Franchising expands in retail sector

Franchising accounts for an increasing part of the Greek retail sector, if one judges by the growth of chains in the last three years. According to a study by business research company ICAP, about 240 companies had adopted the practice at the end of 2001 and the number of franchisees was growing at an annual rate of 26 percent. ICAP forecasts this rate at 17 percent for 2002 and 24.9 percent for 2003. The relevant survey, conducted during October-December 2001, recorded 240 active franchiser firms with at least one franchiser branch, against 187 operating in 1998. The study was based on a sample of 85 firms, or 34.4 percent of the total, 240 of which is considered representative of current trends. Catering emerges as the most popular sector for franchising firms with 12.9 percent of the total, followed by clothing and footwear with 9.4 percent, special retailers with 8.2 percent, and patisseries and cafeterias with 5.9 percent. The Attica region accounts for 43.5 percent of franchisee outlets. The big majority of firms, or 82.4 percent, of franchiser firms are Greek, while 75.3 percent launched the practice after 1995. The 85 companies of the sample today manage 2,076 outlets, of which 78 percent were franchised. Growth prospects are upbeat as 85.9 percent of firms reported plans to expand. Only 25.4 percent of the firms surveyed have franchised abroad. The foodstuffs and catering sectors are the pioneers with 16 percent and the countries or regions favored include Cyprus, the Balkans, western Europe and the US. The cost of the investment for a franchisee is about 30 million drachmas, while 74 percent of franchisers require an additional entry fee, which on average amounts to 13,000 euros per outlet. It varies between 3,000 and 30,000 euros and the largest are required by the catering chains. Also, 37.8 percent of firms charge franchisees a percentage of the total advertising costs, 27 percent require royalties on sales and 9 percent require a fee on orders. The practice is not without shortcomings, which usually arise from the non-observance of contractual obligations from either side. During 1998-2001 23 separate suits were filed, while 6.1 percent of the 114 contracts due for renewal in 2001 were not renewed, mainly by the franchiser.