Franchise market

Mature Franchise Market

Report: franchise market 2022/2023. More franchisees, although their number is growing slower

“The market says check. Poles still trust franchising” – these are the main theses of the post-pandemic report on the franchise market prepared by the Polish Franchisor Organization and the Franchising.pl portal.

When the pandemic broke out in early 2020, we decided to stop performing market research and publishing reports. We received information from the market about such rapid changes that we decided to wait for the situation in companies to calm down. This year we finally conducted a study, but now the results have been overshadowed by the outbreak of war and its negative effects – primarily inflation. In many cases, the surveyed companies reported suspension (not closure) of the franchise project, so the research results are a photograph of a transitional period, which was also very difficult for business.

Companies belonging to PFO were surveyed, whose reputation and size certainly facilitate the survival of any crises, including pandemics. The study did not indicate a decrease in the number of franchisors on the market, but clearly indicated specific problems, the biggest of which are: political uncertainty (war abroad), increase in rent, energy and labor costs, and thus – greater caution of franchisees when investing (harder to find candidates). Therefore, we are increasingly seeing changes in franchise models that take the investment burden off the shoulders of franchisees. Franchisors take the financial risk on themselves. Some franchisors reduce the amount of the initial investment and guarantee a certain level of income (Żabka stores) or even guarantee a profit from the first year of business (Stava gastro courier).

– It is no coincidence that franchise concepts are currently developing the fastest, characterized by a relatively low investment amount and a short notice period. We are all looking for ways to reduce risk in an unpredictable world – comments Michał Wiśniewski, expert of the Franchising.pl portal

Good news

A study of franchise companies within PFO indicated that, despite the difficult conditions, the number of franchisees has increased in the last two years. Although there were more contract terminations than in previous years, the upward trend was maintained. Before the pandemic, there were 83,000 active franchise agreements. If we forecast the number of agreements today based on the results of surveys inside POF, the market growth should be about 5% (87,000 agreements). This means that healthy franchise systems have been able to adapt their business models to difficult times, and franchisees still trust them. A spectacular influx of franchisees during the pandemic was recorded by food companies, up to 10-20% depending on the brand (Żabka from 6,000 to 7,000 franchisees).

The information that franchise increases the chance of business success has clearly penetrated the awareness of Poles. 80 percent franchisees are still running their businesses after 5 years, the same ratio is only 20 percent. for companies run on their own, without franchise support. Lewiatan’s research shows that in the food industry, 92% of people signing a franchise agreement at the end of the contract are satisfied with the franchise.

– Whether there is a crisis or not, many people invariably choose a career in their own company. Franchising is decided not only by beginners, but also by experienced entrepreneurs – both choose franchise due to the safety of proven solutions, the scale effect and the support of the system organizer – says Monika Dąbrowska, president of PFO.

Changes, changes

The coming years will force franchisors to make many changes in the models of financial cooperation with franchisees and in the price lists of services – the pressure for changes will be caused by: inflationary increase in prices of subcontractors/suppliers and wage pressure (in 2023 the minimum wage will double).

In the context of objective market difficulties, the franchise market awaits with considerable anxiety the draft of the special act on franchising announced by the Ministry of Justice. According to the announcements of representatives of the Ministry of Justice, it is intended to be an intervention act that will eradicate the “black sheep”. This usually carries the risk of overregulating the market: it will force many capital-intensive regulations, e.g. creating a large package of information about the company, similar to a prospectus. Compliance with the obligations imposed by the act may again burden the financial models with costs and make the franchise more expensive and thus less attractive. Hence the idea of associations of franchisees and franchisors to self-regulate the market in the form of the Code of Good Practice – it already protects the interests of recipients and can be used in court rulings as a whip for “black sheep”.

Experts from the Franchising.pl portal and the Polish Franchisor Organization point out that currently owners of small and medium-sized businesses have to deal with many earlier changes in the law affecting the functioning of their businesses. It is no coincidence that some businesses (not only food, but also services located in shopping malls) fight against the Sunday trading ban – for these companies, regaining 4-5 days a month to do business can restore their profitability.

Polish capital, family businesses

Polish concepts invariably rule on the Polish market. Eight out of ten franchises in the country are domestic brands. The franchise sector is also a major employer. With an average employment of 6 people per franchise outlet, the total number of employees in franchise outlets exceeded 480,000. people. Together with franchisees and franchisors, over half a million people work on the Polish franchise market. Companies run under a franchise license are usually small family businesses, employing several people. This is one of the main ways to develop small business.