This is a best prospect industry sector for this country. Includes a market overview and trade data.
Franchising is developing in Ukraine, which presents significant opportunities for investors. It remains a relatively new concept for the Ukrainian business community as it only appeared after the collapse of the Soviet Union in the early 1990s and had no legal framework for the following decade, until the Civil Code and the Commercial Code were adopted in 2003. But even after the Civil Code and the Commercial Code established a legal framework, for the next decade franchising regulation still lacked several important elements necessary for it to function properly, and Ukrainian law is still rather limited and case law is not yet fully developed in this area. Self-regulated non-governmental associations try to fill the void, particularly given that there has been no special governmental agency to regulate the sale of franchises in Ukraine.
However, despite the gaps and inconsistencies in the Ukrainian legal system, international and local franchise businesses have managed to find enforceable franchising structures or employed alternative arrangements to develop their business. For quite some time now, many U.S. and international brands have successfully operated franchise businesses, including Domino’s Pizza, KFC, FitCurves, Hyatt, Hilton, Marriott and Radisson, along with a variety of local franchises in food, retail, services and other industries. Ukrainian entrepreneurs increasingly prefer franchising when it comes to expanding their business. The franchising market is gaining momentum with the number of franchising outlets growing consistently year-over-year. The Ukrainian Franchise Group notes that more than 504 franchisors and 19,034 franchise outlets are now operating in Ukraine.
Through July 2021, the Ukrainian economy regained its balance and returned to a path of stable growth and recovery. While COVID-19 has had global implications and Ukraine will see a slowdown in growth and GDP in 2021, experts believe that Ukraine’s economic growth will continue in 2021 driven by the increasing volume of retail trade, with more than 40 major retail projects currently underway in Kyiv. The State Statistical Service of Ukraine announced that retail sales in Ukraine averaged 5.33 % from 2007 until 2021, reaching an all-time high of 34.30 % in April of 2021.
Many international franchises currently present in the Ukrainian market have been adopted from abroad, mostly in the field of trade and services, and with a significant portion from Russia. Among the European franchise networks represented in Ukraine, most of them belong to Polish, Italian, German and French brands. There are approximately ten major American brands operating in Ukraine, representing a good opportunity for U.S. brands to expand their presence in the market.
Successful local franchise networks in Ukraine include:
- Fast Food Restaurants: Burger Club, Pizza Celentano, Franc.ua, Lviv Croissants
- Bakeries/Coffee houses: My Coffee, Aroma Kava, Gemini
- Distribution Networks: ATB, Novus, Fora, Our Land
- Express Courier Service Nova Poshta, Delfast
- Real Estate Agency: Re/Max
Today, more than 30 Ukrainian franchises are represented in international markets. Among the most successful are:
- VD one - men’s clothing stores
- DELFAST - express courier service on electric bicycles
- Arber - business clothing stores for men
- Burger Loft - fast food chain
By number of franchise outlets, the largest in Ukraine are Nasha Ryaba (more than 2,500 outlets), Gavrilivsky Kurchata (more than 600 outlets), and Fornetti (about 500 outlets).
Supply Chain Considerations
The most prevalent supply chain model in Ukraine is one in which the franchisor designates suppliers for core products but allows the franchisee to source the remaining products in Ukraine. Core products usually include advanced and proprietary equipment/software, as well as key food ingredients in the food-related franchise segment. Franchisees can source basic equipment and non-core components or ingredients locally due to the lower costs and faster times to market. U.S. franchisors should be aware that due to inefficiency in Ukrainian customs, it is possible that customs clearance of imported equipment and products can be delayed.
Industry experts and local franchisors consider online channels to be the most widely used and efficient channels for advertising their brands, products, and services. Local franchise operators use social networks like Facebook and Google to advertise in this category. Other effective channels include industry journals and TV business channels, and established franchisors appear guest speakers on various business television programs. Finally, events like trade shows conferences, promotional seminars, and training are other effective platforms to promote franchise brands and business models in Ukraine.
Assessment of Market Profile
The development of franchising in Ukraine is hindered by the absence of clear regulations and laws, as well as a lack of access to financing and the ability of local banks to provide financing options to those seeking franchise opportunities. The term “franchising” is not used in Ukrainian legislation, instead it is identified as a concept of commercial concession. According to the contract of commercial concession, one party (brand owner) transfers to the other party the right to use the business model for commercial purposes for a fee.
But despite certain problems in the field of franchising, the market continues to grow rapidly. In the next few years, the situation should change as the legal foundation for franchising is strengthened and consumers increasingly demand international brands.
Most Ukrainian franchises are concentrated in the capital and only a small percentage of franchises are in large regional centers. In addition, most franchise units are formed in the biggest Ukrainian cities, such as Kharkiv, Dnipro, Odesa, and Lviv. But many towns are not yet acquainted with franchising, and present significant opportunities for growth.
• Franchising 2022, Kyiv, Ukraine
• FranchSpace 2021, Odesa, Ukraine
• Ukraine Retail Association (conducts webinars and trainings)
• Franchising Association Ukraine (conducts webinars and trainings)
• Franchising Federation Ukraine