France Serves as a Gateway to Europe
By Rose Marie Faria
Similar to the United States, France has a long history in franchising, which dates back to the 1930s when a knitting company started to “franchise” its business model. It was around the 1970s that franchising clearly started to grow and to appear in all sectors of the economy, parallel to the development pattern in the United States.
According to the European Franchise Federation, France has become the largest franchising market in Europe with total sales of U.S. $51.6 billion and more than 929 franchisors. This dynamic market continues to experience steady growth holding an average of 10 percent growth annually since 2000. In addition, French franchises have also experienced strong growth outside of their national territory with more than 230 brands present in international markets.
The French market is mature and highly-competitive, but offers many opportunities for new concepts, business models and commodities that fit the market’s needs and conditions.
Fitting a market need does not connote plopping a profitable product or service in a market where it doesn’t exist. Though a business may flourish in the United States, or in the United Kingdom, economic and cultural factors may limit its success in continental Europe, especially in France. Doing preliminary research will help to avoid losing time and money to promote a product or service that doesn’t fit a market need.
Fitting market conditions is just as important as fitting market needs. Even if there is a need, if market conditions are not favorable to your business it will be difficult to franchise. A successful franchisor has a sound fruitful concept and is ready to adjust the business model and or contract conditions as appropriate to mesh with French market environment and regulations. For example, in contrast to the United States, France is known for its city centers and dense shopping streets. The car-parking lot culture is not as strong, hence the business location takes on different dynamics.
Prime location for retail concepts is essential and therefore the real estate element becomes a major issue for the investor or the local business partner. When taking over a retail location, companies or individuals are often subject to a substantial start-up fee or “fonds de commerce.” Contract conditions with local potential partners need to be thoughtfully planned out to appropriate for such unique costs. In general, the Doubin law regulates franchising and establishes parameters the U.S. franchise company or the French master franchisee is required to comply. One should take the proper steps in researching the extra expenses that may compromise the typical business plan and presupposed financing. In doing so, the franchise firm also creates a partnership that is mutually beneficial which maximizes the chances of success in the long run and assures a profitable royalty scheme.
Yes, the French franchising market is challenging. Unlike Mexico and Canada that provide geographically and culturally-friendly franchise expansion opportunities, even well-established brands names will probably not enjoy high-brand recognition in France. The company enters the market unknown forced to prove itself from scratch. Furthermore, French business partners are either knowledgeable about franchising or can easily access the information through the active French Franchise Federation. The FFF has been a pre-eminent player in the sector for many years and was the first federation in Europe to develop a code of ethics that later became adopted by the European Franchise Federation. The federation maintains a list of service providers, consultants and experts in different fields devoted to supporting those that wish to franchise. Therefore, potential partners expect foreign franchise systems not to be ignorant about their market (the prospective clients, pertinent French law-Loi Doubin, and possible modifications that the enterprise will undergo, and so forth). On the upside, if a franchisor follows the right steps, the French franchise market can also be rewarding and profitable. Prime examples are McDonald’s and Century 21 that have become ubiquitous in their sectors and respectively claim France as one of their most or the most profitable market in Europe. Once a business partner or a subsidiary is in place, there is already enough franchising know-how and infrastructure in France to get the ball rolling. Yet to attract a business partner, doing some research and being prepared is imperative; otherwise it may be seen as a lack of both commitment and professionalism. The U.S. Commercial Service should be considered as a first source of market information and customized guidance. The FFF also briefs foreign franchisors and helps identify local service providers.
What are the new opportunities?
In such a tough market, where have U.S. franchise systems succeeded? The United States has always been perceived as a source of innovative concepts and efficient business methodologies. With more than 30 U.S. franchises, America is the first country of foreign origin for franchises that have been established in France. The majority of those are in services, the industry that is still the most promising. Many elements including a growing elderly population, a high percentage of women in the workplace, the ongoing desire to balance professional and private life, household equipment rate and new legal or fiscal environment, are all contributing momentum to the rise in demand for business-to-business and business-to-consumer services. These services are steadily progressing and although they only represent 6 percent of the total number of franchisors, their number has increased by 270 percent since 2001.
The French have been developing new business-to-business services concepts in recruitment, management consulting and so forth that have been largely inspired by Anglo-Saxon models. Several business-to-consumer services are developing in response to evolving needs. For example, France is becoming a leading country in Europe for high-speed Internet users thus creating a demand for information technology related services such as computer repair, and opening new opportunities for on-line services. Likewise, the beauty, cosmetics and well-being industry is also benefiting from the Baby Boomer phenomenon that is becoming just as prevalent in France as in the United States.
Until recently, the French environment was not the most favorable to private businesses that provide personal services. These services include childcare, elderly assistance, gardening, janitorial, tutoring, personal assistance at home for the disabled and the sick. Personal services were considered too expensive and not always culturally-accepted, limiting their development in franchising. Traditionally the cost of labor would make it challenging for this type of service to be economically-viable. In addition, for certain cases, the French have also been accustomed to having the government take on some responsibilities rather than a private company.
However, in May 2005 for example, the French government passed a new law making it easier for the development of personal-service jobs. The main objectives of the new law are to make it more attractive and economical for clients to use personal-service providers, simplify access to the industry and implement a standard payment method (Universal Service Checks). France has invested greatly to acknowledge and professionalize the personal-service sector. Given this new legal environment, U.S. franchises providing personal services may find new opportunities in the French market. They can take advantage of tax reductions, simplified registration processes and reduced entry barriers. Since the implementation of the Universal Service Checks last January, French companies including franchises in this industry have been proliferating. According to industry sources, the market has grown 8 percent in just a few months, with certain enterprises reporting a doubling of their clientele.
How to Take Advantage of These Opportunities
The obvious and recommended first step would be to consider the Franchise Expo Paris, which has over the last 26 years become one of the leading international shows in Europe. Every March the FEP attracts 400 exhibitors and 30,000 qualified visitors among in which 15 percent are coming from 90 different countries and the majority of which are master franchisees candidates. This is the only forum exclusively dedicated to franchising which presents market leaders, foreign pavilions and franchising specialists such as consultants, lawyers and so forth. In 2007, the show will place the United States as the country of honor offering an attractive package to exhibit, benefit from the show’s new matchmaking services, (Master Franchise Dating) and unique international press coverage. Both the International Franchise Association and the U.S. Commercial Service in France will support the efforts of the show in attracting the best that the United States has to offer in terms of franchising.
Many foreign businesses have chosen France as a gateway to Europe. For example, the Paris region ranked first in Europe in welcoming international businesses, according to a 2005 Ernst & Young-European Investment Monitor study. Given the maturity of the French franchising market, its convenient location in Europe, and the truly international local show, U.S. franchise companies should consider France as an ideal European springboard. Overall, the economic, commercial, legal and financial conditions for franchising in France are quite promising. With a well-researched market entry strategy, there is a myriad of opportunities for U.S. franchise systems. Come and test the European market at the Franchise Expo Paris 2007, the first step into Europe.
Rose Marie Faria is the commercial specialist of the Embassy of the United States of America, the Commercial Service. She can be reached at Rose.Marie.Faria@mail.doc.gov.