Franchise spotlight on Portugal

Spotlight on Spain and Portugal

The hottest franchise markets in Europe
Football is not the only thing that gives Spain reason to celebrate. Along with its neighbour, Portugal, both countries have become the franchise hot spots of the continent, as Clive Sawyer, Managing Director of Business Options, reveals

Spain has seen a massive growth in franchising with a 246 per cent rise in the number of franchises over the last 13 years. Similarly, nearby Portugal has seen a staggering 320 per cent growth in the number of franchises in the same period. It comes as no surprise that such impressive figures mean that both countries will be turning a few franchisors’ heads; the homes of rioja, sangria and ‘the special one’ seem to have a lot to offer.

Spain
From having just 280 franchises in 1995, Spain now has 968 franchises, which is over 150 more franchises than the UK. It is now ranked seventh in the world for its number of franchises, employs over 286,000 people directly and another 97,000 indirectly and is ranked second place in the league table for fastest-growing franchise markets over the last decade.

Although franchising first started in Spain in the 1970s, it did not really take off until Spain joined the European Union in 1986. Since then franchising has grown in popularity and in 2007 the sector generated sales of €19.58 billion (around £15.5 billion). This compares to the £12.4 billion that franchising generated in the UK in 2007.

Franchising as an expansion model has become well-respected in Spain and many well known Spanish companies are using franchising as a way to expand their business. The growth of franchising has occurred predominately in four regions: Madrid, Catalonia, Valencia and Andalusia, with these regions making up more than 80 per cent of all franchises in Spain. However, there is a growing move to establish franchises in less populated areas, such as the Mediterranean region and the Canary Islands, which are among the most visited tourist areas in the world during the summer.

This impressive growth in franchising has been largely through home grown franchises with over 83 per cent of all franchises originating from Spain. For the remaining 17 per cent of franchises with international origins, the top five most popular countries of origin are the US, France, Italy, Portugal and the UK. The most common way for these international franchises to enter the Spanish franchise market is via a master franchisee.  

On average the cost of franchises in Spain are slightly higher than the UK with only 14 per cent of franchises costing less than €30,000 (around £23,725). In contrast, the majority  57 per cent of franchises in Spain cost in excess of €60,000 (around £47,500).

The highest number of franchises in Spain is within the retail sector, although over the last three years the retail sector’s share of the market has fallen slightly. The food and hospitality sector has seen a much bigger reduction in its overall share dropping from 23.2 per cent in 2004 to just 15.6 per cent in 2007. As with the UK, the service sector has seen the greatest growth and this trend seems set to continue.

The top three most popular industries by number of different franchises are
1.    Financial services
2.    Estate agencies
3.    Furniture shops

Legislation
Under Spanish law all franchising companies, whether they are native, overseas or master franchises, must be registered in the Franchisor’s Registry. The Franchisor’s Registry was set-up in 1988 with the aim of creating a transparent system. Registration involves supplying the registry with:

•    Intellectual Property Rights relating to the business
•    Commercial and financial information on the business
•    Description of the business together with information relating to the franchise network if one exists.

Failure to register can carry a fine of between €3,006 and €15,025.

Spanish legislation also requires the franchisor to provide prospective franchisees with information relating to the franchise, in writing, at least 21 days before the franchisee signs the franchise agreement, signs any pre-contract or pays the franchisor. The information that a franchisor must disclose to a prospective franchisee includes:

•    Evidence of registration in the Franchisor’s Registry
•    Trade Mark certification
•    Description of the sector in which the franchise operates
•    Summary of the franchisors experience
•    Description of the franchise business together with the investment required and financial projections
•    Structure of the franchise network in Spain
•    The essential elements of the franchise agreement
•    Duty of confidentiality on both parties

In summary the disclosure requirements are designed to provide the prospective franchisee with all the necessary information to enable them to make an informed decision as to whether or not to become a franchisee. As with the Franchisors’ Registry failure to comply with the disclosure rules can carry a fine and a risk of a civil claim from the franchisee.

Finally when it comes to Spanish law, franchising comes under Article 62 of the 1996 Retail Trade Act, which provides a definition of good practice that should apply to all franchises.

Portugal
In contrast to Spain, only 51 per cent of franchises in Portugal are native Portuguese, compared to the 83 per cent native Spanish franchises in Spain. Not surprisingly, the largest number of international franchises in Portugal comes from Spain (18 per cent).


When it comes to the most common type of franchises in Portugal, the largest sector is the service sector, with 47.9 per cent of the total franchise market, closely followed by retail at 45.1 per cent. The least-developed sector is the food and hospitality sector, with only 7.9 per cent of the franchise market, down nearly 2 per cent on 2005; however, in strict contrast, the most popular type of franchise within the whole Portuguese franchise market is in fast-food (6.8 per cent). This implies that there are very few other food and hospitality type franchises, as they make up just 1.1 per cent of the Portuguese franchise market.

Unlike Spain, Portuguese law hasn't developed any specific rules to impact the franchise agreement and franchising comes under article 405 of the Civil Code.

In 1988 the Portuguese Association of Franchising was established in March 1988. The Association is a not-for-profit association with its mission being to promote and support franchising with Portugal.

For further information regarding franchising in Spain visit the Spanish Franchise Association’s website at www.franquiciadores.com or for franchising in Portugal visit the Portuguese Franchise Association at www.apfranchise.org