The franchise business model is relatively unknown in Switzerland. Marc Haesler, director of Swiss Distribution, the franchisors' association in French-speaking Switzerland, provides some insights into this type of business.
In 1976, Switzerland's first franchise opened in Geneva operating under the name of a major fast-food chain. Forty years later, in 2016, a study published by the Swiss Franchise Federation and the Swiss Union of Arts and Crafts (USAM) estimated the number of franchise networks in Switzerland at 295, of which nearly two-thirds were created after 2000. For almost 20 years, Marc Haesler, a lawyer specializing in business law, has assisted and advised franchisors and franchisees in French-speaking Switzerland.
The franchise business model in Switzerland lags behind countries like France, Germany, and the United States. Why do you think this is?
Marc Haesler: There are several reasons for this. First, the territory is small. Brands like to use the franchise model to expand quickly in large countries like the United States. Also, this small territory is divided into three linguistic regions, which makes it even more complex to set up. Some franchisors who are already well established in the French-speaking part of Switzerland, for example, are rather reluctant to expand into the German-speaking part of the country, as this entails translating all documentation into German and finding franchisees who are fluent in French, or ensuring that they have managers who can communicate in German. Secondly, it is much more difficult to find financing in Switzerland. Since franchising is generally less well known, banks are not as ready to invest in companies following this model. Fortunately, things are changing.
Which golden rules should be followed before starting up as a franchisee?
Haesler: First of all, it is important to thoroughly research the market in which the franchisor already operates, especially if it is located in a country abroad. A business model that works in a neighboring country will not necessarily work in Switzerland. For example, the concept of low-cost can easily be developed in countries where salaries and operating costs are lower, but it is a highly risky bet on the Swiss market. Furthermore, close attention should be paid to the support given by the franchisor, who should, in principle, provide the basic equipment, ensure knowledge transfer by training the franchisee, assist in the implementation and take care of the marketing activities. As such, the franchisor receives an upfront fee and, in most cases, royalties paid regularly by the franchisees. Unfortunately, the risk is that the franchisor will sign a large number of contracts to benefit from the cash flow, without providing the necessary support to the franchisees.
When one invests large sums of money to become an entrepreneur, it also means being independent. Is the franchise model compatible with this objective?
Haesler: Admittedly, there is some restriction as the franchisor will want to ensure uniformity across its network. The franchisee must comply with certain practices, such as not marketing certain products or services and the obligation to market others. However, the franchisee also benefits because by joining an already established network, he is statistically less exposed to bankruptcy risk. Furthermore, he has a certain amount of leeway and the option to make small adjustments. In retail, for example, a franchisee can market local products to make the brand more attractive to the local consumer.
How can the franchisee best leverage this flexibility?
Haesler: The franchisee's main skills are recruitment and local marketing. Developing the brand on the ground is the franchisee's responsibility. Therefore, he should pay particular attention to human resources, ensuring the organization of positions and recruitment of the best candidates.
Additionally, local marketing is the franchisee's responsibility, although in the case of a well-established brand, large-scale marketing campaigns will be the responsibility of the franchisor. At his level, the franchisee is at liberty to do whatever is necessary to ensure visibility. This can be done, for example, through local advertising campaigns or sponsorship of local events.
Lastly, the franchisee plays a very important role in the franchisor's commercial strategy. He will have to see which products or services are selling best, and conversely, which ones should be withdrawn, adapted or replaced.
To which industries does the franchise model best lend itself?
Haesler: Traditionally, the three sectors with the most franchises are "distribution and trade", " home and decoration" and " health and beauty", but they are not the only ones with potential. The model is also very successful in the service sector. Today, almost all real estate brokers, as well as coaching companies and language schools, operate under this model.
Today, it is vital to establish an online presence in business. Does the franchise model fulfill this need?
Haesler: In general, the franchisor will have a website that hosts all the necessary features for the business, such as an online store or a reservation system. From there, there are two options: either the franchisee develops his own website, which must be consistent with the brand image of the franchisor's network, but which can be adapted to some extent, or the franchisor's website devotes a section to its franchises.