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Franchising in Romania

The increasing importance of the private sector, diversification of industries and encouraging investment is helping to cultivate the growth of franchising system in Romania. Conditions for expanding this sort of business are nevertheless growing as Romanian economy aims for the economic standards of the European Union.

On the government regulatory side, Romanian government has taken steps towards legislation on the franchising system for Romania. Government Ordinance no 52/1997 was approved by Parliament through the Law no 79/1998, the law of franchising system. The Law defines the basic principles of a franchise agreement as a sustained communication between persons or corporate entities whereby the Franchiser grants a Franchisee the right to exploit or develop a particular know-how or intellectual property right. The law allows for greater contractual freedom among the parties with regard to conclusion of franchise agreements and provides the basics for an enforceable agreement, informing a member of general principles to be followed.

The franchise network is defined in the Romanian legislation as "contract based business relationship between a franchiser and its beneficiaries with a view to promoting a technology, a product or services, as well as to developing the production and distribution of a product or a service".

In Romania recognized brands have been a success from day one and sales forecasts. McDonalds, Pizza Hut, Kentucky Fried Chicken, Body Shop, Extyn, Mango, Celio, Marks & Spencer or Holiday Inn are among the western franchises that have already extended in Romania. Existing networks cover sectors such as fast food, clothing retail or industrial products. In the services sector there is an enormous demand for franchising networks. The potential for franchising is increasing every year; the difficult point is the lack of the commercial galleries.

Though the number of brands developed in Romania is still low comparative to the economical potential of the country and comparative to Central and Western Europe countries, still more and more entrepreneurs have chosen to develop their businesses in franchise system. For instance, out of the total amount of franchised brands, over 60 have shown up in the last couple of years, which means a growth of more than 50%.

Romania had 30 franchise chains at the beginning of 2002 and now reached 170 franchised brands and 1300 operators. The operators total business is 900 M EUR worth.
The newest entry on the Romanian market Mr. Bricolage, a 6.2 M EUR investment. The franchise belongs to Brico Expert. The franchise system could develop in Romania, as it has 80% chance of success. In Romania the main hurdle is the high cost of financing.

Such business stands for 7% of the whole trade. Most banks ask for high interests and commissions and are reluctant to granting a loan to a company, which gives in its turn a loan to a company.  There are companies, which sold their business only to a newly established company, with the intention not to discredit the brand.
Following the trend of an increased presence on the Romanian market of the companies activating in franchise system, at the beginning of the year 2004 has been set up the Franchise Networks Association in Romania.
The increasing number of franchisers proves the high level of the franchise development. Whilst in 2000 there were about 35 franchisers in Romania, nowadays ARFR has identified approximately 150 brands penetrating the local market by the means of franchising.

There are recognized brands that have success in the Romanian market, such as (this is not an exhaustive list):

  • Soft drinks production and bottling sector: Coca Cola, Tuborg
  • Fast Food sector: McDonalds, Kentucky Fried Chicken (KFC), Pizza Hut, Gregory's, Pizza Inn, Daylight Donuts, Fornetti, Ruby Tuesday
  • Petroleum products distribution: Shell, OMV, Petrom
  • Clothing and accesories sector: Lollipops Paris, Mango, Celio, Extyn, Polo Garage, Bigotti, Benetton, Betty Barclay, Escada, Kenvelo, Marks & Spencer, Lee Cooper, LC Waikiki, Hugo Boss
  • Hotels: Hilton, Best Western, Howard Johnson Grand Plaza Hotel etc. 
  • Human resources: Achieve Global, Smartree
  • Printed press sector: Ziua
  • Press distribution: Acces Press
  • Personal care: Body Shop, Lush, Beauty Shop, Yves Rocher

Hirsh entered recently on the real estate market and requires 40,000 EUR in initial investment.
Romanian brands were also franchised: fast food restaurants, English schools, hotel chains, advertising and real estate agencies and consulting companies. Petrom Oil company recently decided to offer some private operators the administration of several filling stations in franchise.

Starbucks would like to get on top of the Romanian coffee shop network.

The coffee shop tends to become one of the trendy investments in Romania.

Starbucks was founded in Seattle over 30 years ago. With net revenues of 5.3 billion USD in 2004, the American giant is present in 34 countries, through thousands of coffee shops opened up either directly, or through associations and under license agreements.
When they talk of their plans of business expansion across the borders of the United States, the strategy makers of Starbucks focus on opening up hundreds of coffee shops annually. For 2006 only, the Seattle based company is planning to inaugurate about 1,800 new coffee shops, with 300 more over the initially planned figure for 2005. Even if the largest number of such shops would contribute to the expansion of the existing network in the States, the strategy of the Starbucks company is also focused on the international markets. In conjunction with their international operations, Starbucks company intends to inaugurate around 150 of its own coffee shops and 350 under license. At least one of these new coffee shops will be located in Bucharest, and its launch is slated by the end of the next year. The Starbucks will penetrate the Romanian market through the Greek company Marinopoulos, which in 2002 entered a strategic cooperation agreement with Starbucks regarding the expansion of the network across several European countries.
Over the last years, Marinopoulos Coffee Company resulting from the joint venture between the two companies has developed a network of 50 coffee shops in Greece, Switzerland, Austria and Cyprus. The next step would be to establish their presence in the Balkans.  The Starbucks coming into Romania through the Greeks seems a logical step, considering that the Greek company brought one of the most well known of its strategic brands into the local market.  Sephora, Beauty Shop, Marks& Spencer are networks well known to the Romanian consumers. If things are getting around well and according to the plans, then Starbucks will become another trendy businesses of the Greeks in Romania.
According to certain sources it is likely that ten coffee shops might be opened up per year not only in Bucharest, but also in some other major cities.
At OSIM seven of the names of the products sold at the Starbucks coffee shops were already registered since 2002.

The investments in the coffee shops are stepping up

For the time being, the players already present in the local market don't consider Starbucks a threat. Some of them are even skeptical as to the chances of this brand to be embraced by the Romanian consumers.
Starbucks is an exceptional concept, but in Romania it is likely to be popular just with a small percentage of the public. In Romania, 80% of the coffee shops clients are smokers, and smoking is forbidden inside the Starbucks shops. In Greece the same issue was dealt with by providing special places for smokers on the coffee shops terraces.
Another snag would be the Starbucks' preference for rather small locations (at least in Europe, they would go for areas not larger than 60-100 sq. metres) and their reliance on the "take-away system", a system that presupposes the purchase of the coffee in one place and its consumption in a different one. In Romania, such a concept is not functioning very well, because almost all the clients who could afford Starbucks products benefit of free coffee at their offices. The second hitch concerns the spaces: if they are not very expensive, it is because they are either located in unfrequented places or they are irrationally partitioned. All the above do not necessarily represent unsurpassed obstacles for Starbucks.
A market with such a potential is worth all the efforts. In Romania, the coffee drinking is very common, unlike some other countries where most of the consumers prefer the tea. Gourmet Products Servicii, the master franchiser of the international chain Gloria Jean's Coffees considers Romania a new market under constant development. Gloria Jean's Coffees is a trademark with big ambitions, targeting to open up 20 coffee shops in the local market.  By the end of October, 2005 it will have five units opened up in Romania.
The European company Coffeeheaven International recently announced their intention of coming to Romania.
The players already present in the local market are trying to come up to the same level. The owner of Fashion Bar and Studio Café would like to launch by 2007 at least three coffee shops in Bucharest and two upcountry. The same holds for the Turabo Café, which will launch two more units in the fall, getting to a total of six shops. The chains, such as Nescafe, Nova Brasilia Coffee Shops or Cremcaffe have taken a new swing lately. The conclusion is very clear: no matter the pro or against opinions, the coming in of Starbucks to Romania will shape up the taste of the Romanian customers as regards the coffee serving and will stimulate the competition.Recently (june 2007) the British franchisor of  Costa Coffee announced the opening of the second outlet at City Mall in Bucharest.

The amount of investment needed in a coffee shop

A well-equipped coffee shop with special interior improvements requires a minimum investment of 100,000 EUR (for an area of about 100-120 square meters). In the case of the Gloria Jean's Coffees, the initial investment ranges between 150,000 and 250,000 USD for a 100 sqm space. A Turabo Café's franchisee needs to invest 110,000 EUR for upgrading a space 100-150 sqm large.
The profit of a coffee shop in Romania cannot be compared to the one obtained by a similar coffee shop in Western Europe. If the profit in Romania can range between 5,000 and 10,000 EUR per month, in the EU countries it may be three times bigger. The actual returns depend on several factors, such as location, the managerial skills, the market demand and the economical situation.

Franchise for the beauty queens

After 1989, Romania successfully joined the world of beauty contests. As early as 1990, the group of companies consisting of Sporting International, Romanian Fitness Federation and Fitness Academy set up the International Modeling Agency (IMA), the first agency in our country specialized in beauty contests.
Registered both in Romania and Florida, US, IMA holds 58 licenses for the biggest and most important domestic and international contests for children, girls and boys and a lot of collaboration contracts with renowned modeling agencies all over the world.
IMA got specialized in detecting the models, promoting them and acting as their agents based on the international criteria. This would explain the outstanding results obtained by the representatives of the IMA Agency.
The training process of a model is a complex, multi module process so that the model might successfully represent her country. Besides her outstanding presence on the scene and being able to walk on the catwalk, a model is supposed to have a good command of English and all-round education.
Ever since 1992 IMA has annually won prizes at various contests held in Europe, United States, South America and Asia. The successes reaped by IMA and its accumulated experience highly recommend IMA license.
The franchisee will pay no royalty, but it will pay for the acquisition of the licensees offered by IMA, for the organization of the beauty contests.
The person acquiring a license will begin the preparation of the media campaign concurrently with identifying the sponsors interested in promoting their image, associating it with the selection process at the national level (ex. Best Model of the World � Romania). This entails significant financial and image related benefits.
After the purchase of a license, (which gets yearly renewed for the domestic and international children� contest (the annual fee ranges between 5,000 and 6,500 EUR) conditional on the contest�s importance and ranking), the franchisee may move forward with the contest-show for the National Selection.
Consequently the franchisee will have the special advantage of finding the local partners, of having the event media, TV stations covered.

Franchising Conditions
The franchisee will permanently benefit from the support, know-how, the professional management and the expertise of the IMA franchiser.

The franchisee's obligations

  • To arrange one or several contests, the franchisee has the obligation to sign a contract for the license purchase.
  • To buy from IMA at least one license for the organization of a contest
  • To observe the standards imposed by IMA
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