Systems of hard and soft franchises in the FMCG sector in Poland
und | 13. Juli 2022
Article Category: Research Article
Online veröffentlicht: 13. Juli 2022
Seitenbereich: 27 - 38
DOI: https://doi.org/10.2478/ijcm-2022-0005
Schlüsselwörter
© 2022 Aneta Kuźniarska et al., published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Franchising networks constitute a significant element in trading activities, in which franchising is a method of conducting business activities according to a tried and trusted concept that facilitates the mitigation of the risk of business failure among the entrepreneurs commencing business operations (Schulze, 2015; Khan, 2015). A franchise also enables the acquisition of better trading conditions from distributors and manufacturers, which over a long-term perspective facilitates the gradual achievement of competitive advantage.
A franchise as a commercial and social model has an impact on the economic and social factors, such as the following: the creation of workplaces, economic modernization and development of entrepreneurship (Naatu & Alon, 2019). As the current situation arising from the COVID pandemic indicates, there is a constant need to adjust business models to market conditions, while also adjusting the consultations between the franchisors and the franchisees, negotiations with suppliers, and conversations with employees and clients, in all of which which greater flexibility is necessary (Bretas & Alon, 2020). Because the development of cooperation during a pandemic is relatively hindered, the possibility of choosing between a hard system and a soft franchise may facilitate such cooperation. The need for the research discussed here is therefore more valid than ever.
Franchising is defined as a system of selling goods, services, or technologies on the basis of close and constant cooperation between legislatively and financially separate and independent enterprises: a franchisor and the franchisees. Within the framework of this cooperation, defined by the terms of a licence, the franchisor provides the right to conduct business activities in accordance with his/her concept, while the franchisee is obliged to adhere to the established regulations and pay specified fees to the franchisor (Combs, Michael & Castrogiovanni,. 2004; Mehta & Madhani, 2008; Popova, 2016). This system constitutes the method of conducting business activities (Justis & Judd, 1989) based on all forms of cooperation between the entities. This cooperation includes full independence (Stecki, 1994) contingent on passing on the right to create and conduct an enterprise according to the idea, technology, and knowledge of the franchisor (Zadora, 2009; Khan, 2015; Schulze, 2015; Perrigot, Hussain & Windsperger, 2015).
Franchising is deemed to be a modern model of business development (Ziółkowska, 2014) that facilitates the relatively rapid expansion of an enterprise (Steinerowska-Streb, 2014), while also enabling the distribution of goods and services based on the legislative and business relationship with the owner of the goods, services, or technologies (Scarborough, Wilson & Zimmerer, 2009; Mignault, 2012). Some acknowledge it to be a marketing concept that is availed of for the development of business (Sichel, 2018).
A franchise involves the passing on of the right to create and conduct an enterprise on the basis of and in accordance with the recommendations and procedures of the franchisor as the author of the operational manual and the entire concept of the system (Banachowicz, Nowak & Starkowski, 1999).
The notion of a franchise should not, however, be narrowed down to merely a relationship based on the principles of licence agreements. It is also an organized system of cooperative ties between enterprises that are independent from a legislative viewpoint and are based on an entered agreement that is permanent. This system is characterized by a program of mutual benefits and also a set of guidelines and controlling activities based on the division of labour, which are aimed at ensuring that the activities are in conformance with the aims of the system (Ziółkowska, 2014). The program of benefits of the franchisor constitutes a franchising package. This is based on the concept of purchases, sales, and organization; a mutual understanding of the industrial and intellectual ownership rights; and the obligation of the franchisor to train and actively support the franchisee on an ongoing basis (Doherty, 2007), while also continuingly developing this concept. The franchisees operate on their own behalf and on their own account. They have the right and obligation to pay for the use of the franchising package, and their contribution constitutes their work, capital, and information (Sichel, 2018).
M. Mendelson, an authority in the field of franchising, defines franchising as passing on the complete concept of the enterprise to the franchisees, together with supporting the implementation, retraining, and providing ongoing assistance and advice to franchisees while conducting the firm (Mendelson & Acheson, 1992). Simultaneously, a certain form of dependency of the franchisee on the aid and experience of the franchisor remains in place (Harmon & Griffiths, 2008). In this relationship, there is no need for restrictive monitoring of the activities of the franchisee; the only obligatory aspect of their relationship is the agreement, based on mutual trust, that they entered into (Emerson, 2014). The majority of definitions of franchising encompass the legal, systemic, and marketing plan, or the community of interests, trademarks, payment, and control (Spencer, 2010).
The fundamental definition of the notion of a franchise is dependent on the type of business activities conducted, the type of franchising system, and the relationship between an entrepreneur and the franchising provider. On the one hand, a franchise is the appropriate form for firms wishing to develop their business activities as a franchisor; while on the other hand, it is appropriate for those who wish to commence business activities within the framework of larger systems as franchisees. Depending on the determinants listed, it is possible to divide franchising systems into categories according to various criteria; the the availability of some categories is likely to depend on the country in which the franchising occurs. The categories of franchising systems may occur in accordance with, among other things, the form of the franchise's organization (direct, multiple, master-franchise, regional representatives), type of know-how (product, business activity), and type of business operations (distribution, services, manufacturing, miscellaneous). The types of franchises according to the type of agreements between the franchisor and the franchisee may be divided into the following, among others (Ziółkowska, 2014):
direct franchise – the most popular method of regulating the principles of cooperation. All regulations relating to the franchising agreement are established between the franchisee and the franchisor, who controls the provisions of the agreement and also conducts training and deals with promotional and marketing activities; indirect franchise – control of the business activities of the franchisees occurs through the medium of a chosen franchisee, with whom the appropriate agreement is entered for the purpose of such activities; multiple franchise – on the basis of an agreement between the parties, the franchisee is authorized to open a number of new premises in a particular area; individual franchise – a franchisee signs the appropriate agreement, thanks to which he/she may open a firm and access the know-how received; master-franchise (subfranchising) – on the basis of an agreement, the franchisor grants the franchisees the right to conduct business activities in a particular area on an exclusive basis, while also implementing changes to the agreement, with the reservation that the final decision is taken by the franchisor; regional representative – a franchisor that wants to expand the area of activities opens a regional representative body and, on the basis of an agreement, is authorized to undertake the following activities: search for new franchisees, train employees, and conduct marketing activities. Agreements with new entities are signed with the consent of the franchisor.
A different division of franchises was conducted by B. Ribeiro (Ribeiro 2009), in which four types were distinguished as follows:
conventional franchising: 100% of investments are conducted by the franchisee partial franchising: the franchisor and the franchisee bear joint responsibility for the initial cost of activities; rental franchise: 100% of the initial price is borne by the franchisor; the franchisee takes responsibility for the management; hierarchical franchise: the branch offices are opened by the franchisor and when they are well-known, they are encompassed within a franchising business model.
A franchising agreement is aimed at specifying the principles of cooperation between entrepreneurs that are members of the franchising system. The relations between the franchisee and the franchisor differ from other business relations as they require specific, dependent, and long-term relations (Harif, Hoe & Chin, 2014; Ekelund, 2014). Up to now, the state legislator in Poland has not created any legislative regulations with regard to such an agreement, in spite of the fact that the franchising agreement has been functioning for a long time and is the hallmark of agreement between two parties. It is a typical agreement of mutual trust and the legislative relationship that stems from its basis is a relationship of trust (Emerson, 2014). The legislative essence of such agreements is reflected in two regulations to be found in the Code of Ethical Franchising Relations, which are created with the aim of protecting franchisees from dishonest trading partners, together with regulations counteracting monopoly practices (Pokorska, 2000). In the franchising system described, the franchisor imposes the regulations of business practices in accordance with his/her own idea, while authorizing the franchisee touse the brandname, trademark, company logo, and methods of the franchisor, in addition to providing access to his/her knowledge, regulations of procedure, procedure for customer service, and technical and trading assistance. In exchange for this, the franchisee is obliged to conduct business activities in accordance with the accepted format or business model (Konigsberg, 2008).
Subject-related literature defines a franchising agreement as a contract in which the franchisor grants the franchisee consent to use his/her templates for conducting business activities, and also provides essential knowledge that is necessary for conducting the business activities. On the other hand, the obligation of the franchisee is to act according to the agreement and conform with all the stipulations, including the payment of fees to the franchisor, or the agreement shall be deemed null and void or the franchisee shall be faced with financial penalties or other sanctions. In accordance with the franchising agreement, the rights referring to industrial and intellectual property are granted. The characteristic feature of franchising agreements is their long-term duration arising from the fact that investments made by the franchisor must have time to achieve full depreciation, thus the minimum period of duration for such an agreement is accepted to be from 3 to 5 years (Fusch, 2014). On the basis of the agreement, the franchisee may count on systemic and systematic care on the part of the franchisor, in the form of a training package for himself/herself and for the employees, and a promotional campaign aimed at strengthening sales and the knowledge of settlements in a partular sector. In exchange for this, the franchisee pays the franchisor the start-up fee upon being granted a licence, as well as a monthly fee and is also obliged to deduct the percentage of turnover amount agreed on. The financial resources accumulated in this way are designated by the network organizer towards advertising campaigns, as well as towards the organization of trade fairs, marketing research, and the implementation of innovative solutions for all the participants of the particular franchise (Słodkowski, 2008).
A franchising agreement may impose various types of obligations on the franchisee, albeit there are also certain restrictions in its provisions (Pokorska, 2000):
the obligation to bear a large proportion or all the investment and promotional costs arising from the launching of the undertaking; the franchisee must apply the norms, standards, and principles of cooperation operating in the franchising network; the franchisee may not reveal the principles of know-how, which he/she has access to, to third parties during the course of the agreement or following its termination. This stipulation in the agreement is very closely and rigorously controlled and constitutes its essential element; the agreement reserves the right for a franchisee not to undertake competitive activities, or others of a similar nature, while taking care of the good reputation of the network and participating in the innovative and development activities of the enterprise. Other terms of cooperation are described in Table 1.
Principles of cooperation between franchisee and franchisor
| He/she checked the business concept in his/her own pilot unit and indicated its profitability. |
He/she conducts business trading under the logo of the system provider as an independent entity, while his/her profit is gained from his/her business activities. |
Source: Self-analysis on the basis of Słodkowski (2008).
Within the framework of mutual cooperation, the parties to the agreement acquire rights and obligations. The basic obligations of a franchisor are as follows (Pokorska, 2000):
having the right to make use of the brand name and trademark of his/her own network and granting this right to franchisees for their use. This is a very significant aspect as, thanks to this fact, the system receiver may fully use the renown of the franchisor, yet also takes on the risk of losing this renown in the case of failure. guarantee of consistency in terms of the supply of goods. revelation of the professional secrets that are of key importance to the success of the enterprise. These may be organizational principles, regulations, database of suppliers, marketing activities, promotional activities, or even the principles of customer services. ensuring constant operational care, while also ensuring access to training. This obligation lies with the franchisor both at the beginning of activities and during their course. Likewise, it also encompasses assistance involving the indication of the key suppliers, while also passing on knowledge on the subject of trading conditions with the cooperating parties. organizational assistance involving the indication of contractors and materials in terms of conducting work on, e.g., the interior arrangement of the shop, services centre, etc. regional organization and sometimes even a nationwide advertising campaign on behalf of the network. creation of a pilot unit as the role model for potential entities entering the network, while also indicating the effects of the franchising activities over a longer term period.
Another type of document, apart from the agreement, that defines the framework for cooperation is the operational manual (blueprint), which includes a complete and exhaustive description of the methods of conducting a franchising enterprise (Mendelson & Acheson, 1992). A description of the composite parts is presented in Table 2.
Operations manual as a tool of franchising cooperation
| Introduction |
explanation of the method of operations of the system and the philosophy of operations of franchising activities. Expectations of franchisees in exchange for the purchasing of a licence, |
| Operational instructions |
detailed methods of use (guidelines for furnishing premises, instructions for equipment, data for service units, and a list of contacts) operational instructions, including the following:
opening days and hours of premises; samples of trading agreements; set of norms and procedures; requirements relating to dress code of personnel; training procedures of employees; recruitment procedures of employees; guidelines for pricing policies; guidelines for supplies policies; procedures of customer service; standards of goods; obligations of employees; bookkeeping procedures; guidelines for reporting; advertising and marketing; franchising fees, together with the description and deadline for payments; guidelines for making use of the trademark; inventory procedures. |
| Set of standard forms |
work schedule of employees, nondisclosure agreements, advertising prints. |
| Guidebook for franchisees |
list of contacts of employees in the chain who are responsible for settlements, marketing, IT emergency assistance, logistics, etc. list of contacts of suppliers and sales representatives of manufacturers and suppliers recommended by the chain. procedures for displaying goods and stimulating sales. |
Source: Self-analysis on the basis of Mendelson and Acheson (1992).
The operational manual should include all the elements indicated, but naturally they may be modified appropriately, depending on the requirements. A franchisee should apply the principles stipulated in the manual and also verify them appropriately, while taking account of the changes emerging on the market. The obligation of updating the data in the appropriate chapters of the manual lies with the creators of the manual, with particular mention of the entries relating to marketing, advertising, and technological innovations.
In the case of both of the participants of franchising, there are more or less significant elements that have an impact on the market success of an enterprise, but the preliminary criteria of success constitute conformance of the aims, organizational culture, and communication (Wright & Grace, 2011). The benefits and threats must be analysed thoroughly before entering a franchising structure. The decision taken by a franchisee depends on his/her experience in a particular sector, as well as the associated needs, whereas a franchisor must select the members skilfully, while also analysing the operations of the system on an ongoing basis (Doherty 2007).
Prior to the transformation, namely before the year 1989, only one system functioned in Poland that was based on franchises, albeit it was not defined in this manner. This was exemplified by the international hotel chain of Novotel and InterContinental, which, on the basis of franchising agreements reached in the 1970s, merged part of the Polish hotel chain Orbis into their structures. In the 1950s, the first agreements based on licences appeared in Poland, which were implemented by Bank PKO BP and Poczta Polska, thus opening outlets in companies and in small towns. After 1989, three stages of the development of franchises were noted in Poland (Golawska-Witkowska, Mazurek-Krasnodymska & Rzeczycka, 2014; Wrzesińska-Kowal, 2016):
The creation of Polish franchising systems by international investors, which within the framework of development facilitated the entry into a previously inaccessible market. (In this period such brands as YvesRocher, McDonalds, and Adidas appeared in Poland.) The first franchising systems created by Polish entrepreneurs on the basis of their own know-how were the shops under the trademark of In the years 1996–2001, the growing competitive fight in the Polish market caused the weakening of the international franchising system, while the development and creation of Polish firms entering into various types of integrative ties that were later transformed into typical franchising agreements strengthened (Ziółkowska, 2014). Recent years constitute a period during which the systems already existing on the Polish market have been increasing the quality of their offers by means of expanding their distribution, creating manufacturing lines under their own trademark, while also implementing innovative solutions for their own franchisees (applications, e-wholesale shops, and also integrated programs for availing of cash registers [Wiśniewski, 2020]).
Over the past few years in the FMCG sector, the growing significance of integrated retail chains has been noted. The number of franchising outlets in Poland presented in Chart 1 in the period of the last 19 years indicates the dynamic development of this format. Although the number of FMCG stores operating in franchise systems increases every year, their share in the total number of franchise systems decreased from 65% in 2000 to 53% in 2020 and amounts to approximately 45,000 shops (Wiśniewski, 2020). In the case of the networks, this signifies the necessity of undertaking competitive action which will lead to the enhancement of their market position in the retail trade. Some trading networks are created by Polish entrepreneurs, and the system organizers are Polish companies, e.g., Rabat Detal, Livio, and Nasz Sklep, which operate in the structure of GK Specjał, which is seated in Rzeszów (Grupa Kapitałowa Specjał, online). The organizers of this network are also foreign companies that associate with the networks of Polish entrepreneurs, such as the Portuguese GK Eurocash and Delikatesy Centrum, Groszek and ABC chains (Eurocash, online).
Chart 1
Development of franchising chain in sector of FMCG in Poland in the years 2002 – 2020.
Source:
In the previously mentioned sector of FMCG, the numerous consolidation processes that accompany the phenomenon of networking of the dispersed structure of the retail trade are visible. As a consequence, approximately 25% of shops with a surface area of up to 100 m2 are already in various types of organizations consolidating small trade. This type of integration processes creates additional possibilities for reacting towards change in the environment, while also represent an improvement in the competitive position on the market. This provides great opportunities, yet also requires the owners to implement the appropriate management, coordination, and integration of activities in conformance with the guidelines of the network organizer. The development of network ties in Poland has an impact on the reduction of the number of independent shops of traditional trade, which in turn, leads to the consolidation of the market of retail trade. This development also strengthens the position of small retail trade, which up until recently struggled with a weak financial standing caused by the aggressive expansion of foreign discount shops (Reformat, 2015).
The franchising networks operating in the FMCG sector in Poland may be divided into shops of the following formats: convenience shops (local district shops of convenience purchasing), supermarkets, and delicatessen shops. Out of these formats, we may distinguish the shopping chains of ABC, Żabka, Nasz Sklep, Odido, Groszek, Rabat Detal, Lewiatan, Chata Polska, Spar, Intermarche, Livio, Carrefour, Stokrotka, Leclerc, or Delikatesy Centrum. The franchising networks operating on the basis of hard agreements and soft franchises are usually located in highly frequented places and offer first-need products (Hadyński & Józefowicz, 2019).
What is interesting is the fact that in spite of almost 1,310 franchising chains and 83,000 franchisees already in the Polish law (Kurda, 2020), there are no detailed or dedicated regulations referring to the operations of franchising systems. On the basis of analysis of various legislative acts that are binding in Poland, the existence of content encompassing the principles of creating franchising agreements based on the principle of the freedom of agreements was noted only in the Civil Code, art.353, according to which, an agreement of this nature is entered in conformance with the principles of the mutual agreement of the parties concerned. Analysis of the Civil Code from the viewpoint of franchising activities reveals that franchising agreements in Polish law are treated as innominate contracts and function on the principle of agreements of mutual consent within the limits of freedom of the binding law. The relationship between the parties is regulated by the Civil Code within the sphere of the manner of entering an agreement, the forms of agreements entered, while also waivers of obligations (
Division of franchising chains in Poland according to format of shop
|
surface area of shop from 100 m2 to 200 m2 located in housing districts in small areas within proximity of the large city thoroughfares, beside bus/train stations limited assortment additional services (lottery tickets, receipt of packages) the majority of these shops are not self-service |
ABC Żabka Nasz Sklep Livio Odido Groszek Chorten Rabat Detal Eden |
|
|
surface area of shop from 200 m2 to 500 m2 located in large cities, in large agglomerations of people prevalence of self-service form of sales wide assortment (hundreds of thousands of assortment items) |
Lewiatan Chata Polska Spar Intermache Kupiec |
|
|
surface area of shop from 200 m2 to 400 m2 located in shopping malls in large cities, in large agglomerations of people increased standard of service increased standard of visualization of shop wide assortment supplemented by delicatessen products |
Delikatesy Centrum Delikatesy Bomi Delikatesy Mila |
Source: Self-analysis on the basis of Reformat, 2015.
Table 4 indicates the slight impact of the legislators on the creation of franchising agreements. In franchising agreements, only selected articles of the Civil Code are used.
Regulations of Civil Code relating to franchising
| Art. 43.1-Art. 43.10 | Indicating an entrepreneur as a physical or legislative entity, who conducts business or professional activity on his/her own behalf. This individual operates as a firm that is entered into the appropriate register. The notion of a firm in the case of a physical entity is perceived as the individual's name and surname, whereas in the case of a legislative entity, it is perceived as the name of the firm. |
| Art. 56 – Art. 116 | Regulations stipulated in the first book under the fourth title relate to the legislative activities. They regulate the activities of parties associated with entering agreement. They treat the declaration of the will to enter agreement as an offer. This offer becomes transformed into an agreement, if the parties express such a wish. This will, as indicated by the act, should be presented in a written form. Similarly, all appendices and modifications to the agreement should be prepared in a written form. Simultaneously, the act assumes that the declaration of the will of unauthorized people, or those in a state that excludes the conscious or free will to make decisions is deemed null and void. |
| Art. 353.1 – Art. 396 | In accordance with the resolutions of the Civil Code, the parties entering agreement may arrange the legal relationship according to their own discretion, yet must respect the legal regulations, as well as the principles of community life. Both the debtor and the creditor should execute the obligations in accordance with the stipulated content and in a manner that is appropriate to the principles of community life, as well as the binding customs. The obligations of the parties may be of a nature of solidarity obligations. Likewise, they may also be divisible obligations, or indivisible obligations. |
| Art. 451 | The Civil Code defines the manner of executing obligations. By way of example, it assumes that the debtor, who has several debts to the same creditor, may indicate which debt he/she wishes to pay off. |
| Art. 471 | The Civil Code defines the effects of the failure to execute the obligations. In accordance with its stipulations, it is assumed that the debtor is obliged to repair the damage which arises from the failure to execute, or the inappropriate execution of the obligations. |
| Art. 487 | The resolutions of the Civil Code refer to the execution and effects of the failure to execute the obligations arising from the mutual agreements. Mutual agreements are treated as contracts, in which both parties are obliged by the declaration of one of the parties that should be the equivalent of the declaration of the second party. |
Source: Self-analysis on the basis of Civil Code (2020).
With the aim of appropriate presentation of the background of research associated with franchising in Poland, academic databases were searched in order to find scientific papers on the subject matter of franchises. In research, papers were analysed on the subject of the functioning of franchising worldwide and in Poland, its definitive notion, as well as the legislative state of franchises in Poland. Scientific papers, legislative acts, and reports were analysed for this purpose.
In the research, an attempt was made to identify the differences between the two types of franchises existing in Poland: soft and hard. The research was conducted with a qualitative method based on the analysis of documents and the associated analysis of content that involved systematic analysis of the chosen sources – in the written sources described in as concise a manner as possible (Cohen, Manion & Morrison 2007). Analysis of the content as a research method serves the creation of replicable and important conclusions with the aim of providing knowledge, new observations, relevant facts, and a practical guide to operations (Krippendorff, 2004). Their interpretation should be understandable for the reader (Elo & Kyngäs, 2008). The analysis process accepted within the framework of the methods reduces the amount of content accumulated and groups the categories together, while searching for their perception (Silverman, 2001; Patton, 2002), which simultaneously leads to the description, as well as the interpretation of the phenomena under analysis (Holloway & Galvin, 2017).
In the research described, the content of the agreements between the franchisor and franchisees was analysed. The research encompassed the agreements of 18 different trading networks operating in the FMCG sector. The selection criterion was the Handel magazine ranking, which presented the 30 largest franchise companies in the FMCG sector. The study was based on network documents with a minimum number of 500 franchise outlets at the end of 2020, including: Abc, Żabka, Livio, Lewiatan, ODIDO, Rabat Detal, Chorten, Nasz Sklep, Groszek, Nasz Sklep Express, EDEN, Delikatesy Centrum, Gama, Carrefour Express, Sklep Polski, Top Market, Kropka, Mirabelka (Handel, online).
Over the past few years, it has been possible to observe the changes in the relations between the franchisee and the franchisor with regard to the principles of cooperation stipulated in franchising agreements. The prevalent and most widespread form of franchise is the so-called classic franchise, which is also termed the hard franchise. In such a form, the obligation of the franchisor is to pass on the know-how with regard to the principles of displaying and selling goods, conducting marketing and promotional activities, and specifying and implementing the advertising standards for the network as a whole. Within the framework of participation in the structures of the hard franchise, the licence provider is obliged to specify the source of supplies for the franchisees, and also the percentage level they constitute in the general supplies of the outlet. n turn, the franchisee is obliged to order goods from these suppliers within the specified percentage level (Komańda, 2011).
Likewise, there is another model of franchising cooperation that differs in terms of the level of involvement of the parties to the agreement on cooperation. This is the so-called soft franchise (Święcka, 2009). In this model, the organizer of the system provides the franchisees with voluntary support in the form of the visual design of the outlet, access to advertising materials, and also access to the purchase of goods from specific suppliers on specified terms. The word
In the classic system, the parties are obliged to apply the stipulations of the agreement; however, in the soft variation the parties, may use of the stipulations of the agreement in a voluntary fashion. This model of cooperation may be defined as operating in a purchasing group, or a group providing marketing support. Operating in such a system provides the owners of shops with independence and the possibility of enhancing their financial performance thanks to operating in an organized structure (Chilicka, 2020).
In Tables 5 and 6, the differences and similarities are presented. These are based on the research conducted on the content of franchising agreements involving hard and soft franchising systems.
Diagnosis of differences in hard systems and soft franchises
| Preamble | The system provider establishes the trading conditions for the system receiver with suppliers and manufacturers and also obliges the system receivers to make purchases and sell goods from the suppliers and manufacturers indicated. | The system provider has a concept of the system of the sales of goods at his/her disposal, which creates the possibility of an effective form of business activity and business cooperation in the sphere of sales and promotion of goods for the network participants and independent firms. |
| Obligations of franchisee |
Adjustment of the trading premises from technical and aesthetic viewpoints to the network requirements, Application of a computer-based warehouse system indicated by the system organizer, Acquiring supplies of goods exclusively from the suppliers listed in the attachment prepared by the system organizer, Maintenance of a full assortment of the brand indicated by the system organizer, Absolute application of the recommendations from the protocol of evaluation conducted by the network representative, Passing on monthly sales reports to the system organizer that are generated from the warehouse program: rendering it possible for people authorized by the system organizer to have direct or remote access to the purchasing data of trading premises, rendering it possible for the system organizer to be able to have an insight into the financial and bookkeeping records of the franchisee at any moment in a scope that is necessary to establish the turnover, while also the application of retail prices, acquired purchasing prices and payments to suppliers, |
The system provider prepares propositions of internal and external visualizations of the trading premises and provides the franchisees with the possibility of using the propositions. The network provides access to the offer of purchasing computer equipment, and also provides the possibility of purchasing the warehouse program from the suppliers indicated, randomness of acquiring supplies of goods from suppliers from the attachment prepared by the system organizer. The franchisee receives suggestions relating to the recommendations from the evaluation protocol executed by the network representative: expressing voluntary consent to provide the purchasing data regarding goods bought from the suppliers with the aim of calculating the remuneration in the form of retrospective bonuses, |
| Participation in marketing and advertising actions | The participant of the trading network has the obligation of participation in all marketing, advertising and promotional actions organized by the network, including advertising the trading premises according to the principles stipulated in the regulations for the particular action, | The network participant has the right to participate in all marketing, advertising, and promotional actions organized by the network, including advertising the trading premises according to the principles stipulated in the regulations for the particular action. |
| Recommended suppliers |
the system organizer provides access to a list of authorized suppliers of furniture systems and also systems of lighting for the sales room, cooling equipment, and computer systems. |
There is no list of authorized suppliers. |
| Operational activities | The network participant has a trade coordinator assigned to him/her by the franchise provider, whose cyclical visits amount to one visit per week, | The network participant has a trade coordinator assigned to him/her by the franchise provider, whose cyclical visits amount to one visit per month, |
| Additional programs and services | The trading network participant has the obligation to udr the programs and services prepared by the network (loyalty program for consumers, loyalty program for franchisees, competitions by means of text messaging, trade fairs), | The trading network participant has the right to use the programs and services prepared by the network (loyalty program for consumers, loyalty program for franchisees, competitions by means of text messaging, trade fairs). |
| Training | The trading network participant and the workers employed in the trading premises have the obligation to participate in training prepared by the network. | The trading network participant and the workers employed in the trading premises have the right to participate in training prepared by the network, |
| Purchase of advertising materials and consumables | The obligation to purchase materials in cycles - 1 purchase monthly. | Authorization to purchase materials. |
| Period of duration of agreement | The agreement is entered for an indefinite time period with a 6-month period of notice that comes into effect at the end of the calendar year. | The agreement is entered for an indefinite period of time with a month's period of notice of termination. |
| Grace period | Following the termination of the agreement, the network participant may not conduct business activities in competitive trading networks for a period of 6 months. | There is no grace period, |
| Contractual penalties |
Penalties are charged for breaching the stipulations of the agreement. Amount of penalties: from 1,000 PLN to 50,000 PLN. |
There are no contractual penalties in the case of a failure to adhere to the stipulations of the agreement that are binding within the regulations of the Civil Code, |
| Franchising fees |
Entry fee to the amount of 5 PLN net for each square metre of the surface area of the shop, Annual licence fee to the amount of 2 PLN net for each square metre of the surface area of the shop, Monthly marketing fee to the amount that is established as a percentage of the turnover of the shop from the previous month, ranging from 0.6% to 0.8% of net turnover. |
The quarterly licence fee amounts to between 1 PLN and 30 PLN, |
| Security of payments due | The franchisee has the obligation to issue a blank bill of exchange, and also a blank bill of exchange agreement with the aim of securing all payments that are payable to the franchisor. |
There is no collateral, |
| Level of retrospective discounts and bonuses with suppliers and manufacturers indicated by the organizer of the system |
Discounts at the suppliers indicated from 1% to 20%. Bonuses at the manufacturers indicated from 1% to 12%. Bonuses at the suppliers indicated from 0.5% to 5%. |
Discounts at the suppliers indicated from 0.02% to 9%, Bonuses at the manufacturers indicated from 0.02% to 8%, Bonuses at the suppliers indicated from 0.02% to 2.5%. |
Source: Self-analysis of the franchising agreements of the analysed chains.
During the course of conducting research, apart from the differences in franchising systems indicated in Table 5, it was also possible to note the similarities that exist, which are presented in Table 6.
Similarities in hard agreements and soft franchises
| Representative of management of network, franchisee. | |
| Obligations of the franchisor |
Negotiating and entering agreements on trade cooperation with suppliers and manufacturers, Informing the network participants of the terms and conditions of the trade agreements entered with the suppliers and manufacturers, Preparing and providing access to advertising actions that are aimed at making sales more attractive in the trading network by means of competitions, sampling, etc. |
| Operational activities |
The franchisor ensures care by specialists and assistance in preparing for the opening of the shop. The franchisor ensures advisory services in conducting the shop, while also the selection and arrangement of the appropriate assortment. |
| Liability | `The franchisor does not bear any liability for the financial performance of the network participant, nor for any of the participant's activities and obligations with regard to third parties. |
| Confidentiality |
The network participant is obliged to maintain absolute confidentiality with regard to the concepts of the system revealed to him/her with regard to entering the agreement, and also all data and information passed on to him/her by the franchisor. |
|
On behalf of the franchisee, the network organizer conducts all activities associated with entering and executing trade agreements, particularly submitting and receiving offers, participating in negotiations, and establishing the content of the agreements and also their termination. Likewise, he/she shall undertake all activities with the aim of preparing the best prices for the products to be sold. The franchisee authorizes the system provider to negotiate retrospective bonuses from the network suppliers. |
|
| Settlement of remuneration from suppliers and manufacturers |
Settlements are calculated as a percentage of the purchase value of the goods traded by the system organizer. Settlements take place on a quarterly basis. |
Source: Self-analysis of the franchising agreements of the analysed chains.
On the basis of the analysis conducted on the content of agreements in the franchising networks analysed, it is possible to state the form of both soft and hard franchises provide the franchisees with freedom in terms of the management of their own businesses, independence in taking key business decisions, and also independence in terms of the direction of development for the business conducted. Nevertheless, entering the structure of a franchising network also involves taking on a responsibility for the franchisees in terms of the business decisions taken. Both the differences and the similarities relate to a multitude of areas that are conditioned by contractual stipulations and the ultimate decision relating to participation in a soft or hard franchise should be taken on the basis of the analysis of all the elements indicated in the tables, not only with regard to the costs or level of discounts, but also in terms of the retrospective bonuses from suppliers and manufacturers indicated by the system organizer.
The analysis of the differences in the franchising systems, based on the example of the FMCG sector, indicated that prior to taking the decision to participate in the structures of hard or soft franchises, an entrepreneur must conduct a multifaceted analysis, which would exert an impact on the success of the whole undertaking in the future. The choice of an offer depends, to a large extent, on the trading experiences and expectations of the entrepreneurs in question. From the viewpoint of the research findings, a franchisee that is only commencing business activities, thus without experience, would benefit by considering an offer from the system of a hard franchise. This would provide access to the accumulated know-how of business, as well as external and internal visual design of the outlet determined by the network. Ttrading conditions are generally more favourable than in a soft franchise system. The prerequisite of gaining full access to the concept of a franchise is the consent to the conditions of the agreement, namely, a longer agreement, higher charges, higher penalties, and a lack of full independence in the business conducted.
In the case of experienced entrepreneurs who have already been operating for several years in the trading sector, the optimal solution would seem to be participation in the system of a soft franchise. This provides greater freedom of activity, and also the lack of interference by third parties in the particular purchasing or sales sector, yet maintaining access to the know-how of the system and the trading offers of the distributors associated with agreements with the network. Likewise, soft-system franchises are also associated with lower franchise fees and the absence of penalties in the case of resigning from participation in the system.