Discusses opportunities for U.S. franchisers and legal requirements in the market.
U.S. businesses looking to franchise within the European Union will likely find that the market is quite robust and friendly to franchise systems in general. There are a number of laws that govern the operation of franchises within the EU, but these laws are fairly broad and generally do not constrain the competitive position of U.S. businesses. The potential franchiser should look not only at the EU regulations, but also at the local laws concerning franchising. The US franchisor should increase vigilance in the drafting of franchise agreements, in particular by avoiding provisions which arguably “have an effect on the organization of work and working conditions” such as fixed working day and week schedules or common uniforms for all franchisees’ employees, and thus could potentially trigger a request for establishment of a social dialogue body.
Legal Issues in Franchising
France is the first country outside of the United States of America and Canada to regulate franchising, with the adoption of the so-called “Loi Doubin” (Law Number 89-1008 of 31 December 1989). Loi Doubin is a general disclosure law that applies to franchising, stipulating that a disclosure needs to be provided at least 20 days before signing an agreement or paying any money. Although the law has fewer specific disclosure requirements than other disclosure laws, the general obligations also include a requirement to provide a franchisee with a description of the general and local market conditions for all franchised products and services as well as the outlook for development of the market, which is a singular requirement of France. In addition to the enumerated disclosures, the Loi Doubin requires the disclosure of all information necessary to assess the business experience of the franchisor and its management.
The franchise agreement is more specific than the Franchise Disclosure Document about the terms of the relationship between the franchisor and franchisee. The franchise agreement includes information about the franchise system, such as the use of trademarks and products, territory, rights and obligations of the parties: standards, procedures, term (duration) of the franchise, payments made by the franchisee to the franchisor, termination and/or the right to transfer the franchise, training, assistance, and advertising. The franchise agreement is the legal, written document that governs the relationship and specifies the terms of the franchise purchase. A prospective franchisee should closely review the franchise agreement and consult with a professional advisor, such as an attorney or an accountant, before making a final decision.
Opportunities for U.S. companies
A wide variety of American franchises such as McDonald’s, Curves and Sign-A-Rama are enjoying success in France, which proves that the French market is open to foreign franchises. More information on specific legislation can be found on the website of the European Franchise Federation
The French franchise sector ranks first in Europe in terms of sales and has doubled over the last ten years. Although very competitive with 2,004 franchisors and 75,193 franchisees, the French market offers many opportunities for innovative U.S. franchises. In 2018 the French franchise market employed over 700,000 people (direct and indirect jobs). 7% of franchises operating in France are foreign, of which 22% are American. In 2018, total franchising sales were estimated at $70.68 billion (€62 billion). The potential remains for U.S. franchisors to explore additional sectors, such as gourmet fast-food, personal service, household duties, child or elder care, and renovation services. However, it is important to note that for the past 30 years, direct investment or area development expansion methods have proven more successful in France than the traditional Master Franchise model.
France is also:
• A large market: the 7th largest economy in the world, the third largest income in the world from tourism and the most visited country in the world. America is the first country of foreign origin for franchises that have been established in France
• A convenient central location in Europe
• Known for its high-quality workforce
The most important franchise trade show takes place each year in March in Paris: https://www.franchiseparis.com/en/Home/
It gathers 580 exhibitors and 36000 visitors. 72% of the visitors state they are there to learn how to establish a business and become a franchisee.
Beyond regulations, there are several things a company should consider before entering the French market:
- Some American concepts are sometimes not suitable to the French market. They need to adapt to local tastes and cultural norms. Also, high European rents and labor costs can hurt the business. For example, a food franchise often closes between 2:00-7:00pm to avoid the high labor costs and low food traffic.
- The language barriers, as documents provided by the franchisors are very often in English, while the DIP and contract must be written in French.
- Some Americans are more interested in master franchises, which can be complicated in France. While master franchising typically allows the franchisor to shift a significant portion of the foreign development costs onto the shoulders of the master franchisee, if the franchisor is not prepared or able to invest sufficiently in the expansion, disaster is around the corner.