Romanian Franchise Market (Market Research)

The increasing importance of the private sector, opening out of new industries and the upward evolution of investments along with the impact of Romania’s accession to EU are instrumental in fostering the development of the franchise system in Romania. In 1998, the Romanian Government created the legal framework for this sort of business by issuing the Franchise System Law, which is designed to attract the investments. Unlike other countries where prior to setting up a franchise, it is mandatory to establish a local office with at least one local employee, the Romanian law is very flexible allowing trans-border sale of franchise.

However, developing a franchise is contingent on rather large initial capital and on certain restrictive clause imposed by the franchiser, such as obligation to sell products at a certain price or buy merchandise only from certain suppliers that could fall under the antitrust legislation, with all negative consequences deriving from it.

Despite the above-referred constraints, the franchise market in Romania started an upward trend in 2000. From 18 franchise chains registered that year, the number went up to 210 in 2005, achieving a turnover of almost $1.1 billion, which accounts for 8% of the whole trade (still low compared to the U.S. market - 70%).

The Romanian franchise market is expected to reach 3 billion euros by 2010, with more than 400 brands operating locally through this system. That means about as many as in Greece today. In 2005, 190 franchise networks were present in Romania.

If the franchise market was estimated for almost 900 million euros in 2005, according to the projections, the franchise market turnover might reach 3 billion euros by 2010.

The value of the franchise market is assessed as the turnover of the networks operating under the franchise system on the market.

Until now, 40% of the value of the businesses produced through franchise at the national level drew on the production segment, but the market structure is expected to change with the retail business prevailing instead. The retail is likely to expand the most, being the most dynamic segment of the market. The retail franchises could grow to 30-35%, whereas the production sector might decrease down to 23-30% of the total turnover. Another segment likely to develop is the food and beverage one, which will account for 25-30% of the market.

There is a second theory on the future trend of the franchise market.  According to it, the intangible services (such as head hunting, financial services, brokerage, consulting, real estate services, matrimonial, tourism, banking services, internet providers) will be dominating the franchise market by 2010. The tangible services, such as fitness, health care, catering, repairs shops, interior design, auto shops will also develop. Bottom line is, that no matter the market segment under development, the franchise market will experience an accelerated pace of development.

Consistent with the predictions, the franchise market will experience an average growth of 30-50%, but it is difficult at this point to give an exact estimation of the value of the market. Certain sectors will undergo a significant development, such as the one of food and beverage, which is growing fast. The main factor backing up this development is the increased profit margin of this type of business, ranging between 200-300% on the retail side and between 800-1000 % on the beverage side. The correlated investment is of an average value, between 40,000 and 150,000 euros. If in 2005, the Romanian franchises accounted for only 25% of the market, the studies indicate that they will dominate the market on the medium term.

The market surveys indicate that the local concepts will be the great surprise by 2010. There is a large demand from local entrepreneurs and firms, which have a shop or a services related concept. In four-year time, half of the franchises will be of Romanian origin, 30% European and 30% American.

Distribution of franchisors/franchisees according to the sector

In Romania, like in most of the Central and Eastern Europe countries, the networks of retail franchisees are the largest number, having the largest distribution too. In addition, there are a lot of companies operating in the services domain (financial, hotels, advertising), which have penetrated the Romanian market. The franchises in the production field are rather expensive for the market potential at this point.

The assumption that the market share will change relies on the unprecedented increased number of Romanian owners of businesses liable to be franchised.

This estimation starts from the experience of other European states. In 1999, Greece had 190 networks (similar to Romania’s current situation), whereas in 2005, the Greek franchise market had 420 networks, 40% of which were local. The franchises in South Africa, Indonesia and Malaysia were characterized by the same pace of evolution.