Business Flight Franchise Catalogue (english version)


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Business Flight Franchise Catalogue

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Business Flight Franchise Catalogue (english version)

  1. 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. 2. #1 september 2010 >> franchising4
  3. 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. 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. 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. 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. 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. 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. 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. 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. 11. business flightbeboss.ruCatalogue of Franchises #1in Russia 13
  12. 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. 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. 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. 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. 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. 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. 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. 19. business flight 21
  20. 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. 21. business flight 23
  22. 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. 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. 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