Trade franchise just for the modern times

The functioning of traditional trade establishments is becoming increasingly difficult. Rescue may come in the form of franchise chains dynamically developing on the Polish market.

Under the current conditions of constant growth in the running costs of a store, an increasing number of retailers are making a difficult decision to wrap up their business. Although the number of retail grocery stores on the Polish market has been shrinking yearon-year for many years, everything indicates this process will now accelerate markedly. If this continues, the structure of the FMCG trade market in Poland, which stands out among other European markets dominated by so-called modern retail distribution channels (discount stores and supermarkets), will slowly become similar to markets of the neighbouring countries.

The twilight of individualism

Threats to traditional trade are usually perceived as those resulting from the rapid growth of energy prices: electricity, gas or coal. After all, a grocery store is energy-intensive. Cooling equipment and freezers, lighting turned on for more than a dozen hours a day, heating throughout the opening hours of the establishment in winter, and air conditioning operating for just as long in summer – all of this means enormous expenses. It seems impossible for many retailers to handle the costs. All of this is compounded by constantly growing employment costs, derived from the growing minimum wage, and the lingering legal chaos that seems insurmountable to many store owners. Neither the plans of the government nor those of the European Commission bring much hope in this regard. All these factors force small entrepreneurs to make difficult –for themselves and to local communities alike – decisions to shut down their trade establishments.

This process can be inhibited by franchise chains, very resiliently operating in Poland. Especially that their organizers are taking more and more actions aimed at supporting individual retail members of their chains. Such programmes are in place at chains related to the largest wholesale distributors, such as the Eurocash Group or the Specjał Capital Group, and organizers of other franchise chains, smaller but usually very numerous. Therefore, prior to deciding to shut down the store, it is worth taking a look at the opportunities created by individual franchisers. Such opportunities may bring hope to many trade establishments threatened by the consequences of the hard times.

Better trade conditions

Jan Domański, the spokesman of Eurocash Group, an organizer of franchise and partner chains associating more than 16,000 independent retail stores, stresses that in today’s difficult times, the support from the franchisers that local stores can count on should be regarded on three key levels.

The first one includes actions aimed at improving the functioning of stores associated in a chain – in their local environment. Above all, this means ensuring the price competitiveness of the store through the scale of purchase performed by the franchise chain. This also ties into the increasingly better adaptation of the trade offer to local needs, as well as to efficient utilization of loyalty programmes and IT tools, and, above all, to increasingly efficient negotiations with suppliers and producers. These are all part of a strategy aimed at ensuring attractive prices and modern marketing tools to support com- petitiveness on the local market.

Krzysztof Tokarz, the President of the Specjał CG, notes that the interest in Specjał’s chains is not only maintained but outright growing. With the scale of support to franchisees, an increasing number of fully independent stores, seeing obvious benefits, want to join the structures of Specjał’s trade chains. This is about the broadness of the offer and the price of the products, just as it is about the logistical efficiency and possibility to benefit from a range of IT solutions supporting the functioning of a store. Low, competitive prices are possible with Specjał thanks to purchases of large batches of goods anticipating the inflation..

In search for lower costs

According to Jan Domański, the second level of support to retailers responds to the most serious threat to retail establishments, i.e., the rapidly growing level of store running costs. He believes that, admittedly, upon the latest decisions to freeze the level of electric power prices for small and medium enterprises, the hazard to stores in this aspect has subsided a bit. However, there are other cost items franchisees have to face. These are, above all, wage expenses – the increase of the minimum wage entails the necessity to raise salaries of employees. And yet wages in the trade sector have already ceased to be the lowest in the Polish economy several years ago, whereas the wage expectations, in view of the inflation, will be even greater next year. In such a situation, the Eurocash Group’s support to retail partners aims at reducing the costs of other elements of store functioning, so as to enable appropriate salary rises. This is both about better utilization of supply logistics and implementation of sale process digitalization that will reduce other store running costs. Simultaneously, this is related to appropriate training in this area to retailers – both in the form of direct support through the Eurocash Academy of Skills and through different online platforms.

Specjał also endeavours to support retailers as far as practicable, both in the area of advisory and training, e.g., in the form of the Entrepreneurship University organized by the Group, and through broadly understood financial and technical support. This applies, above all, to concerns about the growing energy costs, whereas the support to retail outlets loosely connected with Specjał is different than to franchisees. In the former case, the assistance is primarily of consulting nature. Retailers may count on the company’s knowledge concerning possibilities of different kinds of actions aimed at the reduction of store running costs, yet direct involvement in these actions is relatively limited. “The case is different with our franchisees. With them, we do not shy away even from financial and technical involvement connected, for instance, with the assembly of photovoltaic panels, thermal insulation of the store, introduction of energy-saving devices thereto, etc.,” says President Krzysztof Tokarz.

This is confirmed by Marian Zych, the CEO and Deputy President of the Board of the Livio chain owned by the Specjał Capital Group. Not only does the legal department of the chain follow the current options to acquire subsidies or external grants in support of investments aimed at reducing the energy intensity of stores but also helps retailers applying for money for such goals to fill in the relevant documents and applications. However, this is not all, as a franchisee can also count on direct financial support, or rather on a kind of a zero-interest credit. Specifically, the franchisee receives quarterly payments from the chain, on account of providing services to producers, which had formerly been often referred to as “retro pay”. The chain has decided that payment in advance for such servicing is possible for the upcoming two or even three years. The amounts reach up to several hundred thousand zlotys, and the retailer will pay them back through submitting payments to the chain on account of servicing within the agreed period. Of course, in such a case, each franchisee enters into an individual agreement in this regard with the chain. “I think an offer built in such a way has a considerable impact on the current increase in the retailers’ interest in participation in the chain. We have planned the number of stores belonging to the chain to increase by almost 400 this year, and yet we already have about 780 submissions,” Marian Zych says.

Smaller franchisers strive to support their partners in these difficult times too. Małgorzata Pogorzelska, Purchase and Promotion Director at the Eden chain associating more than 1,000 retailers, tells us that a franchiser has signed framework agreements with the energy supplier, enabling acquisition of electricity at prices lower by more than a dozen percent than those prevailing on the market.

Legal and IT support

The third level of support for franchisees among those mentioned by Director Domański ties in with the previous two in a sense, as it includes actions aimed at the creation and utilization of platforms for exchange of information and knowledge, not only between the franchiser and its franchisees but also directly between the retailers themselves. Mutual communication concerning the ways to handle difficult situations is hard to overestimate. This, however, entails the creation of tools conducive to such kind of exchange of information. In such a variable legal environment, tools enabling reduction of monitoring costs of the amend- ments in the regulations and of adaptation thereto are invaluable as well. “There can be a lot of such problems to be explained or solved, and accountants or lawyers of small companies are not always able to grasp them early enough and to prepare for them comprehensively. It would suffice to mention the VAT rate changes, the implementation of a new directive regulating the communication of promotional prices, or the deposit return scheme solutions which are being designed right now. In such situations, our partners can count on support from the Eurocash Group,” Jan Domański summarizes.

Krzysztof Tokarz, on the other hand, stresses that everything seems to indicate that the growing interest in participating in Specjał’s franchise chains also results from the possibility of using the increasingly modern e-Hurtownia shopping platform, or the offer of mobile applications for customers of stores associated in the chains, as well as the offer of IT solutions which make running a store easier. “These are, in my opinion, the most important causes of the will to join our franchise chains, other than the direct support and the level of our prices,” president Tokarz adds.

Of course, Żabka, the most numerous and most innovative franchise chain in Poland, looks different against this background. Here, the growth of energy costs is borne by the franchiser, or the Żabka Polska company; as early as a year ago, it announced a new energy policy, commenced the analysis of possibilities of acquisition of renewable energy at all locations, and started implementing new solutions in more of the chain’s stores. However, it should be kept in mind this is not a solution for owners of all traditional trade establishments, as the chain is the owner of almost all premises where its stores operate, and the object of the franchise is the system of store management under the Żabka sign. Unless the retailer makes a bargain with the chain concerning the resale of his store…

How the export activity develops nowadays? What challenges stay before producers in 2023?

First of all, I would like to express that we had a very successful year in 2022, despite many negative developments on a regional and global scale. We achieved this success not only in the local market but also in the global markets. Therefore, we can say that we left behind a successful year in terms of export activities.

As I have just stated, as a result of the negative developments experienced last year, there were some serious fluctuations in the markets. As it is well known, we felt the most obvious effects of these developments primarily in the supply chain. However, thanks to our highly skilled supply chain team, we did not have any problems with access to raw materials. Of course, this has allowed our current partners to increase their trust in us, and therefore, it has helped our sales team find new partners and increase the sales volume of the company. I would like to take this opportunity to thank the sales and purchasing teams for their great efforts for the growth of the company during this difficult time.

Although the effects of some negative developments experienced in 2022 have started to decrease, they are not completely out of our agenda. In fact, we will continue to feel the effects of some of them even more in 2023. As it is well known by everyone, an economic recession is prominently included in the forecasts of international financial institutions and economists for 2023. As Turka Group, this issue was among our priority agendas in the budget processes for 2023. We always take this reality into consideration in terms of the trajectory of our sales and the control of our expenses and we make our plans accordingly. In this context, necessary assessments in terms of measuring and managing our current risks are made under the leadership of the finance unit with the contributions of other relevant units, and necessary hedging transactions are carried out. In this context, it is important both operationally and financially for the manufacturers to measure their current risks well and to take the necessary positions in order to be affected by the fluctuations expected to be experienced in the markets to a minimum.