From June 2 to 3, the BUYBRAND Transcaucasia International Franchise Exhibition and Business Conference will be held in Tbilisi. This event will be the largest of its kind for small and medium-sized businesses in the countries of Transcaucasia, where franchising is just beginning to take root. The organizer of the exhibition, general director of EMTG Ekaterina Soyak, told us about how this business format is beneficial for Georgian entrepreneurs, what difficulties they may face, and what franchises will bring the greatest profit in the foreseeable future.
– Ekaterina, what is the basis for the decision to organize such a large-scale event in the region?
There has been no active development of franchising as a form of doing business over the past 25 years in countries of the Transcaucasian region. However, the capacity of the market of the Transcaucasian region suggests that in the next 5 years, about 1,000 franchise enterprises can be opened in Georgia, Armenia and Azerbaijan, where up to 15,000 people will be employed, and their contribution to the GDP of countries may be 1.5–2%. Therefore, I dare assume that our exhibition for these countries will be useful.
The BUYBRAND Transcaucasia program will be attended by leading Russian, American and European franchisors, for whom the markets of the Transcaucasian republics are currently of great interest. Not surprisingly, the region as a whole demonstrates stable GDP and average family income growth: the total GDP of the three countries is $29 billion, and the total trade turnover is $51.65 billion. Already, more than 100 global brands are represented in the region, and taking into account the prospects of development and increasing annual flow of tourists, it is possible to forecast a serious growth of franchising in these markets. So in the next 5–7 years in the Transcaucasian region, modern medical offices, coffee shops, restaurants, quests and hotels for franchises of world and Russian brands may be opened.
– Why do you focus on development of the franchising business?
– Franchising has a remarkable distinctive feature: in this form of business development there is always a more competent and experienced entrepreneur who has built and “broken in” a business, and sells it to others already taking into account trial and error, having minimized or completely eliminated risks and errors.
When opening a franchise company, a novice businessman receives a ready business with all the technologies, quality standards, products, trained personnel and so on. In addition, has franchising a much lower risk of bankruptcy than starting business from scratch. People now increasingly prefer to buy a franchise, rather than experiment with their own ideas. In addition, franchising has already proved its economic benefits in all countries of the world.
– In your opinion, which concepts will be most popular in the region? What concepts are we lacking?
– It is known that the flow of tourists to the region is increasing by 6–8% per annum. Considering such a rapid growth, the franchise concepts of the HORECA sector – hotels, coffee shops, restaurants, and fast food chains – will be most in demand in the near future in the country. Investments in this sector may increase revenues to the budget of Georgia by up to 20% annually. The annual total turnover in the Georgian catering sector is more than $1 billion, which is almost double that of neighbors in the region. For comparison, the turnover of neighboring Armenia is $500–600 million a year.
It is worth noting that restaurants and coffee shops are mainly opening in the capital, while there is a clear deficit in the mid and budget segments. In many respects, this is because people are afraid to invest in the restaurant business for various reasons. The situation can be rectified by opening franchise establishments
– Which companies have announced their plans to develop in the Transcaucasian region? What is the value of their franchises?
– Shokoladnitsa Group (with Shokoladnitsa and Coffee House brands), Rosinter Restaurants (with Shikari and Il Patio brands), Southern Fried Chicken, and Kukhni Marii jointly with the Edim Doma concept, the INVITRO medical offices network, the Best Western hotels chain, Baskin-Robbins, Papa John’s, and others have already announced their intentions to actively develop franchising programs in the countries of the Transcaucasian region.
It is very difficult to talk about start-up investments, because everything depends on the chosen concept. For the lower bar, I would take $2,000 (for an online store), and for the top, about $15 million (for a large hotel business). In the restaurant segment, investments start from around $85,000, average investments are $175,000, and up to $450,000 is needed for the opening of a well-promoted restaurant or coffee shop. The services sphere is cheaper – investments start from $25,000 and go up to $175,000 depending on the enterprise format. Entry to the retail trade costs approximately $85–265,000, depending on the format and volume of goods that need to be purchased.
– What should you first look for when buying a franchise?
– The first thing you should pay attention to is the size of the company. If it has only one point of its own, and the franchise is already packed, this should raise reasonable fears about the reliability and stability of such a franchise.
The second sign of a dubious franchise is the absence of royalties. A reliable franchise company does not pursue opening the maximum possible number of points – it is more important to maintain and support quality standards, and it seeks close contact with the franchisee. If buying a franchise only stipulates a lump-sum contribution, without royalties, this may indicate that it is important for the company to receive money immediately, and the fate of the franchisee will not be of interest. The exception is franchisors from the retail segment, which rarely take royalties, since all profits are “built” in the product.
A conclusion on the franchise can also be made by whether it provides contacts to its existing franchisees: a good franchisor has nothing to hide. And, finally, there is membership of the franchisor company in franchise associations. This is a good sign, although not 100%, of a conscientious franchise.
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