors and about 65 cosmetics shops. In 1996, Gabriel branched out into the franchise shop network. According to Gabriel Rokicki, owner of the company, this involves marketing, logistics, IT and financial know-how. "To make it work as a whole is our task," he said. He added that to make each of the outlets work is the task of the franchisee.
But franchisers are having difficulties finding the right people to make outlets work, industry executives said. Rokicki said he has trouble finding responsible franchisees. "Franchising is sometimes perceived as a recipe for success. It's often treated by the franchisees as an insurance policy," he said, explaining that a franchisee sometimes expects to have all business done by the franchiser.
Many businesspeople, however, are afraid that links to a franchiser means a loss of independence, representatives of franchise companies said. "It's difficult to attract businessmen (for a franchise network) who have been doing well with their own businesses," according to Jaroslaw Majka, specialist at Yes. He said many businesspeople are afraid of losing their independence.
Mariusz Piasny, owner of a Gabriel beauty parlor in Poznan, is happy with his level of independence. "Operating under a protective umbrella is good for me," he said. Piasny said he divides his time between Gabriel and another company and franchising takes the pressure off him to train and select new staff. "A substantial part of the responsibility is shared between Gabriel and me," he said. Every three months, Gabriel organizes training for its franchisees and their employees.
Gabriel provides almost everything a franchisee needs. As well as training, the company looks at locations for an outlet, does the shopfitting and supplies the cosmetics, Rokicki said. Gabriel charges an initial fee of zl. 150,000-zl. 300,000 ($35,000-$70,000) and 3.5% of gross turnover per month.
Such fees paid to franchisers are regarded as one of the major stumbling blocks to developing franchising in Poland. "The lack of capital still remains an obstacle," Skakowski said. This lack of money means that investment funds or Western companies have become licensees of international franchise networks, he said. This type of funding is substantially higher than that of domestic companies.
"At the beginning (of working with Yes), no big money was needed as is the case with big franchisers," Majka said. The initial investment for a Yes franchisee costs zl. 60,000- zl. 120,000, depending on the location and size of the outlet, he said.
Ultimately, though, the biggest obstacle to franchising is ignorance. "Franchising? We have nothing to do with it," said a waiter at TGI Friday's a U.S.-based restaurant chain and franchisee of Carlsons Restaurants Worldwide.
