Who Are the Active Players in Europe?
By William Edwards and Bob Jones
Although franchising had a late start in Europe compared to the Americas, Asia and the Mid-East, it is now a common and well-received business practice. Standardized European Union regulations also facilitate the entrance of international brands to the continent. Today, U.S. brands are extremely appealing due to their innovation, differentiation and well-defined business models. The current EU consists of 28 countries with a population of 510 million. This report considers EU countries where franchising is most active and the average GDP per capita is U.S. $34,500.
2017 was Europe’s strongest year of economic expansion in more than a decade, with average GDP growth of 2.5 percent. Ireland is expected to lead the pack with GDP growth of 4.1 percent, with estimated growth rates of 2.7 percent in Spain, 2.4 percent in Germany and even 2.1 percent in France, which is its best performance in years.
Strong global economic growth is stimulating increases in European exports and direct investment, and falling unemployment and inflation rates across the region are increasing disposable income and levels of domestic consumption. Consumer confidence is the highest it has been in decades and average unemployment is at a nine-year low. From a EU-wide unemployment rate of 20 percent five years ago, the rate in 2018 is 7 percent and falling as new investment needs to fill jobs. As shown on the chart below, these countries vary widely in consumer market size, buying power and as places to do business.
According to various industry sources, there are 13,500 different franchise brands with about 700,000 franchised outlets operating in the EU today. The franchise sector in Europe is relatively mature, with close to 2,000 franchisors in France, and between 900 to 1,500 franchisors each in Spain, the UK, Italy and Germany. Total franchised units vary between 40,000 and 80,000 in each of those markets, across a variety of sectors.
U.S. concepts’ advantage
There are relatively low barriers to entry for U.S. franchise systems across Europe, although there are challenges such as higher labor wages and benefits, as well as regulatory requirements. Of the countries in this report, there are specific franchise related laws or regulations in Belgium, France, Italy, Spain and Sweden. The EU competition law has little impact on most franchises. These laws and regulations apply to all franchises whether local or foreign. There is a perception that U.S. franchises have higher levels of innovation and quality, and since the U.S. franchise sector is the world’s most competitive, a successful U.S. concept has an inherent advantage, as long as it finds the right local partner and adapts its brand to the culture and realities of the local market.
How EU countries compare
Austria: Around half of the 450 franchise businesses operating in this country are of local origin. U.S. brands represent about 6 percent of all franchises.
Belgium: There are about 100 franchisors, 3,500 franchisees and 30,000 related jobs in Belgium, which is among the European countries with the lowest number of franchise units per capita.
Czech Republic: There are 250 franchised brands in the Czech market. There are a relatively small number of U.S. brands present.
Denmark: Most franchises are of Danish or Scandinavian origin. U.S. food and beverage franchises have long operated here.
Finland: There are around 300 franchising systems in Finland. Seventy-five percent of the franchises are domestic. The opportunities for new franchise development are in the services sector followed by restaurants.
France: France has more than 1,900 franchisors. McDonald’s has 1,386 franchises in the country. The French market is mature and extremely competitive but also very receptive to the franchising model.
Germany: There are 950 franchise brands with 22 percent in the hospitality and restaurant sector. There is increasing demand for franchises in the health and senior care sectors. “Germany not only remains the economic powerhouse of Europe, the franchise sector is also gaining significantly in strength this year,” stated Bonn-based Master Franchise Germany Managing Director Franz-Josef Ebel.
Hungary: There are approximately 400 franchise operations in Hungary, half of which are foreign-owned. Food and beverage is largest franchised sector. There is an International Franchise Association and U.S. Commercial Service Franchise Trade Mission planned for Hungary later this year.
Ireland: U.S. franchises lead by country of origin, representing more than 40 percent of the franchises operating in Ireland. Despite the small population, many U.S. franchisors first enter the EU region through Ireland which shares a common language and ties to the U.S.
Italy: There are about 950 franchises in Italy, of which 860 are Italian. U.S. companies ranked in first place among foreign franchises. There has been a recent resurgence in acquiring U.S. franchise brands in the northern part of the country where the most business is done. A majority of local start-ups in multiple industries wishing to expand do so by franchising, according to Daniel Alley of the Milan-based ADEA Group.
The Netherlands: While this is an attractive market for U.S. franchise systems looking to test European markets, 90 percent of the franchise brands are local. Major U.S. food and beverage brands are present.
Poland: There are 1,170 franchise brands with more than 68,400 franchises in Poland. Eighty-six percent are local brands. The largest franchising sector, with 176 brands, is food and beverage. The franchise market is growing and U.S. franchise brands are well accepted.
Portugal: There are more than 500 franchises operating in the market with 11,300 locations. Local franchisors represent 53 percent of the franchise brands with the U.S. representing 9 percent of the total.
Spain: With 2018 GDP growth estimated at 2.7 percent, Spain is benefiting from a dynamic economy, record levels of tourism and domestic consumption and new business investment. There are almost 1,300 franchise brands, of which 1,014 are local and the remaining brands come from 28 countries with the U.S. having 3 percent of the total, mostly in the food and beverage sector.
Sweden: There are 800 franchise brands with 33,000 franchisees, which is high given the relatively small population. The majority of the franchises are of Swedish origin. Franchising is especially popular in the area of retail, fast food and services sector.
United Kingdom: There are nearly 1,000 franchise systems, with 38,400 franchised units. To succeed here, a new franchise entrant must offer a concept that is different from what is already available. Hanging over the economy of the UK is ‘Brexit’, as the nation is scheduled to leave the EU in the next one to two years.
Unlike in the U.S., data on franchisees and customers cannot be shared widely in the European Union. U.S. franchisors are limited in what European customer information they can access here at home. This is a challenge for a U.S. franchisor accustomed to owning their franchisees’ customer databases.
William Edwards is CEO and Robert Jones is Chief International Officer tor Edwards Global Services. Find out more at www.franchise.org/edwards-global-services-inc-supplier. Information for this report was sourced from Deloitte, The Economist, Economist Intelligence Unit, Heritage Foundation, World Bank, Fraser Institute, World Economic Forum, Euromonitor, U.S. Commercial Service, Boston Consulting Group, GlobalEdge, Eules Hermes Risk Monitor, McKinsey, Freidman Report, FRANdata, GeoFutures, Overseas Private Investment Corporation, the Financial Times, International Monetary Fund, Foreign Affairs, EGS GlobalTeam on the ground in the European Union.