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Business Flight Franchise Catalogue (english version)


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Business Flight Franchise Catalogue

Business Flight Franchise Catalogue

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  • 1. business flightTwo Capitals Media Holdingpresents a unique project —the Catalogue of InvestmentOpportunities business flight business flight #1 Franchising: License to Fame has been prepared under the auspices of the Russian Franchise Association. EMTG Company has become a strategic partner. We are grateful to the Franchise Associations of the Ukraine and Kazakhstan for participation in the project. We hope that the catalogue will be useful not only for the entrepre- neurs which are pondering the issues on franchise buying but also for the owners of successful companies who are going to sell their product and service franchises. We also would like the information about the national franchising state of affairs be interesting to the legislative officials and region administration in Russia. We are confident that franchising is one of the best mechanisms of competitive recovery of the Russian business in terms of open mac- roeconomics. And franchising development in Russia must become a new trend and the locomotive of the Russian economics. Project Partner — ROID Translation Agency — Project Team: Project Coordinator: Polina Teplyakova Managers: Elena Anisimova, Elena Golyshevskaya, Inna Ovcharova, Inga Sokolova Editor-in-chief: Mariya Litvinova Proofreader: Nadezhda Teterina Designer: Artem Teruhov Our address: 28/2, Tsvetnoy Bulvar, 127051, Moscow, Russia (office 201, 2nd floor), 2, Rastannaya Street, 192007, Saint-Petersburg, Russia (office 607, 6th floor) business flight #1 Franchising: License to fame online — The next issue business flight #2 Investments in the United Arab Emirates is to be brought out in December, 2010. We would be glad to consider all variants of cooperation in the framework of the project: +7 (495) 6080212 +7 (812)6075007 +7 (499) 418-00-13 + 7-(925)0343560 +7 911 912-33-55 +7 903 688-91-84 Polina Teplyakova Tatyana Kichkailo Elena Anisimova (in Moscow) (in St. Petersburg) (in English) 3
  • 2. #1 september 2010 >> franchising4
  • 3. business flightContents: #1 4 Franchising: engine of progress 6 From Moscow to the farthest reaches Franchising and Regional Economics 11 Franchising: a retrospective 13 Law&Order right to the franchise 18 Endurance test Franchising Buyer Test 24 Franchise Catalog 20 Where to start? How to Become a Franchisor? 34 I need that! 38 Where to start? 43 Business Conversation 50 Franchising websites 53 Franchising associations 55 Franchising exhibitions 56 Franchise dictionary 69 Matter of life Social investments in Russia 5
  • 4. #1 september 2010 >> franchisingFranchising: engine of progress T he global financial crisis caused rich not only in natural resources, and our appreciable damage to the Rus- compatriots have already demonstrated sian economy, and its regeneration their entrepreneurial grasp to the world. now requires special measures. With our own distribution networks all First of all, it is essential to preserve that over the world, we can promote innova- class of successful enterprise which was tive Russian products and technologies, formed before the crisis, and second, to especially if we are granted sufficient state attract new businessmen to its ranks. It support such as given in, say, China. Un- is important for entrepreneurial activi- fortunately, we cannot yet claim that we ties to be perceived by society as prestig- have a normal legislative foundation for ious and respectable, and to instill such franchising, and integrated government attitudes from, so tonsay, a tender age. programmes have yet to be developed. As And franchising, as one of today’s most hard as the state may try, it won’t succeedMerab Elashvili widespread and economically effective without the help of the business com-President and Chairman forms of business relationships, could munity, without a powerful, legitimateof the Board of Direc- become a sort of trampoline into busi- organization to reflect the opinions oftors of RFA (Russian ness for millions of young Russians. We all participants in the franchising mar-Franchise Association), all understand that the time has come ket and promote the idea of franchising.specially for BF to resurrect the entrepreneurial spirit This is precisely the sort of structure we that was so strong in the Russian Empire are creating right now. The RFA (Russian and which was unfortunately lost under Franchising Association) exists since socialism. Franchising is an ideal means 1997, but is now facing bold questions of to achieve this goal, and is also an engine modernization. In essence, we are build- of progress: among other things, it can ing a new organization, which will meet stimulate the non-oil-and-gas sector of the expectations of both business and the our economy, and particularly in the state as closely as possible. The association regions can become a platform for im- is now headed by successful businessmen, plementing innovations. Franchising whose leadership qualities are evident is a multiplication mechanism, that from the high ratings of their companies. is, it increases businesses, and We have plenty of sources from which to what’s more, we don’t just get draw inspiration – some members of RFA weak, small enterprises, many have been in franchising for more than of which are statistically likely 15 years. Our goals are to make the RFA to go belly up in their first a recognized name in business circles in year. We get technologically- Russia and the rest of the world, to get equipped and highly profes- franchising into the media and under sional teams which, after a discussion in various social groups, to lay few years of working under the groundwork for changes to the legisla- someone else’s brand, tion, and to begin forming government will then go out and start programmes for developing franchising in promoting their own brands. Russia. And, of course most importantly Take for example Planet Hos- – to make the association useful for its pitality: having started out members, both current and potential. The as a franchise, with just one RFA will represent the interests of Russian Sbarro restaurant, the com- franchising at all levels of state authority, pany today has about 160 hold- and will promote and defend its members’ ings and three of its own brands. interests. We are counting on the fact that There are currently about 500 compa- association members will participate in its nies in Russia using franchise schemes, work: for indeed every civic organisation is and we are able to create our own brands a living organism, in which each cell car- quite quickly, and promote them around ries out its own important function. And the world. At the end of the day, Russia is together they represent a serious force6
  • 5. business flight Strategic partner of the business flight project is The Russian Franchising Association T he Russian Franchising Associa- association serves as a centre to popu-RFA tion was founded in 1997 by lead- larize franchising, the main source of ers of the Russian franchising information for the media, and a centre community, as a noncommercial to mold public opinion. organisation for the support and protec- The RFA represents the interests of tion of interests of its members, and Russian franchising at all levels of au- with the goal of creating more beneficial thority, and in relation to civic organi- legal and economic conditions for the sations, commercial companies, and development of franchising in Russia. private individuals. In its 13 years, the organisation has The association acts as a bridge, unit- welcomed into its ranks the most fa- ing interested parties and consolidating mous franchising companies, achieved their potential, and serves as an on-go- international recognition, and prepared ing forum in which to exchange infor- proposed changes to the existing legis- mation and ideas and conduct research. lations. One of the association’s main goals is To realize its developed strategy in to develop the institution of franchising 2010, the RFA fully modernised its in Russia, as well as to improve the le- organisation. The list of fundamental gal and business environment in which changes included reforming the Board entrepreneurs work. of Directors, presenting the largest The RFA publishes informational franchising companies in Russia, con- materials, conducts seminars, organ- firming the plan to realize the strat- izes exhibitions and conferences, and egy, and a significant expansion of the forms delegations of businessmen to at- membership base. tend franchising exhibitions and other For the practical realization of the events taking place outside of Russia. named goals and tasks, as well as the The RFA is a member of the World operational management of the organi- Franchising Council (WFC) and has sation, a professional directorship was working contacts with most Russian formed, basics of corporate manage- and foreign civic organizations of entre- ment were implemented, association preneurs. committees were created, and new The head of the Russian Franchising financing principles were implemented. Association is the president and board Today the RFA is a national franchis- chairman Merab Elashvili. Operational ing association, a coordinated centre of management is the responsibility of information for both existing and po- the managing director Yury Mikhaili- tential franchisers and franchisees. The chenko Address: 22 Marksistskaya st., building 1, office 208A, Moscow, 109147 Telephone/fax: +7 (495) 670-76-23 7
  • 6. #1 september 2010 >> franchising Catherine Soyak General Director of EMTG Company, Member of the Board of Directors of the Rus- sian Franchise Association, Cofounder of the GOLDEN BRAND National Award and the BUYBRAND CLUB From Moscow to the farthest reaches The development of franchising in the regions of the Russian Federation as one of the means of innovative reform and integrated support for small business. F ranchising is a business for small business affairs in the US development strategy that pays special attention to this format of is widely used around the enterprise, and provides government world, in which one com- support for franchising. pany gives another limited-time Analysing the experience of build- use of a trademark and accompa- ing ideal (both risk-free and socially- nying set of services, technolo- oriented) economic structures in gies, and business organisation developed countries, where the share standards. As we know, one of the of small business in GDP reaches up most important characteristics to 80%, we can conclude that fran- of franchising is the significantly chising is one of the most important reduced entrepreneurial risk. Accord- mechanisms for developing small ing to statistics, 85% of all new busi- businesses. nesses will shut down in their first Even a person completely unpre- five years, but out of firms built on a pared in business, who wants to run foundation of franchising this figure his own business, can with a high is just 14%. degree of certainty open his own According to research carried out by business using franchising. The very the University of Louisville in 1991- essence of this form business is a 1993, the adoption of franchising in powerful system of training for small the economy helped in due course to businessmen. avoid economic crisis in the US. So it’s In many developed countries, fran- not surprising that the management chising gets special attention and8
  • 7. business flightsupport from legislative and executiveauthorities. Indeed, opening a fran-chise is synonymous with job creationand the further legalization of busi-ness activity, which increases tax rev-enues. Any franchiser, based on hisown contractual interests, thoroughlycontrols his franchisees on the subjectof financial transparency of the opera-tion and reliable accounting. This isespecially important in our country,in connection with a significant num- According to research carried out by theber of non-transparent companies, University of Louisville in 1991-1993, the‘uncivilised’ standards of conductingbusiness, and connected factors of adoption of franchising in the economyinsignificant investment activity byforeign players. helped in due course to avoid economic crisis in the US.Why do the regionsneed this? The adoption and development offranchising in the regions could en-able assistance for investment de- create a system of standards that economic sector), and also on a widervelopment, implementation of new meet modern market conditions, and level (the gradual leveling of the eco-business technologies, standards of organise control mechanisms for the nomic development divide betweenbusiness organisation, and the im- services provided. The demands put the regions and the centre, a qualityprovement of the business culture in to the franchisee expand the entre- transformation in the region’s devel-these regions. preneur’s personal opportunities, opment as a whole, and especially in The regional expansion of practical- changing their view of the quality infrastructure services, goods, andly every large franchiser and a subse- of professional knowledge, enabling work).quent rise in competition has called implementation of their abilities and In addition to the above benefits,for development and implementation professional skills, which enables the the presence of large franchisers inof innovative business standards from distribution of innovation both inside a given region will significantly in-local businessmen, needing to adapt a specific franchising network, and crease its investment attractiveness,to a new level in the quality of their outside of it. including for foreign investors, andwork. As the business of most large fran- those quite significantly aimed at With the appearance in the re- chisers is constantly developing to the presence of famous brands in thegions of the top brands, the majority take into account the ever-increasing regions.of small regional enterprises have customer demands for service qual-encountered the need to adopt in- ity, the very presence of the franchisernovative methods of work, with the in the regions changes clients’ con- Why do franchisersgoal of long-term development of sumer demands, which forces the need this?their own business projects. The use use of new working methods even byof franchising reduces risk, increases those market participants who have The attractiveness of a region forthe efficiency of advertising and the never planned to work in franchis- a franchiser is determined not onlyimplementation of technical improve- ing. This way, the appearance on a by the market and financial indica-ments, and increases sales volumes given regional market of a franchising tors, but also by the macroeconomicand profit, which all together enables scheme will quite significantly alter situation in the region as a whole, asthe development of the economy as the structure of that market. For the well as a number of other factors thata whole. In addition, franchising region, the presence of large franchis- directly influence the development ofnetworks play a role as channels for ers is extremely profitable both on franchising in the regions, such as:transferring innovations, in which purely economic grounds (the creation 1) Objective factors (the number ofthe franchiser company develops the of a significant number of jobs, the large cities in the region, the pres-innovation and the franchisee is the attraction of wider sections of soci- ence of formed market outlets forconsumer and implementer. For stable ety to modern economic processes, goods and demand for services, thedevelopment the franchiser must the development of the region’s third economic and geographic conditions) 9
  • 8. #1 september 2010 >> franchisingThe presence of large franchisers in agiven region will significantly increaseits investment attractiveness, includingfor foreign investors, and those quitesignificantly aimed at the presence offamous brands in the regions. 2) Interest from the regional ad- training centres, retraining centres, Cooperation between local large en-ministration in the development of and improving the qualifications of terprises with the goal of expandingfranchising, in particular: employees of local enterprises, creat- their presence in other regions using — legal initiatives, both those in ing personnel services and creating franchising.cooperation with federal authorities specialised databases — Searching for foreign franchisersand independent ones (for example, — improving the relationship of with the aim of attracting additionlocal tax discounts for franchisers or federal and regional schemes for sup- investment to the region and choos-franchisees) porting small business which will ing potential franchisees for them. — offering discounted credit op- undoubtedly increase the competi- Organising subfranchising and help-portunities to franchisees from local tiveness of regional franchisees in ing to launch pilot franchises in thebanks, regional discounts from large relation to businesses leading their region. Helping to organise technicalstate and commercial banks, con- regional expansion by opening corpo- questions, for example, logistics andditional investment appeal of the rate affiliates banking services for regional fran-region or targeted programmes for — the presence in the region of rep- chisees.development resentation from the Russian Fran- — Organising forums, conferences, — cooperation between regional chising Association, local franchis- and seminars highlighting the devel-administration and franchisers on ing association, and/or franchisee opment of franchisinginformation provision (analysis of the association. — The presence of discounted rentalmarketing and economic situation in terms for manufacturing or retailthe region by the authorities, searchand selection of regional partners, What is to be done? space for franchisees, as well as op- portunities for long-term renting,consultations between franchisers Some measures taken by regional leasing, or privatisation.and local franchisees, cooperation in administrations to develop franchis- Franchising is one of the mostmaintaining technology ing could include: up-to-date development trends in — assistance in successfully adapt- — Making contact with those large the Russian business activities anding franchising schemes to the franchises that are not represented in economics. The representatives of theconditions of the specific region in the region, with the goal of attract- most successful Russian franchisorsquestion ing them to the region and/or jointly are discussing the problems of na- — cooperation in human resources developing standard documents on tional franchising, the prospects andfor local franchisees: organising organising franchising in the region. business adaption practices10
  • 9. business flightUkraine FranchiseAssociationThe Ukraine Franchise Association has been engaged in franchisingdevelopment since 2001. Our main task is to represent the interestsof franchising market players assisting them in the promotion andestablishment of partnership.Franchising events: Development of market infrastructure:— specialized exhibitions, — hot line for prospective franchiseesconferences, seminars — market research and analysis— delegations to foreign — market research and interview with market playersexhibitions and meetings with — establishing a legal framework of franchisingforeign franchisors and investorsSeminar Centre Team Vision^holds the seminars dedicated to — works out franchisesfranchising, business, and self- — advises franchisors anddevelopment issues franchiseesRich Up: Publishing Centre MORS:— promotes franchises in the — Chain Developmentmarket Magazine— chooses franchises for — Catalogue of Franchisesprospective franchisees — Specialist literature— manages franchising chains — Franchising reference aid for— carries out the audit of — franchisees — hot off the pressseparate store units, shopping — «Buy a Successful Business»centres and distribution networks with the 7th Catalogue of— chooses brands for gaining Franchisesa conceptual framework ofshopping centreAll that the franchizer needs!+380 (44) 233 0361 (44) 592 8615 (67) 291 9771 11
  • 10. #1 september 2010 >> franchisingFranchising: a retrospectivefrom the Middle Ages to the present daysHow it all began history — documents that would eventually serve as the basis for mod- and left their franchisees with noth- ing. And there were cases of fraud,It’s generally held that the founder ern franchising contracts. At the too: sticky-fingered companies sim-of franchising was American Isaac turn of the century, franchising was ply collected money from trustingSinger, who invented the famous developing, settling into new forms souls, and then vanished into thinsewing machine. At least, it is his and new markets. Monopoly fran- air. In order to prevent these sorts ofname that is mentioned most fre- chises appeared in the areas of tram problems and abuses, the Interna-quently when the topic Iis touched. building and energy commodities. tional Franchising Association (IFA)But in fact the very concept came Oil refineries and the companies of was created, with the main goal ofabout long before Singer was even the incipient automotive industry regulating franchise relationships.born. Actually, the idea of fran- realized that this way they could sell In the US, the IFA works in closechising comes to us from MedievalFrance: at that time, the word meantthe holding of certain privileges andrights that the local feudal lord couldgrant to his vassals. Such privilegesincluded for example the right to The idea of franchising comes to us from Medievalhold trading fairs or auctions, andthe right to build markets. Later this France: at that time, the work meant the holdingpractice was adopted by kings: they of certain privileges and rights that the local feudalgranted the chosen few the rightsto brew beer or build roads. And of lord could grant to his vassalscourse the territorial expansion ofchurches could easily be seen as justanother form of franchising.The evolution offranchising their products to a wider audience, partnership with Congress and the and launched their own franchising Federal Trade Commission (FTC). InIn the 1740s, several German ale pro- schemes. A short time later, all of 1978 a document called The Uniformducers granted taverns the right to America was riding around in cars Offering Circular (UFOC) was devel-sell their products. This step was the and, as a logical next step, fast-food oped. In 2008 the UFOC was amend-first towards the type of franchising networks sprang up. To whit, the ed, modernised, and renamed thewith which we became familiar in famous brands we all know — KFC FDD – Franchise Disclosure Docu-the twentieth century. The idea then (Kentucky Fried Chicken) in 1930, ment. The franchiser is obliged tocrossed the ocean, settled in the US Dunkin Donuts in 1950, Burger King enter detailed information about hisand kicked off the development of in 1954, and McDonald’s in 1955. business on a special form, and givechain shops which were to become it to the potential franchisee a mini-the foundation of North American mum of 14 days before the conclusionfranchising. Recent history of any agreement. In this way, the But let us return to Isaac Singer future franchisee has the chance toand his sewing machine. In the The rapid expansion of franchising make an informed, thoughtful deci-mid-19th century, Singer begins to in the 1960s and 70s brought, in sion. In other words, we can see thatdistribute his product using fran- addition to progress, a number of in the US, the franchising businesschising, signing written agree- problems. Some franchisers, miscal- is regulated by legislation. The wayments with distributors. He creates culating their own strength in assets things stand with us – well, that’s athe first franchising agreements in and in management, went bankrupt completely different story12
  • 11. business flightbeboss.ruCatalogue of Franchises #1in Russia 13
  • 12. #1 september 2010 >> franchising Law Alexey Abdulgazin (A. A.): Because & the franchising agreement creates mutual rights and obligations for the parties, it is considered a civil- legal deal and, consequently, must comply with the standards of the corresponding field of legislation. In Russia this is, of course, the Civil Code. Just imagine: an entrepre- neur and future franchisee (user of franchising), attracted by the prospectus offered by a large fran- chiser (rights holder), picks up the Order Civil Code of the Russian Federa- tion and begins flipping through it, in order to personally get to grips with the legal environment and the details of the proposed deal. And he can’t find a single men- tion of the word ‘franchising’. The problem is that Russian legislation really does not recognise the term. Instead, Russian civil law is aimed at an understanding of ‘commercial the right to franchise concession’. In accordance with article 54 of the Civil Code (CC) of Russia (which, with a few changes, has existed since 1996), under an agreement of commercial concession, the rights holder offers the other party (user) the right to use in entrepreneurial activities a set of exclusive rightsF belonging to the rights holder, in ranchising has recently been developing actively in exchange for a specified payment. Russia, and there are quite a few wishing to use this This set of rights may include a convenient scheme. However, the growth in the num- trademark or service mark, as well ber of franchising deals is consistently below global as the right to other objects of exclu- sive right as laid out in the agree-levels. A key reason for this situation are problems with legal ment, in particular to commercialregulation, as Alexei Abdulgazin of Expotrade legal consult- knowledge and production secretsing firm and Pavel Arievich, senior attorney at DLA Piper Rus (know how).will tell us. It is clear that the aim of sign- ing such an agreement for the user of the franchise is the systematic deriving of profit by utilising speci- fied property (in this case the word14
  • 13. business flight‘property’ denotes a quite specificitem of intellectual property). Incontrast to a normal licensing agree-ment, the parties in a franchis-ing agreement can be commercialorganisations or individual personsregistered as independent entre-preneurs, as for non-commercialorganisations the opportunities toengage in entrepreneurial activi-ties are significantly limited, and insome cases forbidden. The object of the agreement alsodetermines the specific details:the results of intellectual activi-ties named in four articles of theCC. From this it follows that thoserights which are transferred under Russian legislation does not recognisea franchising agreement must fallinto the category of rights named the term ‘franchising’: it is aimed at anand protected in accordance with thelaw. So, for example, in order to in- understanding of ‘commercial concession’clude a trademark or service mark inthe set of rights granted to the user,the rights holder must first carryout legal registration of those marks or even as specific as the actual sales should pay particular attention towith the state registration service of points), the user has the opportunity the fine details regarding the obli-the Russian Federation (on the basis to participate in analogous agree- gations of each side, as well as theof national or international proce- ments (taking into account limits listing of procedural (assignmentdures). In other words, in relation to and requirements of anti-monopoly of notification, pre-trial resolutioneach element included in the set of legislation), the form of using the of arguments and complaints, andrights, it is necessary to take into ac- rights can be specified as far as so on) and technical (for example,count the demands of legislation and specifying the location of the user’s requirements for the commercialregulation of the same, for example commercial installations and their space, exterior advertising, formpatent law. form, the length of time for which and content of the sit, and so on) P. A.: From the points made above, the rights are afforded can be speci- elements. The main thing is to notit is obvious that franchising re- fied, and so on. forget that for effective executionquires a significant level of formali- In addition to limiting of the par- of each obligation, the agreementsation, and in order to afford rights ties’ rights, as well as the obligations must specify the responsibilities tounder franchising it is not enough of the rights holder and the user, di- be born by the party who is guiltyto simply transfer the rights to a raft rectly envisaged in articles 1031-1033 of nonfulfillment of the obligation.of unidentified, abstract objects, of the CC, on the basis of the general Otherwise all detailed rules in thefor example ‘all distinctive slogans provisions of civil legislation, in par- agreement will be ‘dead’. And thenand trademarks of the rights holder ticular agreement with the principle you get a situation like this: “You(without specification)’, ‘the exterior of freedom of contract, the parties of haven’t upheld this point of theappearance of the product’, ‘recipes the agreement of commercial conces- agreement!” “So what? Why don’tand technologies’, and so on. sion have the right to codify in the you take me to court!” And court is a agreement any rights and obliga- notorious waste of time and moneyWe don’t look for the tions, as long as they do not contra- when vaguely worded agreements are the issue.easy way out dict mandatory rules of the law. A detailed and thoroughly con- Usually a franchise is offered forA. A.: In addition, discretionary rules structed agreement allows many a given term, which is not limitedgive the parties a sufficient toolkit to problems connected with imperfect or set by Russian law. However thecreate a flexible system of relations. legislation, that is open to inter- term can be unspecified. WhenThe territory for use of the afforded pretation, to be avoided. Because of signing an agreement it is alsorights can be limited (all of Russia, this, each party to a future agree- worth paying attention to this – thespecific regions, separate localities, ment of commercial concession procedure of terminating the agree- 15
  • 14. #1 september 2010 >> franchisingment depends on it. If the term is that the object of the agreement is a to use broad, foreign experience innot fixed, each party has the right registered trademark (service mark), implementing unilaterally terminate the agree- the signed agreement is subject toment by giving the other party at mandatory state registration withleast six months’ notice. But if it the Federal Service for Intellectual Americais a fixed-term contract, unilateral Property, Patents, and Trademarks A. A.: Let’s look to the example of thetermination is not possible, unless (Rospatent), and – particularly USA, where franchising in its mod-it is specifically enshrined in the important – is considered concluded ern form has existed since the 1950s,agreement. only after this registration. This and similar deals – the precursors P.A.: A very important mandatory must be brought to attention when of franchising – were signed evenrule of the law is the prerogative signing the agreement, as there are earlier.right of a bona fide user to extend a frequent cases in which the parties, The most interesting thing to lookfixed-term franchising agreement. or, worse, one party, begin to use the at is the Franchise Rule, which cameSpecifically, the user, as long as the signed agreement, not realising that into force in October, 1979, withparty has fulfilled all of its obliga- it has no legal force even though it changes made by the Federal Tradetions under the agreement, has has been signed. Commission in January 2007. The keythe right at the end of a fixed-term By the way, the requirements for document in the American franchis-contract of commercial concession mandatory state registration of ing system is the Franchise Disclo-to sign an agreement for a new term these agreements raise a hue and sure Document (FDD), also knownon the same terms. The rights holder cry from the participants in fran- as the Uniform Franchise Offeringhas the right to refuse to sign an chising deals. For indeed, instead Circular (UFOC).agreement of commercial conces- of being able to start work on the It is a rather voluminous (some-sion for a new term if, for a period of basis of a freshly-signed deal, the times 200 pages long) documentthree years from the date of expiry of parties must first determine which that contains the most completethe current contract he does not sign side will take on the responsibility information about the franchise onanalogous contracts of commercial of registration, and who will pay which the franchiser is offering anconcession with any other parties for it, and then prepare the neces- agreement. The form and rules onand does not agree to sign analogous sary set of documents, including completion are established by thecontracts of commercial subconces- stamp duty, before applying to the Federal Trade Commission, and thesion that cover the same area as the authorised body and… waiting until information presented by the fran-expiring agreement. the registration is complete. Due to chiser is confirmed and checked by In the event that within the three- current administrative regulations, registering the completed document.year period the rights holder wants the term for checking the docu- The basic section of information isto offer someone those rights which ments is two months. Plus ten days published and for the entire period ofhad been afforded to the user under for a formal check of the received the franchise is freely accessible.the expired agreement, he is obliged documents. Although, since Rospat- The form is composed of the follow-to first offer the original user the ent’s demands for certain agreement ing sections:chance to sign a new agreement, or elements to be corrected (both sig- 1. Information about the fran-compensate him for his losses. If a nificant ones and mere formalities) chiser, his partners, and affiliatednew agreement is signed the condi- have recently become more frequent, parties;tions must be as favourable for the which often leads to the need to re- 2. Information about the profes-user as the conditions of the expired submit the agreement, the registra- sional experience of the head of theagreement. tion process can take up to half franchiser’s organisation and other This condition is not characteris- a year. key employees connected with thetic for many other civil legal agree- P. A.: In the future, the registra- franchise (for example, franchisingments, in particular the standard tion requirements may be liberalised directors);licensing agreement. Both parties in as a result of Russia joining the Sin- 3. Information about specific legalfranchising need to remember this. gapore Agreement, which abolishes proceedings in which the franchiser A. A.: Finally, it is worth remem- the need to submit the agreement and parties detailed in sections onebering the necessity of completing for registration and replaces it with and two have participated;the agreement in the proper form. a requirement to submit notice with 4. Information about any bank-Of course, a commercial conces- fewer formalities. Although it’s still ruptcy;sion cannot be made as a verbal too early to talk about a timeframe 5. Information about the size of thecontract. The parties must register for such liberalisation. initial payment and how it is paid;their will in writing, indeed prefer- A. A.: These and many other prob- 6. Other payments and expenses;ably by signing a single document lems could be eliminated by perfect- 7. Valuation of the volume of initialand not, say, by exchanging emails ing the legislation. Especially since franchise investment;or faxes. In addition, due to the fact we have a wonderful opportunity 8. Information about the require-16
  • 15. business flight unites the national franchising as- sociations of the EU countries. There are currently 19 member countries in the EFF, including France, Germany, the United Kingdom, Belgium, Italy, Poland, and others. The EFF’s activities are governed by the Franchising Code of Ethics. This document contains detailed descrip- tions of the very idea of ‘franchis- ing’, as ‘a system of distributing goods, services, or technology, that is based on the on-going partnership of two independent subjects – the franchiser and the franchisee – in which the first grants rights and responsibilities to the second to runThe basic rules of franchising are already a business conceived by the franchis-well-developed and proven in world-wide er’. In addition, the Code determines the basic principles of implementingpractice, and there’s nothing to stop them franchising activity, the responsi- bilities of the parties, including thebeing brought to life order for concluding franchising agreements, which also envisages the franchisee being made familiar with all the information relating to the franchise. Each EU member state has the right to implement its own (nation-ments (limitations) on sources (sup- (annual financial reports); al) amendments to the Code, whichpliers) of goods and services; 22. Franchise contracts; may change some conditions, and 9. Obligations of the franchisee; 23. Notification of receipt. which must comply with agreements 10. Information about the organi- In other words, from this docu- about franchising signed the juris-sation of cash flow in the franchise; ment a potential franchisee can get diction of the state. 11. Obligations of the franchiser; almost all the information he needs The Code together with national 12. Franchise territory; to make an informed decision. It is additions is the basic document 13. Information about registered the achievement of this main goal regulating franchising in the giventrademarks; — the protection of the interests of country. For example, the German 14. Information about patents, small and medium business and the Franchising Association has on thecopyright, and the holders; presentation of maximally accurate basis of the national Franchising 15. Information about the fran- information – that is provided by the Code of Ethics developed recommen-chisee’s ability to directly (person- American system. By the way, this dations on the disclosure of informa-ally) participate in and/or control the goal is served by yet another interest- tion by franchisers, warning themrunning of the business; ing standard – a person or entity that that concealing or distorting infor- 16. Limits on the franchisee in has received this document as part mation offered to franchise buyersterms of types of goods (services) of a franchise offer, may not sign will warrant compensation for lossesthat he has the right to distribute in an agreement sooner that 14 days incurred.the franchise; from receipt – a period long enough A similar system functions in the 17. The renewal, termination, and to carefully study the document and other EFF member states.transfer of the franchise and resolu- make a decision about which there The inadequacies in our system oftion of arguments; won’t be any regrets. regulation for franchising are obvi- 18. Information about famous ous, as are the changes necessarymedia celebrities connected with thefranchise; Europe to improve things. The basic rules of franchising are already well- 19. Information about the expected A. A.: In the European Union we developed and proven in worldwidefinancial results of the franchise; would have to say that the main practice, and there’s nothing to stop 20. List of units (authorised sales integrated body is the European them being brought to life. Soonerunits); Franchising Federation (EFF) – a or later this will happen – preferably 21. Franchiser’s annual statement non-commercial organisation that sooner rather than later 17
  • 16. #1 september 2010 >> franchisingEndurance decision-making is important to you, then franchising is probably not for you. Most franchisers maintain tight control over their franchises, and you might find it difficult to establish a good relationship.test 5. Are you expecting help from the franchiser in solving all your own problems? Although the franchiser will of course help you, don’t expect to be micromanaged through all the littleFranchising is not for everyone — it is a great journey which demands difficulties and working moments. If you want that sort of relationship,not only material, but also moral preparation. This brief text will help choose a franchiser who has a longyou highlight key points when making a decision. and successful history of working on the market with a thoroughly worked-out programme.1. What’s your health like? Do youhave any chronic illnesses? Or any disappoint you. Make sure that that isn’t the case, that he or she truly 6. In your opinion, the business couldmedical problems that could require shares your goals and has as much be much more effective if, say, thelarge expenditures to treat? enthusiasm for the new project as business plan, logo, or global adver- you do. If you have serious health problems tising slogan were changed. Will youthen franchising, unfortunately, isnot for you. 3. How many hours on top of the insist on these changes, and defend your opinion? normal 40-hour week are you willing2. Can you count on support from to devote to the new business? As a franchisee, you must play by the rules and not try to make youryour spouse? Is he or she aware that Franchising will demand a lot own: as they say, when in Rome…you are undertaking a risky enterprise? more time from you than the stand- In all likelihood, the franchiser will ard Monday-to-Friday, 9-to-5. Let’s skewer your attempts to ‘personal-How do your loved ones react to the say that right now you’re thinking ise’ the business. If you’re the sort offact that the normal way of life will that you can work 20 hours per week person who cannot live without ‘ra-change, that you will have less time overtime. But are you certain that tionalising’, then you should thinkto spend with them, that you will be you could last more than a week long and hard before purchasing a doing those hours? Or let’s take a dif- franchise.staying at work until late, miss family ferent approach: you are not willingmeal times, and trips away for theweekend? to increasing your working hours by more than two-three, or at most 7. How do you feel about doing four, hours per week. In which case, unskilled labour, for example stocking At the first stage of establishingeven the most successful business, what do you need to start this new shelves or clearing tables?there will inevitably be difficult undertaking for? A franchise is your This might be the first time thattimes. When you discuss the idea of business, you take responsibility you find yourself responsible for thebuying a franchise with your family, for everything, including your own dirty work. If this is unacceptablebe as open as possible and ask them time management. In other words, to you, you will need to take up theto voice their doubts and concerns. you need to spend as much time at challenge of finding specialised Carefully weigh the pros and cons, work as is required to develop the staff right away, and this requiresthink about whether or not your business. But not die like a martyr, will survive this endurance either.test, because the beginning of anynew business always requires a cer- 4. Are you prepared to follow the 8. How often have you had to maketain amount of sacrifice. Even if your serious financial decisions? franchiser’s instructions regarding thespouse assures you that you have two The franchiser will undoubtedlythumbs up, there is a chance that he running of the business? be interested in your experience inor she is only saying that so as not to If a high degree of freedom in financial matters. Are you sure that18
  • 17. business flight you have enough of the necessary knowledge and skills? A franchise is your changing market conditions? business, you take 9. What do you think, do you have responsibility for every- 12. How do you feel about stabil- what it takes to promote a product or thing, including your ity, a benefits package, guaranteed service on the market? What about own time management. wages? For some people, these are successful sales experience? In other words, you need life essentials, while others are more interested in the game, movement, In other words, would you be able to successfully enter the market in to spend as much time and changes. your chosen business? Are you crea- at work as is required If you find guarantees and stabil- tive enough for that? The franchiser is not going to be thrilled about the to develop the business ity the most important things, then don’t rush into buying a franchise. fact that you’ve got little experience It’s hard to turn down a comfortable in sales and marketing. life, when you’ve got your salary 10. Can you motivate personnel? 11. Do you change employment often? coming in every month, your medi- cal insurance includes dental, and the company pays for your mobile. Let’s say that you’ve had problems If you answered yes, then are you in the past with subordinates, and sure that franchising is what you It might take quite a while before you think that you were just unfor- want? Maybe you just feel it’s time you’d be able to regain your previous tunate. Are you sure that it was their for another change? From the other levels of comfort. But if that doesn’t fault, and not a problem in your side, if you have spent your entire frighten you, and you’re absolutely relationship? Sometimes the best working life with one company, then certain that it’s worth weathering business ideas fail at the develop- would you be able to adapt quickly some hardships for the sake of future ment stage purely because of poor to new working conditions, to an success, then off you go, reach for management. unusual lifestyle, to constantly- the stars, and good luck! Elite bookclub «Monplaisir» The luxury collection editionsThe best and the rare masterpiecesof the world literature and book art Manual cover Exclusive registrations The numbered personal copies 127206, Chuksin tupik,9 Moscow, Russia Tel./fax + 7 (495) 737-04-92 19
  • 18. #1 september 2010 >> franchisingWhere to start?6 steps to a successful franchiseBased on materials from www.buybrand.ruStep 1: Сhoose your Goals. Do you need a certain level of income? Is there a specific area you’d can you afford to lose in the event of misfortune? Are you buying the fran-area of business like to work in? Are you interested in chise independently or with part- retail sales or in the service indus- ners? If you need to obtain additionalYou can choose from all sorts of tries? Would you like to have several financing, will you be able to do so?work, including food service, retail units, or just one? Do you want to Can you obtain credit? Do you havesales, services, and manufactur- manage the business yourself, or additional income on which you caning. Each has its pros and cons. For would you prefer to hire a manager? live until the business starts turningexample, services involve a small Will the revenue from the franchise a profit?capital investment, but can have be your primary source of income, The answers to these questions willproblems with selecting staff, retail or is this just additional income for help you evaluate your financial op-sales have a high turnover but prob- you? Will you be happy to work in portunities thoroughly.lems with surplus. Don’t get stuck this business for the next 20 years?on one area. Something else could The answers to these questions willspark a genius idea and deliver an help you make the right choice. Step 3: Analyse Thisunexpected result. Look at your-self, analyse your own abilities and Just like any other investment,goals. Step 2: Let’s count the buying a franchise is always a risk. Thoroughly investigate all the factors Abilities. Do you have technicalexperience or specialised education? money that could influence this risk.For example, knowledge in auto Demand. Before buying a fran- You must understand that the costrepair, building renovation, or office chise, analyse the demand for the of the franchise is just one part ofredecoration? Or will you have to product or service the unit would the expenses of building a for courses? What do you know offer. Evaluate the demand and how You must invest resources in equip-how to do? Perhaps you’re good at ac- much there is: how many people ment, permissions and documenta-counting or have specific technical are prepared to buy this product or tion, preparing the space, and theskills? Do you have any specialists service regularly and in large enough first purchases, wage payments,among your acquaintances, whom numbers? Analyse the nature of the and promotion. Expenses for settingyou could attract to your business? demand – is it seasonal, cyclical, up, training, design project, andHave you ever had your own busi- or stable? Businesses with seasonal various other things are included inness? Or have you managed a busi- demand have problems forecast- the cost of the franchise. How muchness? ing sales and potentially with cash are you willing to invest? How much20
  • 19. business flight 21
  • 20. #1 september 2010 >> franchisingreserves as well, especially duringthe off-season. For example, land-scaping and gardening, and buildingand servicing of swimming pools,are only profitable in the spring and Questionssummer. The final point to analyse is thelongevity of the demand. Temporary to ask the franchiser Dbusinesses lose interest very quickly uring your first meeting — Are there prepared manualsand must be able to start making a with a potential franchis- for franchisees?profit in a very short timespan. Will er, you should get answers — Is there a marketing pro-this product or service be popular to the following questions: gramme at a national level, andnot just today, but in the long-term —When did the first unit open? how is it carried out?future as well? Would your business —How long has the company — How often does the franchis-have room to expand in the future? been working as a franchise sys- er visit the franchises? Is there Competition. What is the level of tem? a personal franchising managercompetition in this area of business? — How many company-owned assigned to deal with questionsHow many units does the franchiser and franchised units are currently from specific units?have in your region? How many operating? — If the franchisee experiencescompeting companies are offering — How many units have closed, problems in the future, with thesimilar products or services? Are they and why? franchiser help solve them?popular? Are they offering the same — How many company-owned — How does the network pur-goods and services at the same prices and franchised units does the chasing centre work?as your potential franchiser, or are company plan to open in the next — Which additional services aretheir prices lower? 12 months? offered to the franchisee in open- Trademark. The basic reason to buy a — What is the profile of an ideal ing and operating the unit?franchise is the right to start trad- franchise network? — Can the franchiser provideing under an already well-known — Has the franchiser been taken a list of all the franchise unitsand trusted trademark. The more over by anyone? Has it filed for with contact information for thepopular the brand, the more clients bankruptcy? Have its managers or franchisees?you will be able to attract. Therefore, directors previously taken part in a — What sort of training doesbefore you buy a franchise, you need bankruptcy or take-over? the company offer, and what doesto think about how well-know the — Has the company had com- it consist of?franchiser’s company name is, and plaints lodged against it with the — How many support person-whether it has its own, registered court or local consumer-protection nel are assigned to your region?trademark. department? If necessary, can someone from The franchiser’s experience. Most fran- — How much of its own resources the support staff provide personalchisers are successful enterprises, has the company invested in creat- support in your area?who have built a profitable busi- ing the system? — Are there qualificationness themselves. However there is — Is the business seeing stable courses available for franchisenot guarantee that this successful growth? personnel?entrepreneur is capable of properly — Is the franchiser making its — Can you count on supportmanaging a franchise system. Find primary income from the selling from head office if problems arise?out how long the franchiser has been of new franchises or from on-going Precisely what kind of help?managing a franchised business. If periodic payments from existing In addition, ask the franchiserhe doesn’t have a lot of experience, franchises? to name for you:then his promises may not be worth — What is the company’s organi- — The suppliers from whom youa lot. sational structure and what are can purchase goods, raw materi- Growth rates. An expanding system the plans for development in the als, and equipment,of franchises increases trademark next 5-7 years? — Goods or services that you canrecognition and helps attract more — Which banks work with the offer for saleclients. But growth alone isn’t network, its accounts, and auditor — Clients to whom you can offerenough to guarantee successful evaluations? your goods or servicesfranchises. A company that grows — Does the franchiser aid in — The area within which youtoo quickly isn’t able to provide the choosing a space for the unit? How? can sell your goods or services.promised help to its franchisees.Make sure that your potential fran-22
  • 21. business flight 23
  • 22. #1 september 2010 >> franchisingchiser has the staff and the financial which will determine the scale of chises aren’t giving good feedbackassets it needs to be able to support your business as a result of business problems, andits franchisees. — Space requirements potential franchisees look else- — Demands from you as a future where. Or the problem may be that partner the franchiser does not have enoughStep 4: Evaluate the — Financial aspects of the busi- personnel. Or the personnel are notfranchiser ness sufficiently competent. One way or — Feedback from working fran- the other, too few new franchisesYour relationship with your poten- chises could mean that the company isn’ttial franchiser will probably begin — Direct contact information for a thriving.with a telephone call or a letter. Pay point person. At your first meeting with theattention to the customer service. Familiarise yourself with the franchiser, you should receive allHow did the secretary respond to management of the franchising the necessary information about theyou, and to whom did she trans- department or the development franchise, which should answer allfer the call? How quickly did you department. Evaluate their style, your concerns. A situation in whichget a response to your email? If the professionalism, and competency. the potential franchisee’s questionsfranchiser is interested in potential If they are rushing, and can’t spend are left unanswered is absolutely un-partners, then each of his employees enough time with you, it’s possible acceptable: the franchiser is obligedwill be working as part of the team. that the franchiser does not have to answer all questions, and to pro-Even at this stage, you can evaluate enough staff to cope with future vide the franchisee with additionalthe competency of the managers, growth. The growth rate of systems information about which he hasn’tand their desire to work with you. is an important indicator of the fran- managed to ask. It’s very important Pay attention to the franchiser’s chiser’s health. The system should be to speak with existing franchisees.commercial offers. Looking over the growing quickly, indicating that it’s Ideally, you should get in touch withoffer and understanding it complete- attracting new people, but not too as many franchisees from the systemly is the most important part in the quickly, in order to avoid problems in as possible. And pay particular at-search for a franchise. In the descrip- managing the growth. Clarify how tention to the comments from thosetion of the offer you should be able to many new franchises are popping up who joined the system recently.find the following: each year and how many employees — Concept there are to support new franchises. — A history of the brand, and its If the system has been working Step 5: Looking for apotential — The advantages of being in the for a few years, but has only added space a handful of franchises, it pays tonetwork be cautious. It may When analysing the location, the — Opportunities for the fran- be that the basic things to look at are demo-chiser to support the fran- existing graphic information (age, income,chise, and the services fran- family size, and so on) about thethat are covered in local population, transportation Trust,the joining pay- provision, and the type of competi-ment tion in the area. For a small retail — The for- unit in its first year, when there’s nomat of the money for advertising and productfran-chiseunit, but double-check promotion, selling location can be a very important factor in the fight for survival. You can protect yourself when buying a franchise with the help of The attitude of the land- a few simple actions. They might require a little bit of extra expense, lord to the tenant’s needs but it’s not worth economizing on your sense of security in the future. is also important. Unfor- — Get a copy of the certificate of registration of the franchiser’s trade- tunately, some landlords harm tenants’ businesses mark (absence of the certificate should set serious alarms bells ringing). You more than they help. can check the certificate with the search-information system on the Rospatent Your rental agreement site at has a direct bearing on — Having thoroughly studied the proposed agreement, give the documents to your business. Does the a lawyer to be checked over, one who specialises in franchising agreement allow for — If you have any doubts, contact a company that offers competition investi- extension of the ten- gation services, to check out the company and its founders. ancy after a specified24
  • 23. business flightperiod? (If the agreement has a fixed outdoor lighting to illuminate Step 6: The finalterm, it may be worth it to look for evening shoppers. Don’t forgetanother place). Does the agreement about the importance of easy analysisfix the rent, or could it be changed parking and proximity to major You’ve analysed the numbers, spo-without warning? Does it protect you roads. Evaluate the foot traffic (the ken with existing franchisees, metas a tenant? Does the agreement take average number of people walk- with employees from the franchiser’sinto written account the landlord’s ing by the façade in an hour) and company, evaluated their competencypromises regarding repairs, con- what direction it’s headed in, the and professionalism. Now analysestruction and renovations, decora- distance from bus stops and busi- your own impressions. Have yoution, alterations, and operations? ness centres (in minutes’ walk), gotten enough information? Does In addition, evaluate whether the number of parking spaces, the everything suit you from a financialthere is enough space for the retail shop window area (in meters), and perspective? Is everything in orderarea, an office, storage, and utility the shopping capacity of the region with the documents? Were the staffareas. Is there adequate parking? and zones of competition. friendly and ready to help? If you areWill you need any special lighting, Think about yourself: will it be sure that you will enjoy working withheating, or cooling, or other specifi- easy enough for you to get to work? these people, then get ready to signcations? Is everything in order with If you have your own space for the contracts.the fire safety and security systems, conducting business, you need to But bear in mind that franchisingare there any problems with the analyse it just as carefully. Maybe is not a simple purchase-and-sale ar-plumbing or other systems? it would be more profitable for you rangement, but a long-term partner Try to figure out how much your to rent it out and lease a different relationship. The process of negotia-advertising expenses will increase if space in which to run your fran- tions can take half a year, sometimesyou choose a remote location. Pay at- chise. And of course, consult with even longer. And you need to considertention to how well the area is served the franchiser – he probably has not only the economic aspects of fran-by public transport, if it is accessible recommendations for the location chising, but the psychological peculi-enough, and if there is sufficient of a new unit. arities of the relationship 25
  • 24. #1 september 2010 >> franchisingТONUS-CLUB®TONUS-CLUB® is the first and largest chain of modern well-ness centers for women, which already includes about 60 clubsin 36 Russian cities.T he chain’s growth rate dem- onstrates the high attrac- tiveness of the TONUS-CLUB Basic information franchise for investment: in Legal name: OOO TONUS-CLUB2009, 17 clubs opened, despite the Company brand: TONUS-CLUBeconomic instability in the coun- Full address: 13 Dybenko ulitsa, St. Petersburg, 193230try, and the chain doubled in size.Dozens of TONUS-CLUBS are already Telephone/fax: +7 (812) 610-05-88 (St. Petersburg), +7 (495) 780-50-59 (Moscow)working in more than 30 Russian E-mail: otkroy@tonusclub.rucities: from Kaliningrad to Yuzhno- Website: www.tonusclub.ruSakhalinsk, and openings are im- Country of brand origin: Russiaminent in Kazakhstan, Ukraine, Type of service or product: consumer services, wellness centers for womenand Belorus. The effectiveness of Year of brand creation: 2002the business is clearly shown by the Beginning of franchising: 2005repeat opening figures: one in four Number of company-owned units: 2franchisees is developing his own Number of franchising/subfranchising units: 59chain under the TONUS-CLUB brand Initial payment (investment): 350,000 roublesand opening more units. In additionto the right to use the TONUS-CLUB Essential start-up capital: 2.5–5.1 million roublesbrand and discounts on equipment, Advertising share: nonethe TONUS-CLUB system also offers Royalties: 170 roubles per square metereverything needed to manage and Number of personnel per franchise: 3-5 peopledevelop the franchise business: Support offered: The right to use the TONUS-CLUB brand, discounts on equipment, training forthe existing and effective business management and line personnel, marketing and consultative support. The franchiser has moreconcept, marketing and consulta- than 30 employees who are dedicated to providing qualified support.tive support and on-going support Targeted areas: Russia, CISfrom qualified specialists both at the Requirements for the franchisee: Experience of managing or running own business.launch phase and going forward. The Readiness to comply with the chain’s unified standards and technologies. Possession or rental of a space 100-200 square meters. Electrical capacity at least 8 kW, with telephone line, plumbing, andTONUS-CLUB system is always being the potential to fit showers.improved – the company regularly Essential criteria when choosing the location for the future business: A convenientimplements new services and tech- location with regards to foot and transport traffic streamsnologies. TONUS-CLUB franchiseeshave access to all the new ideas anddevelopments, and there is regulartraining. Since 2008 the companyhas been a member of the RussianFranchising Association. Based on2009 results, TONUS-CLUB won theinternational health and beautyprize Grazia, in the category Brandof the Year26
  • 25. business flightElki-Palki,Malenkaya YaponiyaThe tavern chain Elki-Palki is brand №1 in thenational Russian cuisine segment.T he Elki-Palki brand has become the symbol of high quality and healthy eating. It reflects the best traditions Basic information of the Russian cuisine in combina- Legal name: ZAO LUNCHtion with the modern requirements to the Company brand: Elki-Palki, Malenkaya Yaponiyatechnological process. Full address: 27/29, Pavlovskaya Street, Moscow, 115093 There is a cottonwool surroundings inthe Elki-Palki taverns decorated in the Telephone/fax: +7 (495) 995-95-94, 221-88-78colourful Russian style. The population of E-mail: rustraktir@mail.ruthe chain and the main principles of work Website:, www.littlejapan.ruare based on legendary abundance of the Country of brand origin: RussiaRussian table, excellent dishes at afford- Type of service or product: foodservice industryable prices, quality service and hearty Year of brand creation: 1996welcome. Beginning of franchising: 2003 The most popular choice of the constant Number of company-owned units: 55tavern visitors is the famous “Telega”. Number of franchising/subfranchising units: 22There is a plenty of snacks, various pickles, Initial payment (investment): 2,500,000 roublessalads, fresh vegetables and trimmingshere. Essential start-up capital: $ 500, 000 Taking into account the successful chain Advertising share: nonedevelopment in Moscow which is proven Royalties: 50,000 roublesto be viable we are developing according Number of personnel per franchise: 30 peopleto franchise system at regional level too. Support offered:More than 20 taverns have been opened in — Provision with a ready-made business modelthe cities of Russia. — Consulting on selecting the optimum location for a restaurant, providing assessment criteria Besides, we are actively developing the — Development of an individual design project in accordance with the corporate standardsMalenkaya Yaponiya brand, which in 2007 — Skilled consultation and maintenance during the startup time as well as operation ofwas recognized, according to the TIME businessOUT magazine estimates, as the best — Consulting on personnel selectionchain project — Training of personnel and management development — Recipes and methods of specialty cooking — Participation in advertising and marketing events — Favourable terms of cooperation with suppliers — Presence of personal manager and head chef Targeted areas: All Russian regions and the CIS-countries, the cities with a population of at least 100,000 people Requirements for the franchisee: — Desire to develop your own business successfully — Experience of managing or running business — Possession of necessary financial resources — Readiness to follow the standards, technologies and corporate culture of our company Expected pay-back period: 2-2.5 years Essential criteria when choosing the location for the future business: the central part of town, convenient road approach, busy transport and foot traffic streams, the 1st floor (big display windows are preferred), there must be space for parking and summer veranda. 27
  • 26. #1 september 2010 >> franchisingCoffee house chain ShokoladnitsaThe coffee house chain Shokoladnitsa is a brand famous not just in Moscow,but also in large cities around Russia and the CIS.B y opening a coffee house under the Shokoladnitsa brand, an entrepre- neur minimizes his risks associ- Basic information ated with the reputation of thebrand, with the professional preparation Legal name: OOO Galereya ALEKSof personnel, with the development and Company brand: coffee house chain Shokoladnitsause of a popular+ menu, and with the opti- Full address: 19 Novy Arbat, office 1607, Moscow, Russia, 119002mal specialised equipment. Our partners Telephone: +7 (495) 697-90-82have on-going support in solving issues as E-mail: maxim@shoko.ruthey arise Website: Country of brand origin: Russia Type of service or product: food service Year of creation: 2001 Beginning of franchising: 2008 Number of company-owned points: 225 Number of franchising/subfranchising enterprises: 16 Initial payment (investment): $70,000 Necessary start-up capital: $150,000-300,000 Advertising share: not charged Royalties: 7% Number of employees in a franchise: 25 Support offered: — Consultation on choosing a space, providing assessment criteria and consulting on selecting the ideal location and the space’s suitability for a coffee house — Consultation on building work and preparing the necessary documentation — Provision of a process plan and equipment specifics — Personnel training — Specialists from the Opening Team attend the coffee house’s launch — Consultation and recommendations on doing business in the food service industry — On-going operative and marketing support in management and promotion after the opening of the coffee house Targeted regions: Russia, CIS countries, Persian Gulf countries, and South East Asia Requirements for the franchisee: Readiness to comply with the chain’s unified standards and technologies. It is preferable to have some experience in running one’s own business. Expected pay-back period: between 18 and 36 months Essential criteria when choosing the location of the future business: Shokoladnitsa coffee houses must be located at the junction of busy transport and foot- traffic streams – on central streets, in large business, retail, and leisure complexes, movie theatres, and airports. It is desirable to have convenient vehicle access and available parking.28
  • 27. business flightPerekrestokPerekrostok has become one of the best known brandson the retail sales market. Basic information Basic information Legal name: ZAO PEREKRESTOK trading house Company franchises: Perekrestok Full address: 28/4 Sr. Kalitnikovskaya, Moscow, Russia, 109029 Telephone/fax: +7 (495) 662-88-88, +7 (495) 789-95-95, +7 (812) 331-24-80 E-mail: Contact person: Sergey Ilinsky Website:,,, www.x5-express. ru Country of brand origin: Russia Type of service or product: retail sales, supermarket format Year of brand creation: 1994 Beginning of franchising: 2000 Number of company-owned units: 1,514 Number of franchising/subfranchising units: 610 preparation, renovation, and equipping of the shop and hiring personnel — A spotless business reputation and credit history Initial payment (investment): 2,000,000 roubles — Readiness to comply with the technologies and conditions determined by Essential start-up capital: 15-60 million roubles the commercial concession agreement. Advertising share: none Essential criteria in choosing the location of the future business: Royalties: 1.5% — It must be located in a densely-populated area (or in an area where many residential properties are under construction), where the income Number of personnel in a franchise: from 100 demographics are average or above average, or located at the intersection of Support offered: the exclusive right to use the brand, a set of other exclusive foot traffic and/or transport streams rights, a set of obligatory services, centralized delivery of a range of goods — It must have parking, and convenient vehicle access for customers, and Targeted regions: All Russian regions and nearby countries, in cities with a foot access population of at least 100,000, X5 Retail Group presence regions — The total area of the supermarket should be between 1,300 and 2,400 square meters, with a square or rectangular trading space of 650 to 1,600 Requirements from the franchisee: square meters — Motivation – the desire to work in the chosen format of shop, under an — All essential utilities (water, sewage, heating), and electrical capacity existing trademark (brand) and with the business model’s standards from 230 to 350 kW — Possession or holding under long-term rent (at least 5 years) a premises — Connection to the Internet, and at least 5-7 telephone lines that meets the demands for location, configuration, size, and expected — Access roads to the shop that will accommodate vehicles such as Scania turnover of the chosen format, a supermarket, located in the regions of the An unloading area that can handle palleted delivery of goods to the shop, X5 Retail Group within logistical reach of its distribution centres with at least 1-2 unloading bays. — Financial resources or the ability to attract investment necessary for the 29
  • 28. #1 september 2010 >> franchisingBaskin RobbinsThe Baskin Robbins brand currently includes nearly 6,000 ice creamcafes in 31 countries around the world.T he Baskin Robbins brand cur- rently includes nearly 6,000 ice cream cafes in 31 countries around Basic information the world, including Russia. The Legal name: BRPIBaskin Robbins franchise is a unique Company brand: Baskin Robbins chain of ice cream cafesproject on the Russian market. In 14 years, Full address: 16 Ogorodny proyezd, Moscowmore than 130 Baskin Robbins cafes have Telephone/fax: +7 (495) 967-37-01opened their doors, in 68 cities within E-mail: jvartanova@brpi.ruRussia. The famous brand has firmly oc- Website: www.baskinrobbins.rucupied its place in the ice cream productsniche and become well known throughout Country of brand origin: USARussia. Customers highly rate the taste Type of service or product: ice creamquality and the packaging design. This Year of brand creation: 1945is demonstrated by the high traffic rates Beginning of franchising: 1945at the cafes and the sales figures in the Number of company-owned units: 10retail chain. The quality of the ice cream Number of franchising/subfranchising units: 120is guaranteed by leading manufacturing Initial payment (investment): $15,000specialists – the only Baskin Robbins ice Essential start-up capital: $50,000-120,000cream factory in Russia. Our company Advertising share: 0is not planning to slow our growth rate.In the food service sphere, Baskin Rob- Royalties: 0bins is rightfully considered a pioneer in Number of personnel per franchise: 4-6 peopleglobal franchising. The use of proven and Support offered: We offer a range of support from planning to launch of the caféwell-developed business models allows for Targeted regions: All of Russia, the CIS, and the Baltic countriesminimum expenditures and risk for the Requirements from the franchisee: The desire to have one’s own businessbeginning entrepreneur. Opening new ice Expected pay-back period: between 6 months and 1.5 yearscream cafes with our franchise is seen as Essential criteria in choosing the location of the future business: A space on aan unequivocal success for Baskin Rob- central space with high foot traffic, retail centresbins, which is the main indicator of suc-cess in a regional franchising project30
  • 29. business flightBelpostelBelpostel is a unique project on the Russian market.I n five years, more than 80 Belpostel shops all over Russia have opened their doors, the brand has firmly es- Basic information tablished its place in the homewares Legal name: OOO Avangard Ekspomarket niche in the mid-range price cat- Company brand: home textile chain Belpostelegory, and become a well-known brand Full address: 7/19, building 6, 2nd Filyovskaya, Moscow, Russia, 121096across the country, from Kaliningrad to Telephone.fax: +7 (495) 775-25-25, mobile +7 (916) 805-44-80Vladivostok. Customers highly rate the E-mail: region@belpostel.comquality and design of Belpostel, which is Contact person: Pavel Yevgenivich Chelyadinovdemonstrated by the large percentage of Website: www.belpostel.comrepeat business. The brand concept was Country of brand origin: Russiadeveloped by a team of professionals for Type of service or product: Bed linens and homewaresthe Russian market specially. More than Year of creation: 200350 factories and businesses are involved Beginning of franchising: 2004in producing goods for the Belpostel Number of company-owned units: 80brand. The quality of goods sold under Number of franchising/subfranchising units: 80the Belpostel brand is guaranteed by Initial payment (investment): from 200,000 roublesleading specialists in textile productionfrom Europe, Russia, and China. The Essential start-up capital: 1,000,000 roublesspecialised chain of shops sells goods for Advertising share: 0the bedroom and the home, including Royalties: 0bed linens, covers, pillows, robes and Number of personnel in a franchise: from three peopletowels, as well as every possible acces- Support offered: A full set of operational, marketing, advertising, and informational support, starting from the selection of space and including development of the designsory for the bedroom and bathroom, project, training, and recommendations in acquiring equipment.even including a line of inexpensive Targeted areas: All Russia regions and nearby countries, cities with a population of at leastmattresses and orthopedic pillows. We 100,000.offer our partners the opportunity to Requirements from the franchisee: Practical experience in retail sales, organisationalacquire a ready business that occupies a capabilitiesniche on the Russian market and has no Expected pay-back period: between 18 and 30 monthscompetitors in its price category. On- Essential criteria in choosing a location for the future business: The shop can be located within a retail complex or can be a stand-alone building.going support and assistance in solvingyour problems both at the opening stageand in your further work 31
  • 30. #1 september 2010 >> franchisingCrema & CioccolatoC&C is the Italian brand at affordable prices, which is popularamong many celebrities as well as the citizens of the capitals andcities with a population of more than a million.C &C is a conceptual fashion show on the best club stages of the country! Basic Infomation — a set of advertising support (bags, video clip, calendars, pens) The name of the C&C brand is the — maximum discounts on goods initial letters of the Italian “Crema Legal name: OOO Krem and Shoko — unified plan for advertising events andand Cioccolato”, which means “cream and Brand: Crema&Cioccolato actionschocolate”. Country: Russia — the assessment of store location potential and store opening approval С&С is not only the garments, but also a City and post code: Moscow, 105064sweet lifestyle! Address: 5 Nizhny Susalny pereulok, — Advertising package (printed matter) — maximum discount on the goods – 10% at The clothes under the Crema&Cioccolato building 18 wholesale pricesbrand will suit for a party as well as for Telephone: +7 (495) 726-57-90 — Free quarterly sales technique training ofbusiness affairs. A girl in the C&C style Fax: +7 (495) 726-57-90 salesmen/stylistsleads an active city lifestyle, being always E-mail:, elvira@ *Free organization of the exclusive fashion-seductive in a sweet and chocolate man- show on a call-out basis, PR eventsner, womanly and sexy. She is impulsive, Website: Targeted regions: everywhereenergetic, emotional, but at the same time Contact person: Yelena Mokhova, Elvira Requirements from the franchisee: Anvarova — Possession of turnover resources andcareful and tender personal financial responsibility Country of origin: Italy Type of service or product: retail sales of — Possession or long-term lease of a women’s clothes, underwear, shoes, and trading space that meets the company’s accessories requirements — Successful experience in sales connected Year of brand creation: 2000 to the fashion industry Beginning of franchising: 2008 — The desire to build long-term, reliable Number of company-owned units: 3 partnership relations on mutually- Number of franchising/subfranchising beneficial terms units: 15 — The desire to grow and develop together with C&C, and support the reputation and Initial payment (investment): none image of C&C Essential start-up capital: 1.5-2 million — Complying with the requirements on roubles buying only C&C products for the shop Advertising share: none Requirements for the space Royalties: none — Total area should be from 50 till 120 Number of personnel per unit: 4-6 people square meters; — They must have convenient vehicle access Support offered: for customers, parking; — the assessment of store location potential — They must have separate entrance; and store opening approval — They must have display windows; — business plan (account of expenditure on — There must be space for the «С&C» to be opening a branded shop, account of stocking mounted to the face of the building; with goods, technical support) — They must have food courts. — shop design project — production of sales equipment Premises are approved on an individual — consultation and business support basis in accordance with the Company’s throughout the entire agreement period standards taking into account the — provision of the brand book, the bid book, peculiarities of the region. and the merchandising book32
  • 31. business flightMIELMultifunctional offices, offering a full range of services on the market of newlybuilt, secondary, city, commercial, and suburban real estate of all types. Basic information Legal name: ZAO MIEL Franchising Company brand: MIEL Full address: 40 Nikoloyamskaya ulitsa, building 1, Moscow 109004 Telephone/fax: +7 (495) 777-62-60 E-mail: Contact person: Roman Muradyan Website: Country of brand origin: Russia Type of service or product: real estate Year of brand creation: 1990 Beginning of franchising: 2007 Number of company-owned units: 72 Number of franchising/subfranchising units: 45 Initial payment (investment): 720,000 roubles Essential start-up capital: 3 million roubles Advertising share: none Royalties: 45,000 roubles Number of personnel per franchise: 10-30 people Support offered: A professional system of training for managers and agents. Realtor, legal, and IT consulting. Marketing and advertising materials. Assistance in selecting a business manager. A full set of documents for working with clients. Placing information on the holding’s main site. Participation in joint advertising. Active PR and Internet support. Targeted regions: Russia, central regions and cities with a population above 1,000,000 Requirements for the franchisee: Management and business skills, the ability to form a team of professional employees, orientation towards a long-term partnership, sufficient financial and human resources, possession of a space that meets the franchiser’s requirements. Expected pay-back period: 1.5-2 years Essential criteria for choosing the location of the future business: The office must be located in a prominent place. It can be located in a business centre or an administrative building. 33
  • 32. #1 september 2010 >> franchisingSbarroToday Sbarro is one of the biggest international quick-servicerestaurant chains.S barro is a stable income. A rich, lengthy experience of managing large and small restaurants. “Tasty, Basic information high-quality Italian dishes, quite Legal name: OOO Brazers and Company (Planeta Gosteprimstva)fast and inexpensively” — that’s Sbarro’s Brands: Sbarrophilosophy. The extensive menu and styl- Country: Russiaish interiors are a combination that no City and post code: Moscow, 127015other chain’s concept can match. The thor-oughly developed programme of training Address: 12 Bolshaya Novodmitrovskaya, building 12and support for partners minimises the Telephone: +7 (495) 785 3875business risk to your investment. Fax: +7 (495) 785 3874 All-around assistance in solving work- E-mail: welcome@sbarro.ruing issues throughout the entire period of Website: www.sbarro.ruCommercial Subconcession Contact person: Nana Giorgadze Country of origin: USA Type of service or product: chain of Italian restaurants Sbarro, medium class, quick service Year of brand creation: 1956 Beginning of franchising: 2005 Number of company-owned units: 93 Number of subfranchising units: 7 Initial payment (investment): $9,900 – express, $19,900 – food court, $29,900 – separate building Essential start-up capital: Express – from $50,000, food court – from $200,000, separate building – from $375,000 Advertising share: 4% of gross income +1 (paid by the company) Royalties: 6–7% Number of personnel per franchise: from 12 people Support offered: Franchising packet, opening team, restaurant personnel training, consulting on key issues Targeted regions: Russia, the CIS, Eastern Europe Requirements for the franchisee/operator: — desire to successfully develop own business — the ability to invest the necessary amounts in a timely fashion — the ability to conform to all corporate standards in the development programme, technical equipping of the restaurant, and food preparation — the possession of a potential trading space (owned or rented) — opening a minimum of three restaurants in various formats within 2.5 years from the date of contract signing Essential criteria for choosing the location of the future business: — location in the central part of town — at the intersection of busy transport and foot traffic streams — in large retail and leisure complexes, airports, stations, cinemas, hotels, and sports complexes — area of 60 to 400 square meters — presence of at least 80 kW capacity, and of display windows and parking for a separate building restaurant34
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  • 34. #1 september 2010 >> franchising become the competition. With man- I agers of franchise enterprises, this doesn’t happen. Their motivation is different. The manager of a fran- chise unit is usually the owner, who has invested his own resources into the business, and quite significant ones at that. These people are basi- cally working for themselves, which need is why managers of franchise enter- prises are generally more efficient than their colleagues. They are more critical and deal objectively with selecting and grooming personnel – in other words, they provide a high level of customer service. This way, that! the franchiser gets managers that are not only professional, but also committed to the common cause. And finally, opening new units takes time. Finding your place in the sun. Haggling over the lease terms. Settling upon the design project, carrying out renovations. Secur- ing financing. Hiring and training personnel. Purchasing equipment. Each one of these stages can slow the process down, so opening even just two or three units can take ages.I For a company that does not com- n the middle of the twentieth century, two brothers Dick and Mac mand large financial, personnel, opened up a roadside snack stall in the small town of San Ber- and time resources, franchising is nardino. They came up with a great method that made their little the quickest way to grow. Judge for café famous throughout the area. And that’s how it would have yourself: most of the immediateremained, if it wasn’t for traveling salesman Ray Kroc, thanks to whom tasks are placed on the franchisee’sthe world would discover McDonald’s. Are you the owner of a success- shoulders. Of course, the franchiserful business? Don’t wait around for Mr. Kroc — it’s time to think about provides general leadership, but allfranchising right now. the dirty work is done by the fran- chisee. In other words, you econo-Based on materials from mise on all three fronts: personnel resources, time, and money. And the last may even see growth. Assum-The three pillars it, buys the equipment and inven- tory, provides the business with ing, of course, that all goes well.Usually, a company starts develop- working capital, pays staff through franchising for three And finally, the franchisee pays Four conditionsreasons: time, people, and money. the franchiser periodic payments – Franchising is quite a flexible Financial resources, or more ac- royalties – in other words, he has the format, suitable for practically allcurately, the limits thereof, are one financial responsibility. All of this forms of business activity. Your busi-of the biggest hindrances on the road taken together significantly reduces ness simply needs to possess fourto business expansion. Franchising the risk for the franchiser. basic characteristics:offers the opportunity to develop Selecting good managers is an- — It must be dependable, andwithout large expenditures and com- other difficulty and hindrance in deserving of trust. And that meanspletely without the risk of getting development. Sometimes business having experienced, professionalinto debt. The main investments are owners spend months seeking and management, a solid track record,taken on by the franchisee – he puts then training managers, after which a time-testing concept, positivein the start-up capital, independent- the managers can simply quit or, feedback in the media, and publicly acquires or leases space, renovates even worse, go into business and recognition.36
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  • 36. #1 september 2010 >> franchisingA properly built franchising network gives asmall company the opportunity to expand and the franchisees make money, thecompete more effectively with big ones franchiser has two basic tasks: 1) sell franchises 2) service existing franchises And that second point plays a key role in the success of the whole en- terprise! The franchisees need to feel happy, and therefore their interests have to come first. That’s a bit unu- — It must be unique. And that quickly begins to understand that sual for you, isn’t it? But if you learnmeans that your arsenal must in- the business he’s wound up in is not to put yourself first, but yourclude unique ideas and know-how radically different from his previous franchisees, then they could helpthat only you possess, which add up enterprise. Regardless of what field your company catch and even over-to a clear competitive advantage that the business is in, and how exactly take McDonald’swill make your network a success. — It must be profitable. And we’renot talking only about profitabilitybefore you began to build your fran-chise network. It’s worth thinkingabout future prospects – what willprofits be like for your franchisees? Stages of the great — And finally, the business pro- referees and their contact details.cesses, technology, and know-how 6) Tests and evaluation of amust be easy to pass on to your candidate. After the meeting the wayfranchisees. Training is the basis of franchiser may request a number of aptitude tests. Test results, resume,franchising. Can you teach in just questionnaire and notes made atthree months (or even less) someone the meeting from the words ofelse to run the business? In order for the franchisee will be evaluatedthis to work, all the systems must together.function well, and all the procedures Plan of actions from initial intro- 7) Investment project/Market-must have a documentary basis. duction of the parties to signing of ing research. If the candidate If your business meets all of these a contract: franchisee is deemed suitable therequirements, then you are an ideal 1) First contact: franchiser adapts the finance plan,candidate for the role of future fran- potential candidate shows inter- conducts market research in thechiser. est and requests information by city of the franchisee or recom- phone, Internet, fax, at a personal mends a local researcher. meeting or at an exhibition. 8) Detailed information about theFeel the difference 2) Franchiser sends through post business. Franchiser submits to the franchisee additional informa- a file or a booklet with general in- A properly built franchising formation about the business. tion about the business which isnetwork gives a small company the 3) Telephone contact to address required to make the decision andopportunity to expand and compete questions and doubts. develop a business plan.more effectively with big ones. Large 4) Meeting with a potential fran- 9) Business plan. Franchisee pre-companies, in addition to extra chisee at the franchiser’s location. pares a business plan for its bank (ifcapital and a strong image, have an- Detailed presentation of business. required). Franchiser must assistother big advantage – motivated and 5) Franchisee fills out a question- with it. naire and his detailed resume. 10) Next meeting for analysis ofefficient managers. It’s not surpris- business plan and discussion of Franchisee must send or handing that the number of franchising in in person a resume with full new questions.networks is steadily rising – more description of all their activities as 11) Taking a decision on agree-and more companies are choosing well as a filled out questionnaire of ment signing.this form of development. But you a potential franchisee with listed 12) Agreement signing.need to be prepared for changes.Every newly-minted franchiser very38
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  • 38. #1 september 2010 >> franchising ments, finish the documentation, Where and write descriptions of your inter- nal business processes. Think about whether you have enough qualified employees to launch this project. You may need to do some prepara- tion with them, or hire a manager or to start? managers with relevant experience. The next stage is to model and build the basic parameters of the franchis- ing project. Answer these questions: Will there be a specified strategic 6 steps to a successful area of realization for the franchis- ing project? Will all the partners be working under the same conditions, or would you suggest implementing a ranking system? Determine the franchise network conditions for participating in the project – the cost of the franchise, Based on materials from,, royalties, payment schemes and so,, on. Determine which additional expenses you as the franchiser willStep 1: Coming up with Think about whether you have enough qualifieda unique offer employees to launch this project. You may need to doLet’s note that the key word here is some preparation with them, or hire a manager or‘unique’. Without a doubt, the offerneeds to contain information about managers with relevant experience.your company, the key concept ormission, financial parameters of fu-ture relationships, a potential planof action and so on. But in order toreally be unique, you must be ableto answer two questions. The first: marketing support, merchandis- bear and which will fall to the fran-why is my business successful? The ing support, and so on. The costs of chisee, and how the support systemssecond: why will it be successful for opening up a unit are also quite com- will work. Larger companies willpotential franchisees? The answers parable. But in 70% of cases, the deci- have to include more complex topicsshould give you a foundation for sion to purchase a franchise is made in here, such as conflicts in distribu-presentation materials that clearly based on emotions – on the basis of tion channels, antimonopoly poli-demonstrate the advantages of the future franchisee’s relationship cies, the distribution of resources,working with you. These materi- to the product or service that he’ll be and so on. And finally, create an in-als fulfill the same function as any selling, to the franchiser’s company, ternal and external financial modelother advertising product – they and to the network’s concept as a of the project.attract a consumer/buyer to your whole. This is why, when developingproduct or service. Only in this case your advertising materials, you needyour business is a product. Corre- to take into account the emotional Step 3: Developing the impact – what is going to grab thespondingly, the clearer and moredetailed the information, and the buyer. documentationmore creatively it is communicated, This means the package of docu-the more attention your franchisewill attract and the better it will Step 2: Building a plan ments that you present to the fran- chisee. The information inside cansell. In the grand scheme of things, To start with, you need to conduct an be divided into two sections: the firstfranchising offers don’t differ that internal audit of your company and regulates the relationship betweenmuch: they all promise pretty much evaluate how ready it is for a new ac- the franchiser and the franchisee,the same level of retail margins, tivity. Gather your constitutive docu- and the second presents instructions40
  • 39. business flightIn 70% of cases, the decision to purchase a franchise is cific franchisees and all the systems as a whole. Obviously, as the busi-made based on emotions – on the basis of the future ness grows and market conditionsfranchisee’s relationship to the product or service change, the franchiser may modify and add to the operations manual.that he’ll be selling, to the franchiser’s company, But it’s not a good idea for either the franchiser or the franchisee to strayand to the network’s concept as a whole. This is why, too far away from it.when developing your advertising materials, youneed to take into account the emotional impact — Step 4: Gathing a teamwhat is going to grab the buyer. In order to create an effective team, you need to determine individual zones of responsibility and set down new job descriptions. Until such time as the company has a special- ised franchising department, the(operational instructions) on the personnel work standards, a descrip- project is usually handled by thefunctioning of the business. In other tion of the technology, business development department. Those em-words, the first section will explain processes, and know-how that will ployees usually have quite enough toto the franchisee what the project be handed over by the franchiser, the do – developing the company’s ownis like, its commercial conditions, requirements for setting up a unit in network, selection, document turna-a description of the advertising and accordance with the brand book (the round and so on, and it would bemarketing support, everything that brand book is usually included). The unwise to burden them with sellingrelates to accountability and regula- more information included in the franchises as well. Since franchis-tions. The second includes a brief operations manual, the easier it will ing will become a strategic priority,description of company policies, be for you to control the work of spe- it makes sense to build a dedicated 41
  • 40. #1 september 2010 >> franchisingstructure. As a model we can lookat the structure used in companieswhere the sales department plays akey role. The basic idea is thus: themost important thing is sales (inthis case, sales of franchises). All theother departments are created in or-der to support the sales department. It is best to consult with a professional lawyer, soThe structure should look like this: that he can prepare the contract taking into account 1. Franchise sales department(from the first contact to getting the all details and your requirements. The lawyer shouldfirst payments for opening up units). have experience of working with franchising. Tasks: — Communicating with potentialclients, and sales — Selling franchises, up to the mo-ment of signing the contracts takingthe first payments. 2. Start-up department (from thefirst payments to opening units). — Provide support at the stage of the trademark and the right to use consult with a professional lawyer,opening units from the design pro- the trade name and (or) commercial so that he can prepare the contractject to completion name, as well as other objects of ex- taking into account all details and — Manage the timescale plan of clusive right, while a licensing con- your requirements. The lawyer shouldopening new units tract grants only the right to use the have experience of working with 3. Support department (from the trademark. The licensing contract franchising.moment the unit is open). also includes conditions that the quality of the goods produced by the — Support and manage the run-ning of the franchises. licensee must be on the same level Step 6: Launching A clear orientation towards sales is as the quality of the goods produced the projectthe main advantage of such a struc- by the licenser, and the licenser willture. Of course, you can build it up conduct quality control. At first, just do a pilot launch: workstep-by-step – at the first stage you There are template concession and out the project with one or two loyalcould just have a sales department, licensing agreements that can be partners and, if necessary, makeand the other two could be added as used when establishing your re- changes to the documentation. To at-things develop. There is one more lationship with your franchisees. tract future franchisees, experienceimportant point – you need to review But this is rather risky – a general shows that it’s quite enough to placeyour motivation. If the company is contract doesn’t fix the individual your offer on franchising sites, suchinterested in building a large busi- circumstances of your specific rela- as, www.beboss.ness quickly, then the primary moti- tionship. These specifics must be set ru, and From suchvation depends on opening a certain down separately. The franchising placements, you should expect be-number of units in a given period. agreement, at a minimum, must tween two and five applications andRemunerations could increase geo- contain a full assessment of the unit openings per month. Specialisedmetrically, depending on how many franchiser’s intellectual property, exhibits on franchising have a hugeunits the franchising sales depart- it must protect the rights of all four role to play in expanding your net-ment has managed to sell. parties (the franchiser, the specific work – see a list on page …. franchisee, other franchisees, and But the best advertisement for the consumer) in the system, it must your franchise are the partners thatStep 5: Get the contract list the responsibilities of all parties, have already opened up units in your network. As soon as you have activeready including financial, it must describe the franchiser’s mechanisms of franchisees, their positive feedbackUnfortunately, in the Russian legis- control over the franchisee, it must will clear any doubts that a potentiallation there is no clear definition of address the issue of area, and the buyer might have. But these fran-a franchising agreement. Usually a questions of supply and evaluation of chisees must be happy and satisfied.concession or a licensing agreement goods, and it must of course deter- And for that, in addition to every-is used. The basic difference between mine the term of the agreement and thing we’ve talked about above, youthese contracts is that a concession the conditions under which it might must love your franchise. And then itcontract gives both the right to use lead to its termination. It is best to will love you back. Good luck!42
  • 41. business flightDo you need Safetya broker? equipment J The advisability in using a broker ust like any business model, As a result, the franchisees,depends on the stage of development franchising presents prob- having invested considerableof the franchising project. At the lems as well as advantages, resources, feel as though they’veinitial stage, when the franchise is especially in the Russian been lied to, the project takesstill unknown, it would probably be environment. The better you much longer to turn a profit,unwise to approach a brokerage com- understand the currents, the the franchiser loses the trust ofpany – you can make do with your own better you’ll be able to navigate his partners, and the grapevineresources and create your own team the sometimes choppy waters of starts working against him. Into develop your network. Be careful Russian franchising. order to avoid this, when you arenot to over-estimate brokers’ methods 1. Your interests. Unfortunately, working up the demonstration– often their work consists of no more Russian entrepreneurs, both materials, make sure that youthan placing your franchising offer as franchisers and franchisees, take all details into account. Beon those same specialised websites. often have distorted ideas about open with your potential part-And you can do that yourself. And so this business model: we end up ner, show him the product, andfirst of all it’s worth working out a with not so much partner rela- don’t ignore the weak side andprogramme to promote your franchise tions, as ‘every man for him- the minimum results. Then youand set your employees to it with clear self’. When opening a franchise won’t lose the trust of your part-instructions. After a while and as you business, a Russian company ner who is, after all, working onhave more resources available, you can tries not just to avoid invest- your brand’s reputation.hire a broker to work in tandem, in ment, but to totally avoid risking 3. A question of control. A clas-competition with your own subdepart- its own brand. The franchise sic problem is control over thement. In signing an agreement with agreement generally consists franchisee, especially when hea broker, determine precisely what of a huge number of strict rules starts expressing his own opin-results you are expecting in return for aimed at turning the franchisee ion that is at odds with that ofpaying him: into a dependent, rather than a the franchiser. The company that — How many signed contracts partner. Though it’s true that it’s wants to safeguard its reputa- — How many open units not really franchisers who are tion writes a lengthy operations — Fulfilling a previously agreed- to blame for this: all too often, manual, literally spelling outupon plan for signing contracts and franchisees disregard the stand- exactly how the franchisee mustopening franchises. ards and rules laid out in the act. Although this doesn’t always In addition, when choosing a broker, brand hire. help – the franchisee may wantpay attention to what his pricing is 2. Don’t trust anyone. Some to make some decisions inde-based on. If the cost of his services de- franchisers regard the operation pendently. As a result, the brandpends directly on the cost of the fran- of selling a franchise as just a suffers (if the franchisee breakschise, that’s a bad sign and you should normal product sale. As a pres- from the brand book) as does thebe extremely cautious. A good sign is entation, they offer examples brand’s reputation (if the fran-when a broker asks you to familiarise from their own practice of suc- chisee produces inferior work).him with the accompanying project cessful units, presenting only In order to avoid such problems,documentation – this means that he’s showcase results, and a pric- clearly define in the agreementa specialist who takes his responsibil- ing policy for the project built the franchisee’s obligations withity seriously and wants to study all the only on data from the capital, regards to upholding the net-information in order to estimate his without taking into account work’s standards and the brandman-hours for conducting negotia- the differences in the regions. book requirementstions with future franchisees. 43
  • 42. #1 september 2010 >> franchising Shokoladnitsa Maksim Trubnikov Director for Regional Business Development and Franchising conversation TONUS-CLUB Irina Chirva ofounder of OOO “TONUS-CLUB” F ranchising is one of the most up-to-date devel- Баскин Роббинс opment trends in the Russian business activi- Agnessa ties and economics. The representatives of the Osipova most successful Russian franchisors are discussing General Director of ZAO BRPI the problems of national franchising, the pros- pects and business adaption practices. Elki-Palki Mikhail What prompted your com- X5 Retail Group Imnadzepany to start developing as a Objective mar- Deputy General Director ket reasons. Only the organic growth ZAO LUNCHfranchise? cannot ensure the desired pace of development of the chain and that’sBaskin Robbins why our company has chosen the oldThe global experience of successful tested instrument – development ondevelopment of the Baskin Robbins the basis of a franchise. Thanks to Mielbrand. Created more than 60 years that we, at minimum costs, man- aged to take considerable positions it Romanago and many times tried and tested MuradyanBaskin Robbins system of franchising Chernozemye, Tatarstan and othersuccessfully acclimatized in Russia as regions of Russia where, for various Broker’s Councilwell. Last year the chain grew by 12 reasons, independent launch of the Chairmanmore cafés, in the preparation stage company’s shops would be quite dif-are more than 20 applications for ficult.opening. MielShokoladnitsa Franchising gives an opportunity for Х5 Retail GroupWe didn’t sell the franchise before — active development on the real estate Mikhailwe wanted to occupy as much of the market. It’s an extremely interest- Susovmarket as possible ourselves. In early ing Western model which is success- fully and actively growing across all Corporate Affairs2008 we started selling franchise, but Directoronly in the cities where we haven’t the sectors. So now it’s time for theyet made it – or had no plans to. In Russian real estate market to startMoscow, for example we don’t sell any developing according to the franchis-franchise. ing model.44
  • 43. business flight GRI EUROPE SUMMIT 2010 INDIA MENA 2010 GRI GRI 2010 GRI2010 New Europe Turkey Türkiye GRI2010 GRI2011 2010 ASIA 2011 GRI ASIA GRI 2011 USAGRI 2011DEUTSCHE GRI 2011 BRITISH CHINA 2011 GRI2011 45
  • 44. #1 september 2010 >> franchisingTONUS-CLUB world experience of franchising is a franchise you don’t have to createFrom the time of our opening in 2002 more than 100 years old, where as in something new, you can just use thethe company straight away had an in- Russia it’s only beginning to develop. already active, successful business-novative structure – Russian consum- The raise of franchise was caused by model, ready-made technologies,ers yet had no idea about the world-fa- the development of the Russian mar- trade mark. Not many people under-mous wellness philosophy. Essentially, ket of business financial relationships. stand how this works in the servicesthe company was not only at the roots Today franchising is being actively sector. Second difficulty – desire to beof the Russian wellness-industry, it introduced to the Russian economy, independent and work under an ownhas also formed the completely new but up to this date the Russian legisla- brand. Such business people do notsegment of the services market. tion lacks a standardised term ‘fran- quite understand all of the specifics The first TONUS-CLUB was open in chising’, which creates obstacles for of the franchise model, they see it asJanuary 2003, and it was so different the development of this world-wide going under someone else’s rule andfrom other sports and health centres acknowledged business technology. what they don’t realise is that fran-that it immediately gained popularity: chising is first of all built on equalitycustomers would come even from out- Shokoladnitsa of power.side the city and the information was Franchising encounters the samespreading mainly through the word of problems as many other types of busi- Elki-Palkimouth, through recommendations. nesses in Russia. There are no particu- The commercial concession contractsOnly four months later the project larities specific only to this sphere of that are often concluded in Russia,completely paid back and already in business in Russia. are subject to risks when parties areSeptember we have opened the second There are no peculiarities attributed entering into franchising relations,club of the chain as well as started a exclusively to this sphere of business, they can be challenged and have manyproject for equipment sale. apart from imperfect legislation in the legal loopholes in certain situations. But not all of the customers who area of franchising. At present the im- A serious problem in the franchisebought our equipment could set up perfection of the legislative base puts development in our country in lowsuccessful wellness-clubs, many were us under a lot of risks. Low levels of awareness of the business people,really struggling. An analysis of the awareness of the benefits of operating too little understanding of the workssituation showed that the success of under a franchise stands in the way and the strategic advantages of suchthe project was not only due to the as well and lack of information in the collaborations. Our common goal isunique equipment but also due to the mass media. to aid the increase of information andbusiness organisation system and so knowledge about the franchising inin 2005 we have launched our fran- X5 Retail Group the Russian business community.chising program. Our experience shows that there areElki-Palki no massive problems for the develop- How did your company survive ment of franchises in Russian. ByThe first tavern Elki-Palki was opened 30th June 2010 X5 Retail Group man- the crisis? And what, in general,in 1996. An unusually high demand ages 610 shops under a franchise. This were the effects of the crisis onfor this restaurant gave an idea for is the largest indicator in the sector,the creation of a chain. The chain none of our colleagues on the market the franchise market?was growing fast in Moscow. Be- can match these results. Among ourcause of the high levels of interest of partners are serious business people Baskin Robbinsconsumers and business people from who manage hundreds of shops and Long-running reputation of reliablethe regions the strategic plan for the are planning to continue their active partnership around the world allowsdevelopment of franchising chain was growth. Although, the recently passed large companies to not only deal withborn. And so in 2003, having proven law “On Retail” allows for an am- the crisis situations but also build upthe success and capabilities of our biguous interpretation of the market the number of franchisees.concept, we have opened the first Elki- share of a company using a contractPalki restaurant as part of a franchise. of commercial concession. We have Shokoladnitsa forwarded the appropriate questions to Our company survived the crisis with Please, characterise the “pe- the Federal Anti-Monopoly Service and minimal losses. The reasons for that is are hoping for a prompt reply. the large target audience, appreciationculiarities of national franchis- and love of our customers in Russiaing”. What stand in the way of its Miel and abroad, constant hard work of our The first difficulty in the way of fran- employees on the quality of the dishes,development in our country? chising development in our country the cosy, warm in our coffee shops. is lack of understanding and knowl- Also, in our coffee shops we use onlyBaskin Robbins edge of the strengths of this mecha- natural ingredients. Before the crisisFirst of all we must consider that the nism. Because when you are buying we had numerous projects at the sign-46
  • 45. business flighting stage, but the crisis took its toll ing of selling their business, but there Franchising is a very specialand many people decided not to take aren’t many buyers capable of offeringthe risks. But those who concluded the a good price. In this situation one of type of business relationshipagreements realise they’ve made the the possibilities to retain the business and the involved parties mustright decisions. is a franchise of a large retail chain with well-developed technologies and collaborate in a specific way.X5 Retail Group a recognisable brand. Please, tell us how important isOverall the Company has survivedthe crisis 2008 and 2009 quite well. Miel the human factor, what psycho-We continued to grow according to For the franchising model there is no logical complications can onethe announced plans, both in terms principal difference – whether to workof growth of financial indicators and during a crisis or not. Over that small encounter?in terms of the number of new shops. period of time that we’ve worked inThe stability of our position can be the franchising sector it became clear: Baskin Robbinsproven at least by the fact that we the franchising model fully justifies No doubt, the relationships withinremained the only company in the itself. Because it’s both a recognisable a franchising system must be part-retail sector that in 2009 has con- brand, large number of deals within nerships. A regional branch is a fullducted a m&a deal — an acquisition the chain, a territorial coverage plan, member. For the company it’s veryof the Paterson supermarket chain. participation in the constant market important to make the right choiceSpeaking of franchising – for some of growth. of franchisees. These must be profes-our partners the crisis was a serious sionals, with experience in their area,trial. Many have lost an opportunity TONUS-CLUB with history of successful work. To cre-to pay their сurrent debts and finance Naturally, the world financial crisis ate own business requires a huge po-their development. For example our did not fail to have its effect on the tential, leadership qualities, healthypartner in Belgorod ended up in such franchising. As in many other sector, ambition. Most buyers literally nur-a situation, they had to close down weaker players were forced to leave the ture their own success and develop-the business (at the time of closure the market. ment formula and then implement itchain had 9 discount-supermarkets At the same time the more resistant with passion and full satisfaction. ForPyaterochka). We were offered to buy and popular franchises only strength- Baskin Robbins the success of our part-out these shops, but it did not match ened its positions. The growth rates of ners is very important. At the initialour strategy – to buy only the most TONUS-CLUB in the period of eco- stage we concentrate on passing to thesuccessful and attractive franchisees. nomic instability are an evidence of franchisee the key skills that wouldAt the end of 2008 we have purchased how attractive the franchise is for the help them in running their own stableAgrotorg-Rostov that manages the Py- investors: in 2009 we have opened 17 business. A franchisee must be awareaterochka supermarkets in the Rostov clubs. The growth rates have increased of all of the nuances and peculiari-Oblast. The company could no longer comparing to 2008. As of September ties of the market, in the competitiveservice the shops as they have accu- 2010 in Russia we have more than 50 situation it’s the adamant condition.mulated a large proportion of debts clubs across eight time zones: from Otherwise incompetence and badlyto the suppliers and employees. The Kaliningrad to South-Sakhalinsk, and thought through actions can have theoverall volume of the debts purchased every month new clubs are opening.s most negative effect on the work of theby us was around 400 million roubles. Soon we are planning to open clubs in partner. Opening the new Baskin Rob-We consider this to be a very profitable Kazakhstan, the Ukraine and Belorus- bins café a franchisee can always relydeal (before the deal we had just one sia. upon the support of the experts fromPyaterochka in Rostov-na-Donu and 3 the head Krasnodar). Organic development Elki-Palkiwould have required much more time, We have survived it quite well, moreo- X5 Retail Groupefforts and investments. We have ver we have not stopped in our develop- General values and psychologicalpreserved the workplaces – in the very ment. Specially for the partners from comfort in the relationship are impor-midst of the crisis it was very impor- the struggling regions we created tant but the most important thing fortant for maintaining a stable situa- support programs. And even though successful work is strict observance oftion in the city. In terms of the global the crisis has made certain corrections the assumed obligations by all of theinfluence of the crisis — many, often to our strategic regional development partners.quite large regional chains, ended up plane, our franchisees, despite thein complicated financial situation. most difficult market situation, con- MielThey had accumulated debts to banks tinued to open taverns and today these In the services sector the psychologi-and suppliers, the owners could no are successful restaurants. Today we cal factor is extremely important.longer service their obligations. In are continuing our active development When making a decision, alongsidesuch a situation many began think- in the regions. manager’s experience we also evalu- 47
  • 46. #1 september 2010 >> franchisingate his or her psychological portrait, equipment. A one-off payment will with the new franchisees, not onlyas we want to have a clear picture of be 95,000 roubles, monthly royalty – in Russia but also in CIS, as well as inwhether he matches us in his style, 2% of the turnover. The high-demand German, Canada and so on.his spirit, whether he would be able staple goods will be supplied at theto organically join us. Holding has price 15% lower than the market. What would be your advicebeen developing like this from the Also in the range of our franchisingvery start and for us it’s very impor- products there are such formats as to the companies that are begin-tant. Pyaterochka-mini and Perekrestok- ning to consider developing as a express. So any business person work-Elki-Palki ing in the retail sector will be able to franchise?For us our restaurants are our pride find with us a product suited to theirand joy, our brainchild that we are possibilities. We, in our turn, guar- Baskin Robbinsdeveloping, growing and love very antee stable income and constant The biggest mistake of most franchis-much. We ‘infect’ our partners with customer flow — today our shops are ers is when they sell a franchise theythis love, desire to work day in and known all over Russia. do not find it necessary to continueday out. People who are fanatical support the franchisee’s business,about the common thing achieve suc- Shokoladnitsa which in the end leads to a decline ofcess much faster. Our company is planning to open business activity of the franchisee. 30 coffee shops every year. Speak- Constant control from the head office How do you see the perspec- ing of franchises, at the moment the is adamant. This allows to achieve a demand is growing every month but high level of professionalism of thetives of franchise business in we do not sell our franchise to all of regional specialists and to raise theRussia? And perspectives for your the interested applicants and prefer status of the central office. to seriously study the applicant before The legal side is no less important asown company? concluding a contract with them. well, and in particular the thoroughly Also, alongside Russian partners, we developed contracts.Baskin Robbins are in the process of negotiations withRussia is a country with great poten- China, UAE, Greek, Kazakhstan. Shokoladnitsatial. Every month new partners join Naturally, the successful devel-the Baskin Robbins franchise, new Miel opment of franchising companycafés are opened or the existing ones Today only 2% of Russian compa- depends on a brand. That’s why firstget expanded. We produce and supply nies work on the retail market as a and foremost it’s necessary to setto the Russian market ice cream of franchise, whereas in the West the yourself up in the market, and thethe highest quality. It’s much beloved percentage of those is really high. time when it’s right to start sellingby our customers and enjoys the well- Russia has a huge potential. Russian the franchise you’ll know from yourearned popularity. real estate market is only 20 years loyal customers. old and over that time a great deal ofX5 Retail Group experience has been accumulated, MielOur company intends to use a reverse understanding of how to conduct In Russia in order to start develop-trade franchising. In this case a business, understanding of all of ing a franchising it’s not enough tofranchisee receives our technologies, the resources required for successful just have a correct business and goodadministration, personnel training, work. We evaluate the potential of our technologies! You should build your100% of supplies from the distribu- company as very high as we are one of own successful chain. In most casestion centres of the company, possibly the undisputed leaders on the market the franchisers – businesses witheven participation in the capital. – in terms of reputations and client their own chain. Because the com-And at the same time the owners of preference. And it’s interesting and panies that opt for the franchisingthe franchise will consolidate the promising to enter the market under format purchase not only brand andproceeds into our finance streams our brand. technologies, but also a track record ofwhile receiving once a month a fixed success.agent’s remuneration from X5. We Elki-Palkiare going to use this scheme with We, as many chain companies, today Elki-Palkithe Perekrestok supermarkets and are aiming at the improvement of Companies that begin developing as adiscount-supermarkets Pyaterochka. service and perfection of the standard franchise: be brave, full of energy andFor shops with area greater than 200 of our services and products, as well be not afraid of work!sq.m. we have a Citymag project. A as appropriate support to our fran- Companies that want to purchasepartner is guaranteed supplies from chisees. This attracts new partners. a franchise: bravely undertake new,our DCs, uniform for their personnel, We are broadening the horizons of unknown ideas! Professionals willretail space layout solutions, special our development, actively negotiate help you!48
  • 47. business flight MOSCOW BUSINESS CLUB The club of the leading Russian businessmenThe privileges of the Moscow Business Club members• high-level business communications• a community of professionals: sharing experiences and knowledge• business appointments (share of profits, breakfast meeting, social events)• event marketing: — conferences, forums, presentations made to order — individual business meetings — participation of your company in Russian and international exhibitions• regular informing club members and partners about planned goings-on: news and event calendar• PR support: the Mass Media, the Internet, fairs - subscriber-based service• Graduate School of Business: individual and corporate training• searching for business partners at the Russian and international level• auctions: selling of your goods and business projects• preferences and discounts provided by club partners We work in the real estate, construction and financial markets, etc. We have more than 5 000 customers! Contacts: Phone: +7(495) 507-46-60 49
  • 48. #1 september 2010 >> franchising www.franchiseealliance.comFranchising websites Russian-language portal with a Founded in 1999 in order to col- News, information about events, Tips convenient lect and publication of materials and advice on all matters of franchising navigation. Here are latest news, about franchising from around business. opinions foreign and Russian the world. Thousands of people experts, practical tips, success sto- from 30 countries gathered at this ries thematic reviews and analy- resource to discuss pressing chal- Franchises UK for sale, best offers and sis, Information about suppliers lenges of franchising. franchising ideas of Britain. of products for a chains, Video Vision, materials Club BuyBrand, calendar case exhibitions and On this site collected more than Site of the leading publications about other topics reveal the subtleties of 8,000 franchises and master fran- franchising, founded in 1978, accu- the partnership business. chise license for start-ups projects. mulates the most current and reliable information on international market franchise, and in specifically, the UK Internet portal that provides in- Resource for business and fran- market. The magazine can be down- formation about franchising and chise opportunities in 27 coun- loaded free at electronic form. how to develop a small Business. tries. Franchise Catalog (international and Canada), information about the best business opportunities, The site is devoted exclusively to all support resources for business. the European franchising indus- try. Represented both individual and master franchise in the food Sites of franchising for women: topical tips, special proposals, and communi- Site of Australian Griffith Univer- sector, retail and other sectors. cating with business women, already sity. Independent source the latest achieved success in franchising. information, among them— fran- American Association site fran- chising researches, training and chisees working in the field restau- educational programs. rant business.50
  • 49. business flight There are justa few things in life that are more important than golf. 51
  • 50. #1 september 2010 >> franchising The International Franchising FoudnedFounded in 1978. Represents theFranchisingassociations Association (IFA) economic interests of German franchising at the state, national, and international Founded in 1960 in the US. Represents level, and provides consulting and legal the interests of franchising at all levels of services. power, and provides consultative support. The acknowledged leader among franchis- ing organisations, enjoys well-earned authority around the world. Assofranchising (Italian Franchising Association) One of the founding members of the EFF. The World Franchise Council (WFC) It represents and protects the economic, A nongovernmental organisation, uniting social, and professional interests of fran- franchising associations from all over the chisees and franchisers in Italy. world. The Canadian Franchise Association The European Franchise Federation (CFA) (EFF) Unites the leading Canadian companies Founded in 1972. It unites the national and brands, organises events, and devel- franchise associations of Europe. Its mis- ops programmes to support franchising sion is to develop and strengthen the inter- in Canada, provides access to up to date ests of franchising in European countries, analytical information. following the principles laid out in the Code of Ethics for Franchising). Association of Franchising in Ukraine The Franchise Council of Australia Works on developing a franchising market (FCA) infrastructure, organising events, con- Founded in 1983. Its mission is to uphold sultative support, and creating networks international standards in the develop- and training entrepreneurs. There is an ment of business franchising in Australia, association representative working in every and provide access to relevant information, regional centre in Ukraine. supporting active and potential franchisers and franchisees. The Franchise Association of South Africa (FASA) The British Franchise Association Guarantees maintenance of international (BFA) principles of franchising and supports the The self-regulating body of the franchis- development of franchising networks in ing community in the United Kingdom. It South Africa. helps you make decisions in buying or sell- ing a franchise, hold exhibits, seminars, and conferences. Japanese Franchise Association (JFA) Founded in 1972 with the goal of developing franchising in Japan in accordance with Deutdsche Franchise-Verband, The international standards. German Franchise Association jfa_English.html 52
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  • 52. #1 september 2010 >> franchising Australia nars. The event is held with sup-Exhibitions Franchising Expo The main franchising forum on the green continent. The pro- China Shanghai International Franchise port from the IFA, and is widely covered in the international and Arabic press, television, and internet publications. gramme traditionally includes Exhibition Upcoming dates and location: free legal and financial consul- tations, and business seminars The largest franchising exhibi- 8-10 march, 2011, Dubai under the leadership of acknowl- tion in China. A good opportu- edged market experts. nity for a company with its own brands that’s offering franchises Upcoming dates and locations: Singapore to get in direct contract with the 25-27 march, 2011, Sydney fast-growing Chinese market. Franchising & Licensing Asia, Upcoming dates and location: Singapore September 2011, Shanghai Singapore has successfully devel- United Kingdom oped a franchising system that meets world-class standards. The British&International Franchise exhibit helps people seeking to Exhibition Russia find out more about new invest- The largest international exhibit BUYBRAND International ment opportunities. The pro- on franchising, held annu- gramme includes an educational exhibition of franchising and conference and seminars about ally with support from the BFA. The exhibit highlights current other business opportunities the opportunities to develop problems in the field and ways of An important business event franchising in the region. opening up new franchise com- in the field of franchising, the Takes place with support from the Singapore panies. Event partners include leading b2b platform for franchis- Franchising Association. The Daily Mail, Business Fran- ers and franchisee, and the only Upcoming dates and location: chise magazine and Franchise exhibit of its type in Russia, the 21-23 October, 2010, Singapore World. largest in the CIS and Eastern Upcoming dates and location: Europe. Accompanied by a broad business programme. 2010 will March 2011, London be the eighth year it is held. USA Upcoming dates and location: IFA Annual Convention 21-23 September 2010, Moscow, Expocenter on Annual conference of the IFA. Italy Krasnaya Presneya. Upcoming dates and location: Franchise Expo 13-16 February 2011, Las Vegas An annual exhibit that high- lights the promotion of franchis- UAE ing and new systems of commer- International Franchise Expo cial distribution. It is considered Franchising Middle East (FME) Considered to be the most im- (IFE) one of the leading exhibits in the world. Traditionally, the organ- portant industry exhibit in the The main annual even in the isers create the right conditions Middle East and North Africa. franchising industry. Held with for holding business meetings, Held annually, it attracts many support from the IFA, and covers seminars and conferences, where investors, entrepreneurs, repre- more than 80 countries, offering you can discuss problems of busi- sentatives of small and medium a wide-ranging business pro- ness development, get a consul- businesses and large franchising gramme. tation, and sign deals. networks. Leading experts and Upcoming dates and location: Upcoming dates and location: professionals from the field speak April 2011, Washington at themed conferences and semi- April 2011 (dates to be confirmed), Rome All exhibitions: (Looking for a franchise?) 54
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  • 54. #1 september 2010 >> franchising Franchize dictionary Advertising Fund Brand The work is evaluated on a scaleа-с A general account into which A system of functional, emo- from Unsatisfactory to Excellent. franchisees pay marketing/ad- tional, and other associations Code of Ethics vertising fees, and the franchiser which the consumer recalls when pays targeted funds. The accu- remembering a specific trade- An official document of nation- mulated resources go towards mark or company name. al and international organisa- market research, advertising, ‘Breakaway’ Problem tions, federations, and councils and promoting the network’s A situation in which the fran- of franchising (See also Interna- product. The franchiser peri- chisee unilaterally, and often tional Franchising Association), odically conducts an audit of the illegally, breaks the franchising which obliges all franchising fund. agreement but continues in some participants to uphold the rules way to manage a franchising of fair play. Area Developer unit or unites. Combination Franchising A party (an individual person or a corporate entity) that buys Break-out Point ‘Franchising within franchis- the exclusive rights to develop a See Royalty Efficiency. ing’, a connection between two specified area by opening within or more types of products or ser- it a specified number of franchis- Buy-out Clause vices of franchising within one ing units. A franchising agreement may space (See Franchise Unit Space) Area Development Agreement contain a clause offering the or within one business. In this agreement, one side franchisee the right to buy out Commercial concession (the franchiser) offers the other the business from the franchis- ing network and stay in the same A legal relationship analogous side (the territorial or area de- to franchising, in which one veloper), the right to develop a business as an entirely inde- pendent enterprise, without any party (the rights holder) takes on given area. The area developer is the responsibility of offering to a obligated to open on the terri- obligations to the franchiser. It is used relatively infrequently, second party (the user) the right tory a specified number (mini- to use in return for payment mum, maximum, specified in as it nullifies many of the fun- damental advantages of having and in accordance with require- the agreement) of franchising ments, the rights belonging to units. It does not contain speci- a network in the first place. The franchiser loses the periodic pay- that party with the goal of pro- fications on running franchises, ducing and/or selling a specific including the right to use objects ments, but gets back the terri- tory and can re-sell it to another type of product and/or service. of the franchiser’s intellectual The object of an agreement of property. This is a framework franchisee. commercial concession is the agreement, under which for the Buy-out Price right to use objects of intellectu- opening of each new franchising al property (trademarks, indus- unit, the area developer signs an- The cost for the franchisee to buy out, (See Buy-out Clause) and trial examples, inventions, prod- other franchising agreement for ucts, commercial secrets, and so one unit with the franchiser. leave the franchise network but remain in the business. on), commercial experience, and Area Franchising business reputation. Use of the Check-up Blank object of the agreement must be A type of franchising in which the area developer receives, as a A form on which are recorded envisaged in the agreement of rule, the exclusive franchise to all details about checks run on commercial concession, with or develop a specified territory. the franchisee by the franchiser. without specified area of opera- tions.56
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  • 56. #1 september 2010 >> franchising Commercial Concession Agree- independent from its own struc- equal to the amount taken inс-f ment The type of contractual obliga- tions, analogous to the fran- chising agreement, specially ture, in which case some units could view the acquired network as competition. the previous period is removed, and after the information is all in place recalculations can be made. Such banking services are Copyright not available in all countries. regulated in the Civil Code. (See Franchising Agreement). The personal non-property and property rights of the author to Direct-unit Franchising Common Entrepreneurship the results of his creative labour. A franchising method in Laws To protect intellectual property: which the franchiser concludes Part of the legislation on literary and artistic creations, simultaneous agreements with franchising: a system of laws computer programmes, databas- separate franchisees, generally that regulate a particular aspect es, performances, sound tracks, for the management of one unit. of franchise relationships (See video recordings, television, and This is one of the most widely Franchising). radio programmes. Only the used methods, and one of the author or his authorised repre- riskiest for the franchiser. Company-owned Unit sentative has the right to make copies, sell or show copyrighted Entry Cost An enterprise which is owned and run by the franchiser in works, broadcast them or use The amount of the first pay- order to acquire experience of them online. ments, cost of equipment and implementing the business expenses for the space of the Corporate Identity (Style) franchising unit, start-up model. It allows the franchiser to conduct research and implement Characteristics that distin- capital and other expenses that programmes of product and busi- guish one business from an- must be paid in order to join the ness development. This is often other, which may include colour franchise network. one of the first units, where schemes, signs, signs on cars, exterior and interior design, Exclusive Franchise experimental franchises are run. It can be sold to a franchisee as furniture, stationary of a certain A franchise under which a turnkey business or bought type, and specific packaging. the franchisee gets exclusive out (See Buy-out Clause) by the (monopoly) rights to exploit Design the franchise in a given area. franchiser. The appearance of the exterior This type of franchise if offered Conversion Franchising and interior of the franchise unit. under Area Franchising, Master 1. An independent enterprise, Includes corporate colours, con- Franchising, and Master Area which stands under the umbrella struction and finishing materi- Franchising. of a regional or national company als, and equipment. Reflected in the design project. Exploitation Manual offering the use of advantageous See Operations Manual services of a quickly growing Design Project network of related enterprises Field Support (See Franchising Network). Grew An integrated document with drawings or graphics that depict Support provided by the franchiser from the realtor services market. to the franchisee over the telephone, It is often used to create quite the future appearance of the fran- chise unit. Presented to the fran- in personal visits, and regional large networks from relatively meetings. small companies. chisee by the franchiser, or arises 2. A type of franchising in as the result of an agreement or Flawed Franchise Contract which a large franchiser acquires joint effort by both sides. A franchise agreement between all or part of another network Direct Debit a franchiser and franchisee which and reformats specific elements contains significant deviations from A system of direct payment the recognised standards in the so that they correspond to its collection (See Franchising Pay- field. own. This makes it possible to ments) in franchise networks. quickly expand the network by The franchise provides periodic Franchiseable adding several units at once. This information to the franchiser A business that uses franchis- type of franchising has recently about sales volumes, and the ing to develop. A business that can become particularly popular franchiser instructs the bank be passed on without problems to among companies in the food to take a corresponding percent franchisees who have undergone services industry. Difficulties directly from the franchisee’s training and were given the opera- can arise when the buyer seeks to account. If the information is tions manual. manage the acquired network as not provided, then an amount58
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  • 58. #1 september 2010 >> franchising Franchise intellectual property encompassed by network’s value (See Franchisingf The right, purchased from the franchiser, to enter into business: — In which goods or services are sold, offered for sale, or realised in the agreement. Franchise Agreement A contract which determines the Network). Often combined with the licensing department. Franchise Broker accordance with a specific marketing conditions of relationship between An independent party (individual plan, system, or know-how offered the franchiser and the franchisee. It person or corporate entity), which by the franchiser or associated with must contain a detailed description sells franchises on behalf of the it of all the conditions for cooperation, franchiser for a commission, paid by — Which is significantly associ- including the rights and responsibili- the franchiser. ated with a trade name, trademark, ties of both sides. Generally, the fran- Franchise Fees advertising, logo, or other symbols chisee does not have the opportunity Payments that the franchisee of the franchiser or connected with to significantly influence the condi- must pay to the franchiser for the him tions of the agreement. Most often a benefits he receives from working in — In which the franchiser or as- standard form of agreement is used, the franchising network. Composed sociated parties has an on-going fi- and it can have several appendices. of: initial payments, periodic pay- nancial interest, and which requires Franchise Agreement Appendix ments, royalties for the continued from the franchisee payments of An additional document that is not used of intellectual property, service franchising payments to the fran- in the franchising agreement itself, payments for inventory/equipment chiser or associated parties. In the but is an integral to it. It may contain or other services from the franchis- US it is often used in place of the a list of patents, a list of equipment, er, mark-ups on products/services ‘franchising agreement’. In Europe a list of goods/services, requirements from the franchiser or a specific ‘franchising’ denotes the package of for the franchise unit, the design pro- supplier of franchising services and rights to industrial or intellectual ject, a description of the area for area associated goods, marketing/adver- property that refer to trademarks, franchising, and other information. tising fees, and others. trade names, symbols in shops, use- Franchise Agreement Registra- Franchise Fee (Up-front, ful models, constructions, copy- tion Front-end, Initial, Fixed) rights, know-how or patents used to resell goods or services to the end Legislative condition on the fran- A single franchise payment to the user. Should not be confused with chising procedure of obligatory or franchiser which covers its expenses the same term as used in insurance. voluntary registration of the agree- in providing services and preparing ment with the bodies that register franchise staff, and is payment for Franchisee businesses and protect intellectual the right to use the company name A party (individual person or corpo- property. and/or trademark/service mark. It rate entity), which acquires the right can include payment for space (See Franchise Agreement Essential Franchise Unit Space), equipment, to a franchise in a specified territory in accordance with a franchising Terms goods and materials and other ele- agreement or other document aimed The conditions determining the ments specified in the agreement. at creating a franchising network in subject of the franchising agreement. Payment is usually made upon that area. In CIS countries the list includes conclusion of the agreement (See price, term, conditions and area of Franchising Agreement). Franchiser the franchise, list of the rights of each party. Franchising Network A party (generally, a corporate entity) that holds the right to a A network of units using one franchise. The franchiser licenses Franchise Agreement Term franchise (company-owned unit, and ‘sells’ (basically, grants use of) Franchising agreements are con- franchising units). It consists at its intellectual property (trademark, cluded for a specific period, usually a minimum of two parties – the know-how, and production system), 5-10 years. After this period, it is franchiser and a franchisee – with a having first tested it in its own units. possible to renew or extend the agree- regulated relationship. ment. Franchise Laws Franchising The total package of legislation A kind of business activity in Franchising Bank Department that regulates franchise relation- which on the basis of a contract one A department of a bank which ships. Consists of: party (the franchiser) gives to a sec- specialises in financing franchising — Specialised franchising legisla- ond party (the franchisee) for a fee, and provides informational support tion and for a specified term or without for a network of bank departments, — General legislation on business a specified term: the right to use potential franchising parties, and activities and contract law. the trademark, service mark, and the public in relation to this form of business organisation (See Franchis- Franchisee Meeting trade name, services, technological processes, specialised equipment, ing). Is involved in the promotion of An organised, regular meeting know-how, commercial information specific franchises. Franchisees can of franchisees from a network (See protected by law, and other objects of receive credit on the security of the Franchising Network), with the60
  • 59. business flight franchiser, at which the parties based on a franchising agreement by registered evidence and patentsf-m exchange information about how the network is running. Franchise Operation and is managed by the franchisee. General Franchising Agreement (Master Franchise Agreement) for proprietary rights, and by the time of publication or creation of the work for copyright. Job Franchise The total of all operations involved An agreement under which one in using a franchising package in party (the franchiser) offers the other A franchise, which envisages just business. party (the master franchisee) exclu- one worker – the franchisee and, sive rights to a specified territory, to possibly, family members. Generally Franchise Package (Franchise both open franchises and to offer the has a low cost. For example, apart- Programme) right to exploit franchises further by ment cleaning. The entire package of documents, having third parties (subfranchisees) services, and conditions presented open more. The master franchisee Joint Venture by the franchiser to a potential or has the right to conclude both direct One of the methods of implement- actual franchisee. Deals with all franchising agreements (see Direct ing franchises in other countries. basic issues as laid out in the fran- Franchising), but also agreements Participants in the new business are chising agreement, as well as basic about area development. In other the franchiser and another party (an services provided by the franchiser words, the master franchisee basi- individual person or a corporate en- to the franchisee for the successful cally takes on the role of franchiser tity) from that country. Advantages implementation of the business in in promoting the product or service include the distribution of expenses accordance with the franchising within a given area. for development, and the retention agreement. Includes management of some control by the franchiser. of the exploitation, design project, General franchising (Master Conflicts of interest often lead to the license to use intellectual property, Franchising, Sub-franchising) need for one side to buy the other and other instructions. Legal relationship between the par- out. ties that sign a general franchising Franchise Premises agreement. Key Points (Positioning) The place where the franchisee The characteristics of products conducts business, in accordance Goodwill and Image or services which distinguish the with the franchising agreement. The reputation of the enterprise on brand from similar products or ser- the market and other nontangible vices of other brands marketed at the Franchiser’s Services for Fran- assets which are relevant to assess- same target audience. chisees ing the enterprises’ sales; the price A raft of services included in the that a potential or actual consumer Know-how initial services (services before open- is willing to pay above the cost of the A package of unpatented practi- ing the franchise unit – selection enterprise’s material assets. cal information, with regards to and training of personnel, choosing production methods, accounting, a space and equipment, opening Industrial Rights secrets, and business operations the business), and those which are They regulate the property and systems. It constitutes commercial regular on-going services (services associated non-property rights, origi- (confidential) information. within the term of the agreement, nating from the foundation, legal monitoring and control, training, protection and use of objects covered Lease Franchise administrative support, carrying out by laws on industrial property: inven- A franchise in which the franchis- research and development, study- tions, useful models, and industrial er leases out to the franchisee prem- ing the market, delivering goods/ examples. Legal protection is afforded ises for the franchise unit in return services, reservation, marketing/ from the moment a patent application for payment calculated on turnover, advertising services, and providing is made. which also covers royalties. communication channels). Intellectual Property Logo Franchise Suppliers Objects subject to copyright (fran- An exclusive, specific (as a rule, An enterprise or separate special- chise guides, computer programmes, unique) symbol or symbols used by ists, who offer professional services databases, performances, sound and the business for self-identification or goods to franchisers and fran- video recordings, broadcasts (pro- chisees. grammes), and the proprietary rights Manufacturing Franchising (inventions, models, industrial ex- A type of franchising which offers Franchise System amples, types of plants, breeds of ani- the right to manufacture and sell The total of all elements of devel- mals, company names, trade marks, products made from raw materials opment and promotion of the given service marks, and commercial and resources purchased from the business that is using franchising. secrets)), as well as exclusive infor- franchiser. For example, Coca-Cola mation developed by the franchiser, and Pepsi work in this way. Franchise Unit including know-how. Rights to intel- An enterprise which functions lectual property objects are confirmed 61
  • 60. #1 september 2010 >> franchising Marketing/Advertising Fee develop a specific and exclusive terri- Multi-unit Franchisingm-o A periodic fee (See Periodic Fees), which covers the franchiser’s ex- penses on market research, advertis- ing, and product promotion. It can be tory, and also the right to offer fran- chising opportunities to third parties (subfranchisees). Master Development Franchis- Franchising in which the fran- chisee may manage any number of franchise units. implemented in fixed form, as well Multiple/Multi-unit Franchise ing Agreement as a percentage from total sales. In some cases such allocations are made A type of franchising which offers A franchising agreement in which to a separate account (See Advertis- the right to develop a specific territory the franchisee gets the right to open ing Fund). in which there is generally an exclu- on a specified territory (to which he sive right (See Exclusive Franchising), does not get exclusive rights), a spec- Marketing/Advertising Ser- as well as the right to offer franchis- ified number of franchising units at vices ing opportunities to third parties, in agreed-upon locations. This type of This includes market research ser- other words, to act as a subfranchiser franchising agreement is a kind of vices, advertising and promoting the (See General Agreement about Territo- framework agreement and envisages franchise network’s products, which rial Development). the opening of units on a schedule are funded by the franchiser, by the Master Franchising (See Unit Establishing Schedule). franchisee, or by both parties. And for the opening of each unit, a In the first case, the franchiser See General Franchising separate franchising agreement to can use part of the money paid by Master Franchisee open one unit is needed. the franchisee in royalties to fund the above services. The size of the See Sub-franchiser Niche Franchising amount can be specified or unspeci- Master Franchise Agreement Small, pseudo-independent units fied. In the second case the fran- which can use various company chiser can add an additional percent See General Franchise Agreement names, designed to meet the same to the royalties or fixed payment for Matrix Organisational Struc- demands in their own market niche, these expenses (marketing/advertis- and not on the general market. ing fee), or can oblige the franchisee ture Narrow systems may duplicate each to use a certain amount of resources An organisational structure for other or indirectly compete with the (stipulated in the agreement) to con- managing franchising networks, original type of activity. One such duct market research, advertise, and the point of which is to unite the franchise may include a restaurant, promote the goods. functional and design departmen- a fast-food café, and a food delivery talisation. The functional part is put service. Master Area Developer forth by the franchiser business, and The Master Area Developer has the design by the franchisee busi- Non-exclusive Franchise the right to exploit franchises ness. The management of specific A franchise under which the functions of the franchise is handled franchisee does not receive exclusive and the right to offer franchises by the leadership of the franchise (monopoly) rights to exploit the fran- to third parties (subfranchisees). business and also by the functional chise in the specified territory. This Master Development Agree- department of the franchiser. type of franchise is offered under ment normal franchising with the open- Multi-concept Franchising ing of one unit (See Direct Franchis- Used in international franchising. A type of franchising in which the ing). The general developer receives exclu- franchiser creates or acquires a sec- sive rights to the entire territory of ond or even a third franchising sys- Non-exclusive License the country, where he must open as tem, unconnected with the original many franchising units as possible, It does not exclude the option for concept. For example, a franchiser the licensor to use the object of intel- calculated on a specific formula. The holding a network of Italian restau- duration of general agreements on lectual property within the area lim- rants might buy (or, more rarely, ited by the license, nor the option for territorial development sometimes create) a separate system related to reaches 20 years (see Duration of the licensor to grant licenses for use food but based on a different subject, of the object to other parties. Franchising Agreements). menu, or clientele. The franchiser can Master Franchisee create any type of system but as a rule On-going Fees the new system usually works within Weekly, monthly, or quarterly See Subfranchiser. the same field. payments by the franchisee to Master Development Agree- Multi Unit Franchisee the franchiser, which include ment royalties, service payments, A party (individual person or cor- A hybrid form of agreement about porate entity), which has purchased surcharges for goods or services territorial development and a general the right to run a business in a to the franchiser or specified franchising agreement. One party certain area and then manage all the suppliers of franchise services (the franchiser) offers the other party franchising units in the area inde- and accompanying goods, and (the general developer) the right to pendently. marketing/advertising fees.62
  • 61. business flight Operator can consist of 3-5 levels (See Retail Usually calculated as a percento-s (See Franchisee) Operations Manual A confidential working book and/ Franchising). The assumption is that a party’s income depends on the number of people it is able to attract to work in the system. of total sales, but can also take the form of fixed payments. Can be imposed on a progressive or regressive scale. or other documents from the fran- Renewal chiser that are under copyright to the Service Mark In franchising this means the ex- franchiser. Contains descriptions of tension of the franchise contract. The A registered mark used to in- procedures and standards that the dentify services. need to renew is contained within the franchisee must carry out to suc- period of the initial contract – gener- Soft Franchising cessfully run a business within the ally 5-10 years. Only a contract which network. As a rule, the operations A variety of franchising in which is naturally coming to the end of its manual includes the following cat- there is no initial payment. The intrinsic period of validity can be re- egories: products/services, technol- franchisee does not invest his own newed: cancelled contracts cannot be ogy and equipment, operational and resources at the first stage, but takes renewed. The renewal procedure does official instructions, quality stand- on the operating costs. He manages not always presuppose the resump- ards, forms and systems of internal the franchise unit, makes periodic tion of the same rights and obliga- control and personnel motivation, payments to the franchiser, and tions of the parties. The contract marketing and finances, the rules receives the profit. may be changed, which allows for governing the relationship between the development of the franchising Sole Franchise the franchiser and the franchisee, network. As a rule, contract renewal telephone directory. Helpful catego- Is offered to only one franchisee is payable. ries can be added in separate docu- within the given area. Excludes the ments with corresponding names. Renewal Fee option to offer to other franchisees, Paid by the franchisee for renew- but does not exclude the option for Patent the franchiser itself to exploit the ing/extending the franchise agree- A document confirming the propri- franchise in the given area. ment if it has a specified duration. It etary rights to an object (an inven- can be a fixed amount or may depend Sole License tion, industrial example, working on the turnover or number or spaces model). Granted to only one licensee. (See Franchise Unit Space), or key ele- ments of franchise equipment. Excludes the option of passing the Pilot Unit license on to other parties for use of A unit held by the franchiser itself Rental Franchise an object of intellectual property in where the franchise is evaluated and the sphere limited by the license, See Lease Franchise Disenfranchis- improved. It should demonstrate but does not exclude the option of ing (disfranchising) that the business concept is well using this object by the licensor. The revocation of franchise rights suited to franchising. afforded to a franchisee by a franchise Start-up Capital Pilot Operation agreement if for example the fran- chisee does not fulfill the obligations See Entry Cost. Testing of the business concept by taken on in the agreement. These Subfranchiser (Master Fran- the future franchiser before expan- could be payment of royalties or other sion of the network at the expense of chisee) payments (See Franchise Payments), franchisees. A party working on a master fran- as well as the conformity of his work Product Distribution Franchis- to the franchiser’s quality standards. chising agreement or as a master of area franchising, that has the ing (Traditional Franchising, Rights owner exclusive right to work in a specified Product and Name Franchis- area. The first payment is made to See Franchisee ing) the franchiser for the right to work A type of franchising that offers Right to First Purchase in this area and is defined as an the right to sell a product in the form The franchiser’s right, conditional estimate of sales figures from the in which it was made by the fran- on the franchising agreement, to be potential franchises in the area. The chiser. the first to purchase the franchise subfranchiser must also follow the from the franchisee, before the fran- agreement on a schedule for opening Product Distribution Franchis- new franchising units. Each time chisee offers the franchise to a third ing party at the same price. the subfranchiser finds a new fran- See Sales Franchising. chisee, he retains a portion of the Royalty new franchisee’s initial payments, Pyramid Selling Agreement the rest of which are transferred Periodic payments made by the A multi-level sales agreement, to the franchiser. So up until the franchisee for the use of objects of which includes production or sales agreed upon number of franchises intellectual property and busi- in the area has been reached, the companies with their own produc- ness implementation systems. subfranchiser is essentially com- tion lines and trademarks, and 63
  • 62. #1 september 2010 >> franchising pensating the franchiser in initial Technology Transfer and requirements. Often used ins-w payments for working on the area. In addition, he receives income in the form of a percent of the royalties or services payments. Basically, the The transfer, via training and/or management, of specific, specialised knowledge, sometimes characterised as know-how, from the franchiser to sales franchising. After training, the franchisee opens his business by literally just turning the key in the door. subfranchiser is the franchiser in the the franchisee. The foundation of the given area, as he is directly conclud- franchising system. Unit Establishing Schedule ing agreements with franchisees and receiving their initial payments (See The dates or opening terms of Termination Initial Payment) and royalties. He franchising units by the franchisee The franchising agreement is or subfranchisee, which are agreed must provide training, marketing signed for a specified period (See (See Marketing/Advertising Services), upon by the parties when signing Franchise Agreement Term), gener- support, and all other services in ex- the master franchise agreement or ally 5-10 years. Renewal/extension actly the same way and quality that of the agreement is possible only if territorial agreement. the franchiser would provide. the franchisee fulfills all the require- The master area agreement also en- Working Capital ments of the franchising agreement visages the subfranchiser fulfilling and meets all of the franchiser’s Resources the franchisee needs the function of territorial developer. standards. in order to acquire goods and ma- Subfranchisee terials reserves, pay staff, and pay Territory rent until consumers begin to pay A party (an individual person The area in which the franchiser of- these expenses. or corporate entity) that signs a fers the franchisee the right to exploit subfranchising agreement with a the franchise. It can be defined in subfranchiser who is working in ac- many different ways – by geographi- cordance with a master franchising cal or administrative borders, by post agreement or a master area agree- code, by a radius from the business, ment. or by the number of target clients in a Subfranchising given area. See General Franchising. Trademark More than Subfranchise Agreement Any designation or combination Classic Rock A franchising agreement which is of designations (a word, colour, concluded between a subfranchiser combination or colours, visual 18 hours of music and a subfranchisee. elements, slogan, figure, letter, every day on Finam FM number, profile of a product or Service Fee package) designed to distinguish Payment for regular or one-off products and services offered services provided by the franchiser, by one party from products and which are agreed upon in the fran- services offered by others. Used chising agreement but are not in- by businesses for self-identifica- cluded in the list of services covered tion. It may be registered or in by other payments. the process of registration. As a Subsidary Franchising result of the registration and if See Conversion Franchising the trademark meets all the re- quirements of the law, it receives Support certification. The certificate holds Help for the franchisee from the throughout the country in which franchiser in opening and running it was granted. International the business. In can include staff agreements make it possible to training, improvement of goods and register a trademark simultane- services, upgrading the design, com- ously in several countries. Gener- munications system, and national ally, it is used by the franchisee and/or local marketing support (See as part of the franchising agree- marketing/advertising services). ment. It can be used under a System-wide Turnover licensing agreement. Turnover across the entire fran- Turnkey Operation chise network. A generalised indica- tor of product or service sales from Franchising units ready to all units (See Own Unit, Franchise open, equipped by the franchiser Unit). in accordance with its standards64
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  • 64. #1 september 2010 >> franchisingMatter Julia Judinaof life Marketing and Communications Director of CAF Russia foreign funds were coming into Rus- sia, the nongovernmental organisa- tion (abbreviated NGO – not widely know to those outside it) sector was thriving, and the charitable sec- tor was being established. A huge problem from this period was theW hen we use these words — “it’s a matter of life” — we usu- loss of trust in charity as the result ally mean our work, our business, for we’ve invested all our of a series of scandals surroundingstrength, time, and resources into it. Although there is a sphere state and corporate funds caught upof investment on which the lives of many people literally depend in money laundering. The follow-– charity, or as it’s more commonly called these days, social invest- ing period (1998-2008), proceededment. Yuliya Yudina, head of charitable programmes for CAF Rus- under the banner of corporate funds.sia, tells us about charity in Russia, the basic problems, interesting There were many first corporateinitiatives, and new projects. programmes, companies created charitable funds, and the concept of corporate social responsibilityU sually after I answer the themselves in another field outside entered the Russian consciousness. question ‘Where do you of business. Their ambitions aren’t The third sector in the form of NGOs work?’ there’s an uncom- hemmed in by the theory of ‘small and charitable funds became more fortable silence. I work for a scale’ – they try to change the world professional and more varied. In thischaritable fund. Most people seem for the better by creating models ‘golden decade’, Russia outstrippedto find this just as uncomfortable as that, if they can’t solve, can at least Europe in the speed of developmenthearing that a person is part of a reli- ease social problems. of charity by the rich and super-rich.gious organisation, or learning some To put it briefly, I work for a chari- The first private fund of V. Potanin,intimate detail about a conversation table fund. And I’m proud of that. the first family fund of D. Ziminpartner. Some people look at me After experience in the commercial ‘Dynasty’, charitable funds of A. Us-with pity, like a loser who couldn’t sphere, being in a sector where a lot manov, V. Deripaska, and M. Prok-make it in life. Some with suspicion, is based on motivation and con- horov…. The relationship betweenlike a conman caught redhanded. nected with sincere core values, I feel corporate and private mass charitySome with sincere respect and even really glad and inspired. was fundamentally different fromenvy – ‘wow, look at that, a person I hope that you, dear friends, will the western picture: about 75% of re-who can afford to do what she loves!’ too. sources from the total volume of do-I’ve gotten used to these sorts of com- nations came from companies, aboutplex responses. Charity is a personal 15% from private funds and about 10%business, connected with values and A little history from western funds. By the way, weyour worldview. For some people it’s still don’t calculate figures for mass Charity in our country is rela- private donations, as we don’t haveconnected with their religious con- tively young. In post-Soviet Russiavictions, for others, with their own any means to do so. it was born in the early 1990s and After the 2008 crisis, the landscapeexperiences, their life stories, their took the rather humiliating formimportant meetings. For well-off has been slowly but surely chang- of humanitarian aid and handouts ing. Companies are decreasing theirpeople, charity is a chance to show on the street. But at the same time, budgets for charity, preferring to66
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  • 66. #1 september 2010 >> franchisingseek alternatives to cash donations: others declare that we’re ahead of loop of patrons’: the Bolshoi Theatre,they involve employees, encourage everyone else on that score. Some the Cathedral of Christ Saviour, andvolunteering, offer free services or believe that charity is a private mat- orphanages. According to experts,goods, use the pro bono mecha- ter that doesn’t need publicity. And about 60% of donations are made tonism, and so on. More and more some are convinced that without children’s causes (orphans, rehabili-frequently, the word ‘efficiency’ is informational support, charity will tation, talented children, children’sbeing applied to charitable activities. continue to evoke a mixed reac- sport), about 39% go to support artsCompanies want to see the social tion from society. Some are certain and sport, and only about 1% of pro-effect from their input, and the term‘charity’ is giving way to ‘socialinvestment’. In the ‘golden decade’ of 1998-2008, Russia At the same time, we’ve noticed outstripped Europe in the speed of developmentgrowth in mass private donations of charity by the rich and super-rich. The first– more and more NGOs and chari-table funds are adopting technol- private fund of V. Potanin, the first family fundogy, trying to attract funds from of D. Zimin ‘Dynasty’, charitable funds ofnon-wealthy people. It could be as A. Usmanov, V. Deripaska, and M. Prokhorovlittle as 100, 50, or 10 roubles – com-ing through slips in bank branches,credit card payments, e-cash, andmany other methods. This area offundraising hasn’t yet been fully that charity is just as professional a grammes are connected with civicexploited, but the charitable sector sphere as anything else, and that it initiatives, developing local com-already understands that mass pri- needs specialists with a defined skill munities, and human rights. Andvate donations are the future. set and competencies. And others those, generally, are not getting Rus- insist that charitable work should all sian money or Russian donors. be done voluntarily, without receiv- Third, the competition betweenWhat’s now? ing wages… The list could go on and state and private initiatives. It’sThe charitable sphere in Russia is on. no secret that the overwhelmingone of the most mythologised and Why does Russian charity have majority of Russian citizens considerunderestimated. Underestimated, such a mixed image? A number of charitable activities to be the pre-because there are no statistics on factors can be referenced: rogative of the state. It distributesthe volume of charitable donations First, the low level of trust our resources, determines priorities, andor the number of schemes. Only rare compatriots exhibit in everything has the ability to inform the popula-research illuminates the investment on earth, including charity. And if tion about its successes in this areaby the noncommercial sector into they support charity, then it must be (which is totally impossible for com-the Russian economy. According precisely targeted, straight into the panies, private funds, and NGOs).to the Higher School of Economics, recipient’s hands – or even better, We are witnesses to a growing rolenoncommercial organisations create they’ll buy it and deliver it them- for the state in charitable activities,about 3% of GDP; the Levada Centre selves – for God forbid the money and we can see a frankly predict-has published data that say that less should be spent on medicine for able phenomenon: charity is onlythan 1% of the population works in Lena, rather than an operation for that which is supported by the state.the third sector (compared with 40% Petya. In this context, the noncom- This includes government grants,in the budget sphere). I reiterate that mercial organisations that under- distributed by the Civic Chamber ofit is not possible to count the total stand best what is needed and who the Russian Federation, and spe-amounts of private donations. Cor- needs it the most, get pushed out of cial funds financed by the state (inporate charity is valued at about 3.5 the paradigm of ‘come and deliver it particular, the fund in support ofbillion dollars per year, using the ex- yourself’. children who are in difficult life situ-trapolation method – known figures Second, the narrow selection of ations, or various scientific funds, orare extrapolated to a larger number charitable causes. Philanthropy in funds financed by targeted govern-of companies. In a word, no one our civic consciousness is associated ment programmes, and so on). Thatknows the total volume of charitable with orphans and children in need about which the state doesn’t know,resources in Russia. And the sector of urgent medical care. Beyond that and for which it doesn’t give anycan be called mythologised because there’s nothing. Our compatriots are money, automatically ceases to beit engenders so many stereotypes, not yet ready to help hospices, the el- worthy of charitable activity, atten-preconceptions, and contradictions. derly, refugees, or a couple hundred tion, and support. The state – in-Some people say that there’s no such other important and needy causes. tentionally and unintentionally – isthing as charity in Russia, while Companies also traverse the ‘closed pushing corporate charitable activi-68
  • 67. business flight ties and citizen’s initiatives out of the public consciousness and outAbout CAF of the charitable sector as a whole. Fourth, inadequate information. This is one of the most pressing problems. The media write and talk about this subject very little,CAF (Charities Aid Foundation) — is us. Our Head Office is based in Kent, and if they do mention it, then ita non-commercial organisation Great Britain, and our representative is via the model of ‘directly target-committed to efficient giving. Our offices are active in the USA, Russia, ed aid’, ‘fluffy pink elephants forhistory in the UK dates back to 1924 the South African Republic, Austral- orphanages’ and so on. We can re-when we took part in the work of the ia, India, Brazil and Bulgaria. call the television coverage on theNational Council of Social Service The Russian office of the Founda- Day of Child Protection. A present-(now the National Council for Vol- tion — CAF Russia — has been a suc- er and showbiz stars travel to anuntary Organisations or NCVO) as cessful charity in Russia since 1993. orphanage in one of the Russianits Charities Department; we were In close collaboration with leading regions, give the kids toys, bicy-established as an independent char- Russian and international compa- cles, candy – they turn the processity in 1974. CAF’s first office abroad nies and foundations, it realisesopened its doors in 1992 in the USA. around 40 programmes every yearToday, CAF has a network of repre- and constantly augments its grant For well-off people,sentative offices and sister organisa- funds which went over the $6 mil-tions covering six continents. Our lion mark in the 2006/07 financial charity is a chancepatron is HRH Prince Philip, Duke of year (March-April). to show themselvesEdinburgh, KG, KT. Since the beginning of its work, in another field CAF’s work involves helping char- CAF Russia realised over 300 initia-ity in the widest sense. Wherever we tives aimed at the resolution of a con- outside of, our objective is to maximise siderable range of social problems, Their ambitionsthe real value of donations and their from aiding organisations for the aren’t hemmed in byimpact. This we achieve by pursuing disabled to developing local founda-the interests of all parties involved in tions in 26 regions of the country. the theory of ‘smallthe donating process and adjusting Over $40 million went to such ends. scale’ — they try toour work to the specific needs of the The charitable projects in which CAF change the world forcountries we work in. We help: Russia is directly involved include — individuals to become personally the «Charity Instead of Gifts» social the betterinvolved in charitable work initiative, the programme «Life- — companies to achieve the high- line» concerned with the treatmentest possible levels of efficiency in of seriously ill children, the «Mu-their investments in the social sector seums of the Russian North» grant — charities to maximise what’s competition, the AVON programmegiven with the help of our financial «Fighting Breast Cancer», the social of giving wards of the children’sand management consultants project competition «Pole Gold – home into a television production, CAF is active in a broad spectrum CAF», the grant programme «New and then… the exact same thingof activities such as research and Day», the medical and social reha- is repeated the following year.consultation projects, the manage- bilitation programme «Beslan» and In other words, they come oncement of charitable programmes and many others. a year, pass out toys/books/stuff,the organisation of grant competi- then forget about it for 12 months,tions. CAF is currently in charge of a More information on CAF may be until June 1 rolls around again and3.5 billion dollars turnover entrusted found online at, www. it’s time to do another ‘good deed’.to us by more than 60 000 private, There’s no analysis, no numbers,and corporate donors, as well as vari- no ratings – with rare exceptions.ous charities worldwide. Yes, it’s hard to write and talk Our activity is mainly financed about charity without either re-through donations and by interest sorting to professional terminolo-on capital held by CAF. Our staff gy or devolving into oohs and ahs.consists of around 700 employees, But information about interestingand we are keen to invite external programmes, corporate charitableexperts and advisers to work with activities, volunteering projects and so on, is practically non- 69
  • 68. #1 september 2010 >> franchisingexistent! The media treat charity collects in one place information sations in that field. The additionalas a means of advertising and PR, about several dozen noncommer- information will help you learn morewithout being aware of their own cial organisations and charitable about your chosen fund. You canresponsibilities for creating a cul- funds, working in various regions transfer funds with a bank card, orture of charity in our society. across Russia. All these organisa- by a direct transfer from your bank In fact, the problems in the tions have undergone legal and fi- account. All donations are visiblecharitable sector are actually many nancial inspections by CAF Russia, in the online regime. Recently onmore than I have listed: the non-commercial organisations aren’tprofessional enough, there aren’t The business community could help by providingenough training opportunities forpersonnel, there is the weak de- highly-qualified specialists on organisationalvelopment of infrastructure, and a development, strategic planning, professionalgeneral lack of a culture of charity, consulting, lawyers, financial specialists, andand so on and so on. fundraisersMore of the positiveBut regardless of all of that, thereis a lot of interesting stuff hap-pening in the charitable sector. In and regularly publish accounts the, as part of the initiativeparticular, I want to tell you about resources they have spent, which ‘Charity Instead of Souvenirs’, theysome practices that are new for provides a 100% guarantee that launched the action ‘I want a pre-Russia. donations are being distributed sent!’ The idea is simple: if you have Many Internet resources appropriately. The site offers a user- a birthday or other celebration, andoffer the chance to make a regu- friendly classification list to direct your friends ask you what you want,lar donation to a noncommercial aid – to veterans, people with drug and you don’t know, you can askorganisation, and make that part addictions, orphans, and so on. All them to do a good deed as a presentof your normal life. One of them you have to do is choose the area – you can ask your friends to make- ( - is you are most interested in, in order a donation to one of the organisa-distinguished by the fact that it to see how you can support organi- tions on It also works if you don’t know what to give a friend or colleague. You can just ask which fund or NGO they would like you to ‘I want a present!’ donate to, and send a postcard about it to the recipient. Of course, there N are difficulties. Many network users ew Year, birthday, March 8 and February 23… Thankfully, are wary of making a donation with for many people these are reasons to be happy. They are a bank card: we have a long way to go a reason to congratulate and celebrate, and receive many to get people used to making pay- signs of attention and gifts. Traditionally, we give souve- ments online. The other difficulty is nirs or small gifts. In so doing, we are being sincere, and thankful in the mentality – here there are no for receiving symbolic presents from our colleagues and acquaint- cries for help, no SOS signals. This is ances. But is it really true that the best symbol of friendship is a where you come to donate, because small souvenir? What is really left after receiving a simple present? you believe in charity. It’s easy to lose sight of the good intentions with which we give each other not just an object, but all the warmth of a celebration, the joy of companionship, sympathy, and love. Have The points of growth you heard about the initiative ‘Charity Instead of This is a series of programmes Souvenirs’? This is when instead of buying a usual aimed at supporting the activities presents, people give aid to the needy, in the same of noncommercial organisations amount that otherwise would have been spent on that provide a social service. Aid ordinary little gifts. And so the gift acquires a real funds handled the crisis relatively meaning, and the celebration makes it to those well, and the stream of donations to whom our attention truly makes a difference. didn’t decrease by much – this is More information:, explained firstly by linear stories (there’s a child, there’s a diagno- sis, there’s a necessary sum for the70
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  • 70. #1 september 2010 >> franchisingoperation, there’s a fast result), and a new level, give them the drive to basis of a thorough analysis of thesecondly by the public awareness of develop or ensure their longevity for organisation’s activities. As a resultcharity as aid for children. But the the future. In contrast to just writ- of this, the most worthy organisa-charitable funds and noncommer- ing a cheque, pro bono assistance tions are chosen – not just those thatcial organisations that offer a social offers much more involvement of provide a unique social service, butservice (working with children with business is the process of work, use are ready to develop.Downs Syndrome, children with of knowledge, experience, and con- If you want to make your con-Cerebral Palsy, working with theelderly, adults with disabilities, andso on) have ended up in a more dif- After experience in the commercial sphere, beingficult situation. In order for them tosurvive in new conditions, they need in a sector where a lot is based on motivation andprioritised employees with timely connected with sincere core values, I’m really gladskills – the ability to attract resourc- and inspiredes from private and corporate donors,work with mass private donations,develop paid services, professionallydevelop public and government rela-tions, and much more. The business community could nections for a successful NGO – basi- tribution to this programme, andhelp by providing highly-qualified cally, sharing responsibility with the are ready to share your knowledge,specialists on organisational devel- NGO for both its achievements and experience, energy, and vision withopment, strategic planning, profes- setbacks. people working to solve a social prob-sional consulting, lawyers, financial Noncommercial organisations lem, if you want to become part of aspecialists, and fundraisers. This participating in the programmes group of enthusiastic people who aresort of support would help to bring are selected through a competition changing the world for the better,noncommercial organisations to judged by an Expert Council on the then welcome!72
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  • 72. #1 september 2010 >> franchising G-20Y Summit The G-20Y Summit is designed to give you an opportunity to meet like-minded business leaders (25-45 years old) from around the world, the time to establish relations, and a chance to discuss new business strategies. It is supported by the World Bank, International Monetary Fund, EBRD, KPMG, Ministry of Foreign Affairs and Administration of President of Russian Federation. Summit provides greate opportunities for networking! To take part — visit or contact, +7 965 370-30-7974