Franchising to the Czech Republic
(Last updated: 14 Aug 2012)
Trends and opportunities
The market
In 2011, it was estimated that there were 168 franchising systems active in the Czech Republic. Between 2003 and 2011, the number of franchise systems grew by almost 90 per cent. It is expected that this trend should further accelerate in the following years with a number of franchise concepts considered to reach 190 in 2012.
Franchising is an emerging business model in the Czech Republic with 61 per cent of the franchising concepts currently present on the market, offering services, and 39 per cent retail concepts. Approximately 16 per cent of franchise concepts operate in food and beverage.
The number of outlets organised in franchise networks reached 8,552 with 59 per cent of these outlets owned by a franchisor or a master franchisee and 31 per cent owned by franchisees. The average number of outlets per franchisee in 2010 reached 1.7.
The majority of franchise concepts (93 in total) are of local origin (55 per cent). Foreign concepts come mainly from the USA, Germany, Italy and France. However, local concepts have started expanding abroad, focusing mainly on neighbouring markets of Slovakia, Austria, Germany and Poland as well as of Russia and Bulgaria. Success stories of local franchise concepts can be found in various sectors such as financial services, high quality food from local farmers and real estate.
There are currently over 4,366 franchisee-operated establishments operated by approximately 3,000 franchisees which represent only 44 per cent of total establishments operated by franchise concepts. This shows high potential for development of the franchise business model, which is expected to continue growing in the Czech Republic.
The majority of franchise concepts currently operating on the Czech market ask franchisees to pay up to A$46,000 for a licence.
Czech Republic: Top 10 concepts per number of establishments
(Source: Single companies and the Czech Franchise Association data as of 18 August 2010)
Development of the retail market
The Czech economy grew in 2010 and 2011, when real GDP growth reached 2.7 and 1.7 per cent respectively. In 2011, the average nominal monthly salary increased by 2.4 per cent reaching approximately A$1,204. Retail sales in 2011 grew by 1.9 per cent year on year. (Source: the Czech Statistical Office).
In past years, the retail market has expanded dramatically and increased the sales area available to customers from 350m2 per 1,000 inhabitants in 1989 to 2,000m2 per 1,000 inhabitants. This rapid growth was, however, accompanied by deteriorating levels of service and by excessive offer of retail space that led to difficulties of some commercial centres and increased the purchasing power of retailers. This presents significant market opportunity for new entrants.
Major characteristics of consumers in the Czech Republic:
- Tend not to be loyal to any particular distributor
- Intentionally choose to purchase from different distributors according to product/service they intend to buy
- Some tend to lose their price sensitivity as they educate themselves and act more pragmatically
- Tend to spend more time at shopping – understood as a leisure activity
- Some have recently been moving away from large shopping centres
- More fragmented – opting for natural/organic, ethnic, unusual products
It is estimated that the size of the retail market not occupied by big groups (and thus available for smaller enterprises) is approximately A$11 billion in non-food products and A$7 billion in food products.
Opportunities
Franchising may present a more secure way of doing business in an economically unstable environment. Major companies, especially in banking, services and manufacturing sectors, consider expanding by implementing franchising business model in their core strategies.
- FMCG distributed in particular areas to reach emerging market segments.
- Modern distribution channels – Internet sales, direct sales and highly specialised shops.
- Majority of present franchise concepts offer restaurants, cafes, teahouses and fast-food establishments – this could still represent good market opportunity for innovative concepts.
- Advanced services in new areas such as services for elderly people, childcare and teaching services, represent great market opportunity. The ageing population and emphasis on children are among the strongest trends likely to influence consumer behaviour in the near future.
- Other sectors that are not currently provided by business models or franchise systems such as – food security/quality control, consultancy and accounting services and HR (personnel search).
Tariffs, regulations and customs
There are no specific franchise laws in the Czech Republic.
Czech laws have been aligned with European Union (EU) standards and a sufficient level of legal security exists. This includes high level of intellectual property protection and relatively fast conflict resolution standard to other EU countries.
Franchising and especially some typical features of a franchise agreement follow rules and recommendations declared by The European Franchise Federation (European Code of Ethics for Franchising).
Industry standards
The Czech Franchise Association is a member of the European Franchise Federation (EFF) and oversees the franchise sector in the Czech Republic.
The Czech Franchise Association supports the EFF Code of Ethics that stipulates good conduct and behaviour of members.
Marketing your products and services
Market entry
Depending on your product and target market, if you are considering establishment of a franchise system in the Czech Republic, apart from the normal research on market potential, the following steps are are recommended:
- Consider all legal and tax issues at an early stage of business planning – trademarks protection, copyright, patents and trade secrets.
- Be prepared to dedicate resources and time to establish in the market. Negotiations with prospective master franchisor or franchisees takes time and several meetings need to take place to select the right partner to secure long-term successful businesses.
- Clearly demonstrate what is unique about your franchise and what your franchisee will receive in return for their investment.
Your franchising concept can also be presented in a variety of ways to attract the interest of potential partners/investors:
Links and industry contacts
Franchise–related resources
Czech Franchise Association – www.czech-franchise.cz
Czech Franchising Portal – www.franchisinginfo.cz
European Franchise Federation – www.eff-franchise.com
Franchise Net – www.franchise-net.cz
Franchising Info – www.franchising-info.cz
World Franchise Council – www.worldfranchisecouncil.org
Government, business and trade resources for the Czech Republic
Confederation of Industry of the Czech Republic – www.spcr.cz/en
CzechInvest – www.czechinvest.org
Czech National Bank – www.cnb.cz
Czech Statistical Office – www.czso.cz
Ministry of Industry and Trade – www.mpo.cz
Portal of the Public Administration – http://portal.gov.cz/
Service providers specialised in franchising
A list of lawyers and advisers can be found on Czech Franchise Association’s website.
Contact details
The Australian Trade Commission – Austrade – is the Australian Government’s trade, investment and education promotion agency.
Through a global network of offices, Austrade assists Australian companies to grow their international business, attracts productive foreign direct investment into Australia and promotes Australia’s education sector internationally.
For more information on how Austrade can assist you, contact us on:
Australia ph: 13 28 78 | Email: info@austrade.gov.au
A list of Austrade offices (in alphabetical order of country) is also available.