How to franchise in France

How to franchise in France

It surprises some to learn that Europe’s largest franchise market is not Germany or the U.K. It’s France

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“France” and “entrepreneurship” are two words that are not generally associated in most people’s minds. So, while the arrival of Emmanuel Macron and the successes of “French-tech” have somewhat improved the image of France as a business-friendly country, it usually comes as a huge surprise to learn that France is far and away Europe’s leading franchise market.

According to the French Franchise Federation, France counted 2004 franchise networks in 2018, compared to between 950 and 1000 for each of the UK, Germany and Spain. These 2004 networks represented a total of 75K franchisees and total revenues of €62 billion.

Between 2008 and 2018, the total number of networks grew by 63 percent, much of this growth coming from the development of new service-oriented networks, both B2C and B2B, where France had traditionally lagged behind other countries, notably the UK.

French franchised networks hold significant market shares in a wide range of business sectors, notably:
• Fast food (with over 1200 restaurants, France is McDonald’s largest market outside the USA)
• Hairdressing and beauty
• Estate agents
• Automobile services
• Fashion
• Household goods
• Food distribution (many of France’s leading hypermarket and supermarket chains are franchised)

So a strong franchising culture is present in France and from a consumer viewpoint, with a population that exceeds 65 million, France is virtually in a tie with the UK for second place in Europe in terms of both population and size of the economy (Germany being first).

In terms of retail opportunities, France has 1,250 commercial centers and retail parks, compared to 1500 for the UK. Italy and Germany come next with 860 and 800, respectively (Statista 2018).

In France, as in most Western European countries, commercial centers and retail parks have progressively reduced the importance of high streets in the retail mix. The commercial property market is dominated by a number of major players (Altaréa Cogedim, Unibail, Klépierre, Hammerson) many of which are present internationally.
Rental costs vary according to location and footfall, with the largest commercial centers (Les Quatre Temps in La Défense, Paris, and Part-Dieu in Lyon), claiming 40 million plus visitors on an annual basis.

Careful site selection and experienced lease negotiators are key to obtaining the right locations at the right price.

Causes for concern

Even once the potential of the French market is understood, there are two factors that are often cited as cause for concern, when international brands are considering bringing their brands to France:

1. The cost of labor and labor protection legislation. There is no question that the cost of labour in France is significantly higher than in the UK. In 2018, according to Eurostat, the hourly labor cost in France was €36, compared to €35 for Germany and €27 for the UK. The principal cause of this difference is high employment taxes. Naturally, all competitors in a given market will face the same hourly labor rates, but it does mean that careful business analysis is necessary, when evaluating the potential profitability of your franchise concept in the French market.

Concerning labor protection, while the French situation certainly presents less flexibility than the UK (zero-hour contracts are not legal for instance), recent changes in legislation introduced by the Macron government, have greatly improved the ability of French business owners to manage their staffing in an effective manner.

2. The existence of franchising legislation. In 1989, France introduced franchise legislation, known as the Doubin Law. This is essentially consumer protection legislation, that requires a franchisor to provide certain specified minimum information to a franchise candidate, at least 20 days before the candidate makes any firm commitment or transfers any funds. Failure to comply with this legislation can result in the contract becoming void, which in turn will entail compensating the franchisee in respect of the entry fee and eventually, royalties.

Similar legislation is in force in the USA and in five other European countries – Belgium, Spain, Italy, Sweden and Romania.
In reality, the existence of franchise legislation only becomes an issue if the franchisor fails to comply. If a compliant and well-written disclosure document is provided to candidates, franchise legislation clarifies with certainty the information that has been disclosed, before the candidate enters into a contractual agreement. As such, a disclosure document can protect a franchisor from a franchisee acting in bad faith.

Choosing your strategy

Once a decision has been made to enter the French market, it is, of course, important to select the most appropriate strategy for your business. France is Western Europe’s largest country, with an area 2.3 times bigger than the UK. This geographical factor would seem to argue for a regional master franchise approach, splitting France into 5 or 6 regions. However, many brands prefer to look for a single national master franchisee, for two reasons:

Firstly, in terms of managing a national network, the size factor is partly offset by France’s excellent transport infrastructure, particularly the high-speed train system (TGV). Impressively, since 2018, Bordeaux, which is 590 kilometers from Paris, is only 2 hours away by TGV! Lyon, Nantes and Strasbourg, all-around 400 kilometers from Paris, are also two hours from Paris by train.

Secondly, France has a very centralized culture. The Paris region represents 12 million people or 18 percent of the total population, but it is frequently said, that 70 percent of all decision-making takes place there. In the end, the decision will depend on a number of factors, including the potential number of franchisees and the nature of your business.

A road map for a brand wishing to enter the French market could look something like this:

• Carry out a rigorous study of the French market for your products or services and assess the level of competition. This study will, in any event, be required as part of the disclosure document that you will need to prepare.
• “Translate” your business model into a French environment, taking special account of local rental and labor costs, as well as pricing levels for comparable products or services.
• Identify any country-specific issues that may impact the viability of your business in France.
• Evaluate the potential number of franchisees, based on your home country experience and the market data obtained for the French market.
• Determine your market-entry strategy: regional master, national master, direct franchising, joint-venture, etc.
• In the case of a master franchise strategy, whether regional or national, develop a master franchise business plan, including the way that sub-franchise fees and royalties will be split between you and the master.
• Using the results of this business plan, determine the appropriate master franchise fee that will meet your financial objectives and provide an attractive potential ROI to your eventual master.
• Prepare a disclosure document compliant with the Doubin Law. If the objective is to find a master franchisee, this document (and the master franchise contract) can be in English but will need to be translated into French if you are pursuing a direct franchising strategy.
• Have your disclosure document and master franchise contract reviewed by a specialized French franchise lawyer.

To execute this road map effectively, you will be well advised to work with a locally based French consultant and a specialized French franchise lawyer, preferably with bi-lingual competencies. And once these steps have been completed, you will require the services of a broker to assist you in recruiting your French master franchisee(s).

ABOUT THE AUTHOR
John Goodhardt heads up the international franchising activity for Progressium, a leading specialized French franchise consultancy and brokerage, with offices in Paris and Lyon. Working closely with Farrah Rose and Brian Duckett of The Franchising Centre, Progressium are also members of the Franchise Pool International network of franchise brokers.

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