Expansion into Germany
Accounting for nearly one-fifth of European Union GDP, with a population of over 82 million Germany has the largest consumer market in the EU. Angela Bachfeld from FranFind discusses how best to tackle expansion into this thriving country.
According to the German Franchise Association, Germany boasts some 900 tried and tested franchise concepts. From these 900 concepts there are 51,000 franchisees generating 37,6 billion Euros and employing 429,000 people. Hence, this European franchise powerhouse continues to be an attractive option for international and UK franchisors.
Thriving markets in Germany
Germany has a mature franchise market in which local entrepreneurs have developed sophisticated concepts. The 900 franchises can broadly be broken down into the following sectors:
• service sector (50%)
• trade (29%)
• food & drink (14%)
• building and handcraft (7%)
Industry sources suggest there are excellent prospects in the following areas:
• training and educational services
• express delivery services (all types)
• theme bistros/restaurants
• retail stores (specialised)
• home care services
• office management, accounting and tax services
• maintenance, cleaning and sanitation services
• advertising
• telecommunication products and services
• energy saving products and services
• environmental services.
Expanding your franchise in Germany
The general acceptance of franchising as a successful business format coupled with the ease of conducting business in English makes franchising in Germany an extremely appealing option for UK franchisors. Other benefits of expanding into Germany include the absence of any franchising law, the volume of trade and number of consumers, and of course Germany’s geographic location at the heart of a 27-member European Union.
UK franchisors enjoying the success of expanding into Germany include: Original Poster, Stagecoach, Expense Reduction Analysts and Filta Group.
It is easy to see why Germany is a popular amongst UK franchisors for expansion, however like any other country you are thinking of expanding your network to, there are specific challenges, anomalies and demographic phenomena specific to Germany that you will need to be aware of.
Demographics in Germany
Germany’s population and industry are decentralised and there is no one single predominant business centre. It is common in Germany for franchisors (and many other business sectors) to divide the country in to regions and then appoint area developers to oversee specific franchisees regions.
You also need to consider which regions of Germany your franchise opportunity will be best received. For example, cities including Frankfurt, Nuremburg and Munich are very affluent and have a high concentration of high-level administrative and managerial professionals, whereas the Ruhrgebiet area for instance, has a high concentration of skilled and semi-skilled manual workers. It is therefore important to establish which demographic you normally target to recruit potential franchisees and then ensure you are launching your concept in the appropriate regions.
Franchisee recruitment
Franchisee recruitment is an area that can pose potential problems for franchisors. Targeting potential franchisees can be challenging in Germany as the routes to market are far more limited than in the UK and Ireland.
There are no franchise-specific exhibitions, which franchisors in the UK and Ireland rely on as a very cost-effective way of meeting potential franchisees. Another popular media to promote franchise opportunities is via the comprehensive array of franchise press but again this poses a problem in Germany as there is only one franchise magazine and it is not distributed via any newsagents.
One solution is to enlist the help of an established broker based in Germany, which has good local knowledge and contacts, and can help you manage your recruitment campaign. A consultant such as the co-operation of FranFind and initiat can support inbound international franchisors, which are ready to enter the German market, to find the right partners. They will be able to help you implement a marketing campaign, screen candidates and set up interviews as well as assist with breaking down any culture or language barriers that may occur.
Franchisee financing
Financing of franchisees in Germany is another issue to be aware of and can often cause difficulties for a number of reasons. Most German banks are regionalised, so that every single region needs to be approached (rather than the franchisor presenting their concept to a national centralised point) and secondly that they do not tend to finance ‘start-ups’. This has proved to be a big stumbling block for many UK franchisors, for example Pirtek could not get its franchise candidates financed in the same way as in the UK, and therefore were unable to expand into Germany. It is important to investigate any potential problems in this area at the outset and work with your consultant or broker to ensure they can be overcome.
Whilst it may seem there are many challenges facing any franchisor looking to expand in Germany and it is not a decision that should be undertaken lightly, it can prove to be extremely profitable. Every franchisor will encounter obstacles when undergoing expansion, it is simply a case of being aware that those obstacles may take a different form to those experienced in the UK. The first step for any franchisor interested in embarking on German expansion should be to go on a fact-finding visit, meet with consultants or brokers and banks and double-check Germany will be right for your franchise concept. With the right preparation and research this booming economy currently offers an array of lucrative opportunities.
Article from Franchisor News, Winter 2007. To find out more about Franchisor News and to subscribe for FREE, click here.
