Specialist advice
Place in the sun
The Spanish franchise industry is holding its own, turning over £24 billion in 2010, and employing more than 233,000 people. Here's what Spain has to offer UK franchisors
Since the 1990s, British migration to Spain has increased rapidly, making it home to one of the largest British-born populations outside of the UK. Contrary
to popular belief, only 21.5 per cent are over the age of 65. With many more Britons looking for a life in the sun, this is a great opportunity for UK franchisors to expand into Europe. So how is the industry shaping up?
Spain is the world's 12th largest economy with a franchise industry that, since the recession, has been on the up since the end of 2009, turning over more than £24 billion in 2010. It has traditionally also been considered as the "gateway to other countries located in the Mediterranean area, as well as North of Africa where there are cities with great power like Casablanca, Rabat and Marrakech," says Santiago Barbadillo, director general of Barbadillo Asociados.
Today, the sector comprises of 874 franchises and 63,228 businesses, employing 233,000 people with a growth of 4.7 per cent over 2009 rates. According to research from the National Franchisees Association, the average starting investment is €73,369.
The most profitable sectors in 2010 fell under the category of food and supermarkets, followed by fast food and restaurants. Combined, these types of franchises form 26 per cent of the industry as a whole, mirroring the main sectors in the Spanish economy - services, leisure and tourism.
In 2010, the fastest growing franchises were health and beauty (up 60 per cent), home décor and apparel (up 41 per cent), bakery (up 75 per cent) and house call services (up 120 per cent).
"Traditionally in Spain, restaurants, café shops and snack bars have been a sure thing," says Santiago. "The service sector is one of the most successful, too.
"Lately, we have seen a rise in beauty businesses and, in particular, IPL and laser hair removal. The new trend is to offer an all-round beauty treatment.
"The automotive market is going strong with the likes of Repara Tu Vehículo (car repairs), Cristalbox (windscreen reparation and replacement) and i-Neumaticos, an Internet-based company that sells tyres that are then fitted at a customer's home or work.
"Regarding e-commerce, there is no doubt that Internet-based businesses are starting to play a larger role. The network is a platform for all kinds of businesses, such as online gaming.
"Another rising business is the frozen yogurt market, headed by llaollao, the first frozen yogurt franchise in Spain."
Currently, there are eight registered UK franchises in Spain, Laura Ashley being the most successful this year with the opening of 15 new shops. "Spain is a good market to set a business up that is already established in the UK," says José Luis Palma of Gómez-Acebo & Pombo Abogados. "Retail can be a good option at the moment because rents on retail premises are decreasing."
France, the US and Italy have been the most successful nations in Spain's franchise market. France has 30 franchise brands, predominantly in the supermarket sector; the US has 29 businesses in the restaurant market; and Italy has pushed forward with 27 franchised businesses, mostly in fashion.
Legal matters
It is essential franchisors take detailed legal advice before entering the market to ensure they comply with disclosure and registration requirements. "Franchise regulation in Spain is scattered and unsystematic," says José. "The main bodies are: EU Regulations; the Retail Act 7/1996; Franchise and Registry of Franchisors Regulation, plus several regional and local acts and regulations. The only requirement to enter Spain is to register with the Regional or National Franchise Register."
Spain is a civil law country with franchise specific legislation and so the following must be adhered to:
A franchisor or master franchisee must provide prospective franchisees with a disclosure document at least 20 days before the execution of the agreement or the payment of any amount of money.
There is a list of specific items that require disclosure. A franchisor or master franchisee must register with the Franchisor Registry before offering franchises in Spain. The information must be updated by
the registrants.
Franchise agreements are considered standard terms of business of the franchisor to which the Spanish Unfair Contract Terms Act applies.
Spanish agency law may be applicable to franchise agreements.This means that franchisees may be able to claim compensation upon termination of the franchise agreement calculated by reference to the value of its customer base, although the case law on this point is not unequivocal.
As franchise agreements can be sizable documents that a non-lawyer may find difficult to follow, it is the role of the franchisor to highlight key rights and obligations in a corresponding disclosure document. A problem that can arise with such ‘contract summaries' is that not enough detail is provided. The alternative is to repeat the text in full that is already contained in the franchise agreement, although longer sections of technical language can be difficult for the franchisee to understand. Yet on the other hand, the franchisor cannot risk abbreviating legal matters that can then be seen as inaccurate.
A wide range of commercial data must be disclosed to the franchisee in Spain, too, including proof of ownership to use the IP rights, size of network, description of franchisor's experience, estimate of investment a franchisee needs to make, and details of the company's history.
If a disclosure document is not provided, the law does not state what the consequences are. In accordance with general principles of Spanish law, the franchisee can seek to terminate the agreement for nondisclosure where the franchisees can show that they would not have entered the agreement if a correct and truthful disclosure had been made.
