The economic crisis brought a wake-up call to the Czech franchise industry. If prior to 2008 any type of franchise caught the eye of local business people, in 2010 the driving force was investments into franchises with lower operational costs and high returns on investments. Local companies started to discover the benefits of sharing the brand, therefore more of them can be expected to come up on the market.
“The most significant trend is the focus on less financially intensive projects,” said Jaroslav Tamchyna, president and managing partner of the Czech Franchise Institute (ČIF). Such projects deal with training facilities or with intermediation services. Attractive fields are mortgage intermediation represented by Gepard or insurance intermediaries such as Renomia Network. ‘There is no crisis in there, so their refocus is quite normal.’
Not so long ago, real estate franchises such as Century 21 promised to revitalize the relatively slow Czech franchise market. However, as the real estate sector collapsed worldwide, their business has been dramatically taken down by the crisis. At the same time, US master franchisors that have been trying to convince the local market of the advantages of shared brands have shifted focus to Asia. “There is no crisis in there, so their refocus is quite normal,” Tamchyna said.
On the other hand, domestic franchises have started to discover the potential of the market and their numbers are expected to grow. Recently, Brno, South Moravia-based Cyrrus, the largest brokerage outside of Prague, is preparing a new franchise concept.
“The interest of Czech companies to share their brand is growing,” Tamchyna said. Local companies still face a few challenges. The first is the access to capital. “Domestic entrepreneurs lack either the capacity or will to take over a concept and run it in a pilot phase at their own expenses to make it feasible,” he said.
Moreover, the franchise concept became quite sexy in the last few years, so many entrepreneurs jumped into it without much thinking. “This is damaging to the market because it shows that entrepreneurs don’t understand the business responsibility that comes with the new engagement,” he said. This responsibility goes toward everyone, including the franchise provider, the clients and the market.
“Those entrepreneurs who have seen an escape in franchising would better reconsider their stance because they are obviously not aware of the challenges a true franchise business brings, including the need for permanent investments,” he said.
Tamchyna gave the example of Re/Max, a real estate franchisor whose expansion wasn’t sustainable in the long term. “It looked as if they were trying to get a maximum number of subsidiaries in a minimum of time, and the expansion management might have been overlooked,” he said.
On the other hand, local banks have been underestimating the franchise concept for a long time. “They still don’t see the large potential of this business venture,” Tamchyna said. However, there are already some first spring blossoms. Československá obchodní banka (ČSOB) has joined the Franchise Club, an entity managed by ČIF, and Komerční banka (KB) is also working to improving its financing model for franchises, which currently doesn’t work as it should, Tamchyna said.
“Such banks need to have an integrated module of corporate and retail banking that their internal systems can recognize and value. Otherwise, it can’t work,” he concluded.
