The Czech Franchising Market

The most common areas of interest for trade-focused franchises were cosmetics, fashion, agriculture products, and non-food retail.

Several service-based franchises responded to the survey. The majority of respondents (59%) were Czech-based businesses. The high response rate from Czech businesses substantiates the upward trend in the incidence of franchising in the Czech Republic. As entrepreneurs seek out opportunities to develop their business at the lowest possible cost, they are beginning to turn to franchising.

In terms of initial investment, the financial burden for new franchisors varies significantly between businesses. ČAF estimates that several thousand Czech crowns are needed to set up a franchise in the field of education, but that figure soars to several million for those looking to create a franchise in hospitality. Entrepreneurs tend to be interested in setting up franchises with an initial investment of between 500,000CZK and 1.5 millionCZK. Respondents to the ČAF survey largely refrained from disclosing what percentage of the initial investment was provided by individuals based in the Czech Republic, compared to how much of the investment was sourced from abroad.

The ČAF survey provided an interesting insight into the return on entrepreneurs’ initial investment. Franchisors stated that they expected to see a return of 11% of their investment within one year. This figure rose to 32% within two years and 38% within four years. Only 19% of an initial investment will be returned yearly after the first four years.

According to ČAF research, entrepreneurs running franchises rarely open up their own businesses. Instead, they tend to focus on acquiring new franchise partners and opening more branches. It’s not uncommon for one individual to own multiple branches of a single franchise.

Further ČAF conclusions:

Of the businesses working in the service sector, most franchises were engaged in hospitality (especially fast food), real estate, nutrition advice, fitness, and education, including specialist schools. Numerous businesses were also related to the fields of fashion, cheese, farm foods, and cosmetics.

The businesses with the largest number of branches – both their own and franchises – include RE/MAX Czech Republic, BENU Pharmacies, and McDonald’s. The longest running franchise-based businesses operating in the Czech Republic are McDonald’s and Yves Rocher.

Over half of the franchise concept surveyed are from the Czech Republic, with the remaining 41% being considered foreign-owned businesses. Parallel European organisations reported the same trend – more domestic concepts emerge on the market than foreign ones.

The term of a franchise agreement lasts anywhere between one and twenty years. Respondents most commonly signed agreements lasting five years, but longer terms are common in the field of hospitality.

Initial investments usually range from 500,000CZK to 1 million CZK, and from 1 million CZK to 5 million CZK. Franchises operating in hospitality are an exception to this trend, as the average initial investment they normally require exceeds 5 million CZK.

More than half the businesses made public the progressive fee they were required to pay, which is calculated based on a franchise’s annual turnover. On average, this fee ranges from 3% to 5% of the annual takings, although companies can ask for anywhere between 2% and 14% of their franchises’ turnover.

Businesses stated that the marketing fee is between 2% and 4% of their annual profits. When discussing expansion beyond the Czech Republic, businesses identified Slovakia, Germany, Poland, Hungary, and Russia as potential targets.

Franchise representatives characterised their franchisees as enthusiastic, eager to motivate their team, communicative, and well-organised. They value their franchisees’ competency in business, as well as their readiness to invest their own capital into the franchise.

Most franchisors provide support for their franchisees, in the form of training, marketing support, operations and management consulting, as well as advice when it comes to selecting a site and sourcing equipment for the branch.

The Czech Franchise Association

The Czech Franchise Association (ČAF) is a non-profit professional organisation which works at the national level to bring together franchisors and those involved in franchising, such as lawyers and consultants. The ČAF was established in 1993. Among the members of the Czech Franchise Association are large, international businesses and smaller, domestic franchising businesses.

The Association’s mission

The Czech Franchising Association aims to support the development of existing franchise systems and to promote the necessary conditions for this industry to grow. The ČAF has identified its main mission as follows.

To represent the franchise business and be its professional guarantor;

to inform the general and professional public about the nature and importance of franchising, as well as to promote it;

to bring together business entities that are actively, successfully, and permanently involved in franchising;

to provide information and support to its members and persons interested in franchising, and help in obtaining important information, expertise, contacts, and franchise references;

to strive for a comprehensible application of the legal regulation (legislation) in areas relevant to the franchising business, including competition, taxes, and financing;

to raise awareness and consistent adherence to the ethical standards set out in the European Code of Ethics for Franchising;

to support the macroeconomic benefits of franchising in the development of small and medium-sized businesses, quality of services, and job opportunities;

to help Czech business entities “export” domestic franchise systems abroad, and to promote the “import” of proven foreign systems and investments in the Czech Republic, based on franchising; and

to maintain contacts and co-operate with institutions, professional and trade unions in the Czech Republic, and with other franchise unions, especially from EU countries, in order to create synergic effects and inform members of these institutions about activities.

Photos for this article were provided by: Vaishnav Chogale (1) Chenyang Gao (2) Bageterie Boulevard (3)

Illustrations by Adriana Bendžalová Instagram @ da.banjo