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(Last updated: 27 May 2008)
Trends and opportunities
The market
As a result of the recuperating economy, franchises are once again on the rise. Franchises are experiencing a boom similar to that of the early 1990s. Growth is concentrated particularly in the fast-food and gastronomy business.
According to the International Franchising Association from Argentina, total franchise revenue grew 70 per cent from 2002-2003, and continued to increase by 15 per cent during 2004-2007.
The current situation is forcing companies to create different types of business partnerships, adjust costs, and reduce the requirements to franchisees in order to adapt to a rapidly changing, competitive, environment. The result is a growth in franchise stores because they involve less risk for local investors.
The growth of the country reached almost nine per cent and domestic consumption continued increasing, which favoured the commerce sector in general (in particular, franchising). In May 2007, 'Expo Franchising' took place and it consolidated franchising fairs. There were exhibitions in many other big cities from the provinces such as Mendoza, Tucumán and Neuquén, Tandil, Rafaela and Bariloche. An agreement was signed in order to form one big association – International Franchising Association from Argentina (AAF).
By the end of the 2007, there were over 400 franchises brands, which had almost 18,500 points of sale and employed around 150,000 people. The invoicing of the sector is around two per cent of GDP.
In 2007 there were some foreign franchisees that came to Argentina. These include Applebee's, Subway, Fastrackids, Louis Vuitton, Escada, Ralph Lauren, Armani, Ermenegildo Zegna, Valentíno, Tiffany's and Hermès.
Development of franchising
Argentina’s devaluation completely changed the scenario and development of franchises.
There was a boom of franchises in the food, construction and laundrette businesses. Another franchise success of 2003 has been in clothing and footwear in accordance to the rise of popularity of shopping centres, which have returned to the spotlight particularly due to the growth of regional tourism. In 2003, there were 12,000 outlets compared to 7,000 in 2002.
Development of franchising shows a high level of concentration: 10-15 chains handle 36 per cent of the franchises and 50 per cent of the total turnover. There are approximately 180 franchisers operating 5,100 stores, of which 210 correspond to 31 new franchises.
During 2008 there will be between 12 and 14 openings of the 26 shops that are being constructed. Shopping centres are synonymous of new brands and therefore, new franchisees. It is estimated to have 1,700 new franchisees that will generate employment to 10,200 people.
There will also be new courses, research works, events, participation of media and the possibility of opening a school for franchising training under the umbrella of Business School at Austral University and International Franchise Association.
Legal framework
Franchise contracts are generally protected under the Argentine Commercial Code as opposed to being governed by specific legislation. The scope of the service, commercial trade market/name, expertise, and shared production elements are covered by contractual obligations on both franchiser and franchisee.
Elements of the contract include: the license, methods/systems or proprietary information transferred to a franchisee, the supply of needed inputs, methods of sales, and quality standards, and ultimate control by franchiser of the contract elements.
Franchises have been successfully used in Argentina, but the obligations of the franchiser must be clearly delineated in the contract to avoid legal obligations associated with the operator, in case of default, bankruptcy. Argentine law is unclear about franchiser obligations in case of bankruptcy or other commercial failings. Legal advice should be sought before signing contracts.
Competitive environment
Seventy-nine per cent of the market belongs to local franchisers. Among foreign franchises, Spanish franchises weigh in most heavily with approximately 44 per cent of the market, followed by US companies with a 33 per cent market share. There is no Australian presence.
The most popular areas for international franchisers are:
- fast food
- coffee stores
- foreign language training
- apparel
- dry cleaning
- hotels
- car rental services
Local franchises have been particularly successful in ice creams, pastries, health clubs and education.
Some international franchises are: Kodak Express, McDonald's, Burger King, Blockbuster, Holiday Inn, Future Kids, Wall Street Institute, and 5aSec.
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