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%
The origin of the brands existing in Romania
Country Nr. of brands
1. Austria 2 2. Belgium 2 3. Canada 3 4. Czech Republic 1 5. Croatia 1 6. Switzerland 3 7. France 18 8. Germany 7 9. Greece 7 10. Israel 2 11. Italy 21 12. Great Britain 5 13. Netherlands 4 14. Portugal 1 15. Romania 35 16. Russia 1 17. Spain 5 18 U.S. 43 19. Taiwan 1 20. Turkey 6 21. Hungary 3
U.S. franchisers have a significant share of the Romanian market (21.4%). The most well known
- Pizza Hut,
- Candy Bouquet,
- Romanian-American oil company Rompetrol, the biggest on the Romanian oil market,
- Howard Johnson Grand Hotel Plaza, a $25,000 million investment,
- Four Star Pizza (5 operating units, with a franchise fee amounting to $3,575.80),
- Daylight Donuts, (3 operating units in Romania, franchise fee amounting to $14,300.76 and a
total investment of $35,754.81 - 41,714.72),
- Coca Cola,
- Pepsi Cola,
- Pizza Hut, (investment between $30,000 - $100,000 and 9 operational units),
- Ruby Tuesday,
- American Life Insurance Company,
- Pizza Inn,
- Gloria Jean’s Café (Initial investment of $360,778 and liquidities amounting to $150,310.
The units are in City Mall Bucharest, in Constanta, and the one in Timisoara is under
- Computer Troubleshooters. They entered on the Romanian market, in the spring of the year
2005, through a master franchise contract. The Romanian master franchisee is entitled to
develop the network in Romania and expand it to neighboring countries as well. CT is ranked
second after Entrepreneur worldwide in the computer service field).
The cost of a turnkey deal
Specific franchise fees Distribution Services
Entry fee 0 (for retail) – EUR 200,000 EUR 500-
(Int’l brands) (Real estate)
EUR 2 million
Royalties 0-5% 5-20%
Advertising fee 0-3% 0-6%
Equipment purchase EUR 45,000-350,000 EUR 10,000-
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.
Type of franchise Nr. of %
networks Distribution-Retail 87 50.9
oil products and body
Services (financial, 78 45.6
human resources, fast
Industry (soft and 6 3.5
Within these types, the companies operating as franchise can be classified as follows:
Women’ fashion 25
Women and men fashion 9
Men wear 5
Children wear 6
Jewelry &Accessories 2
Cosmetics & Body care products 4
Electronics &household appliances 5
Press distribution 3
Oil products distribution 5
Furniture distribution 4
To the above, the distribution networks in various domains could be added: interior
Food services 29, of which
Fast food 10
Pastry products 6
Chocolate, candies, ice-cream 4
Coffee shops 5
Hotel services 7
Consulting services 7
Human Resources services 3
Advertising services 3
E-commerce services 5
Beauty care shops 5
Auto shops 1 Other commercial services 7
Other services 1
Another evolution in view of the 2010 horizon refers to the extension of the franchise coverage area countrywide. Currently, 75% of the franchises are located in Bucharest, but they will go down to 45-50% by 2010. The similar percentage will be achieved nationwide. Following the launch of the flagship store, the franchisors make plans for their expansion over the country. The target cities are Timisoara, Arad, Suceava, Constanta, Iasi. Then, conditional on the line of business the franchise is in, different plans are designed for smaller cities, tailored to the amount of investment and the spaces needed.
The franchise market will increase irrespective of the moment of Romania’s accession to EU. The 2006-2007 period could be considered as the inception of the franchise boom period, from the angle of the international players willing to enter the market. Subway (with 34,500 units world-wide), Starbucks, the largest coffee shop network in the world, as well as Domino’s Pizza and
Burger King expressed their intention to come to Romania.
Romania’s accession to EU will only expedite the growth rate of the franchise market, due to the benefits resulting from goods free circulation and the elimination of the customs barriers, which would ultimately reflect in a cut in the price at the end user.
The capital buildup at the level of the local investors (potential franchisees), the consumers’ increased purchase power, the lack of a saving culture and the attraction to the big brands are among the main factors, promoting the franchise expansion. When it comes to success stories, the views are different. Some believe that Lollipops, a fashion accessories franchise and the Starbucks coffee shops will make a huge success. Eight Lollipops stores have been opened up over the last eight months and six more will be opened up in the following six months. Of the brands, which haven’t entered the market yet, the general opinion is that Starbucks will be a success. The Master Franchise was granted to Romania and there is a huge demand for it.
Other specialists in the franchise market believe that the Romanian franchises will be the ones developing the most by 2010. Of these, mention could be made of Sheriff’s, Gregory’s, Tip Top City Grill, City Caffe, Jerry’s Pizza, Spring Time which intend to expand upcountry based on
their own resources and then franchise their business, Gett’s Hair Studio or Gett’s Color Bar, hair
studios for the well-off and medium class clientele. Each of these studios is designed to operate within the hotels and commercial spaces. This kind of franchise could be successful not only on the Romanian market but also worldwide. There are franchises in Romania, which could export their concepts only to countries with a lower living standard, such as Macedonia, Albania. This would be the case of Perfect Nails (specialized in manicure services, a type of service which doesn’t exist in Eastern Europe), of Plus Ciufolici (hair studios for children), in addition to some other concepts such as Gett’s Hair Studio and Color Bar (the upscale market for these services is poorly developed not only in Romania but also in other countries). If strategic partners could be identified in other countries, then these concepts could develop.
Although the local franchises started rather a short time ago, they will be ready to be exported by 2010. The Romanian franchises are just beginning to develop and are not mature enough to expand abroad. This is unlike in the U.S., where a new franchise unit gets opened every 16 minutes, and franchises account for 45% of the retail market.
The local franchises, which could be successful on the international market, are those providing
services in IT, the real estate and outsourcing. At this point there aren’t Romanian franchises
launched on the international market. It’s too early for them, but it’s high time. To expand
worldwide, it’s important they start from a significant national experience.
Consequently, getting maturity on the local market is instrumental for the subsequent expansion
of a franchise concept worldwide. On the international market, it’s a proven fact that only the
market-customized concepts can pull off. A franchise cannot be exported as long as its concept
hasn’t been developed countrywide. If there are only five locations on the local market it’s very
difficult to export the concept to other countries. Just one location in Bucharest is not enough.
The companies are expected to be able to back up their own development countrywide, or else,
their international development would be premature.
Another trend already obvious on the Romanian market and to become more prominent in the
future consists in the development of a complementary or similar franchise. Imitation could be a
motivation to start up a business and it seems that the retail in fashion is the field with most
examples of this kind. Following Zara’s entrance on the market, some other brands will announce
their intention to come to Romania.
It’s also important to show that little by little opponent franchise concepts have come out on the
market. These are KFC and Broaster, PizzaHut and Nova Pizza, which will open their first
location within the commercial compound Feeria, McDonald’s and Burger King from the food
segment, and Mango, Mexx and Zara from the retail segment.
At present, the lack of appropriate commercial spaces is an obstacle for the luxury brands
franchises to come out on the market. As an alternative, these companies prefer to have a
representative to sell their clothing within multi brand stores, since there are no exclusive Gucci
stores for example. The offer for upscale commercial complexes is low, the economic indicators
considered when initiating such large-scale investment do not justify the real purchase power and
consequently the investors are not motivated to come to Romania. But when they estimate the
figures of the relevant sales they just realize that things are different in reality.
Franchisors who have submitted an offer to get access to the Romanian market are:
- Subway. The entry fee is $10,000. The royalties represent 8% of the turnover, 3.5%
advertising. The total investment ranges between $85,000 and $250,000. - Cendant – Ramada. The group of investors led by Gabriel Popoviciu and Radu Timofte own
the Howard Johnson, Best Western and Turist hotels in Bucharest. They got from Cendant
the authorization to license under the brands of this network, hotels in Romania, Bulgaria and
Moldavia. Thus, by the end of the next year, the hotel Turist, currently under renovation will
be four stars ranked and will get affiliated to an international network. Its stockholders are
still debating whether it will be under the Ramada brand or continue to be Howard Johnson.
- Different Twist Pretzel
- New Horizons
There follows a breakdown by sectors of the American franchisors that intend to sell their
licenses to Romania.
- Automotive Products & Services
Midas Auto Service Experts
Precision Tune Auto Care Center
- Building & Remodeling/Furniture & Appliance Repair
Air Serve Heating & Air Conditioning
The Closet Factory
Mr. Appliance Corporation
Mr. Electric Corp.
- Child Development/Education/Products
The Fourth R
- Education/Personal Development/Training
- Food: Quick Service/Take-out
Blimpie Subs and Salads
- Food: Restaurant/Family-Style
Bennigan’s Grill & Tavern
Buffalo’s Southwest Café
American Leak Detection
Mr. Rooter Corp.
- Recreation & Entertainment
World Gym International
- Retail: Specialty
General Nutrition Centers
- Global Travel Network
Global Travel Network
The foreign investors get attracted to the Romanian market owing to the harmonization of the Romanian legislation to the European Union one, to the support of the market conditions for retail and services development. This support is indirectly provided by the presence of the big names of international franchisors that are already present on the Romanian market: Zara, Intersport, Athlete Food’s Extyn, PrimoEmporio or MaxMara.
Brand Domain Industry Country of Nr. of Nr.of Turnover
origin operating employees euro
BDO Consulting & Services Belgium 1 29 8,500.000 International financial
WSI Other Services Canada 1 3 24,000
Diners Club Other Services Croatia 1 11 120,000
KPMG Consulting& Services Switzerland 2 85 17,720.000 International Financial
Kompass E-commerce Services Switzerland 1 24 140,260 Romania Services
Hyperlo Other Services France 2 225 3,116,883 Carrefour Commercial
Mobile Advertising Services France 1 9 65,000 Affiche Services
Ticket Com Advertising Services France 4 10 45,000
OVBAllFinanz Consulting Services Germany 2 5 35,000
Sixt Car Rental Services Germany 1 17 850,000 Franchisee-
Alexandra Training Services Greece 1 8 126,000 Language Services
Hirsch Real Estate Services Israel 1 6 28,000 AchieveGlobal Human Services Italy 2 38 623,377
CokaClub Beauty Shop Services Italy 1 3 7,000 IDEEA Studio Tele Services Italy 1 17 155,844
Miss World Other Services U.K. 1 6 90,000
NBB Consulting Services Portugal 1 3 24,000
AutoExpert Auto Services Services Romania 1 4 38,000 Detailing
BellBallon Services, Services Romania 3 11 24,000
Brand X Grup Decorations- Services Romania 2 8 45,600
Fiatest Group Human Services Romania 9 35 195,000
Gett’s Body care Services Romania 6 41 467,532 Smartree Consulting Services Romania 3 8 125,000
Ziua Press Services Romania 4 73 498,701 Voxnet E-Commerce Services Romania 1 6 25,000 Media Services Services Spain 1 5 Planning