En los últimos años está adquiriendo una notable importancia en España el fenómeno de la franquicia como una nueva forma comercial llegando a alcanzar tasas de crecimiento interanual cercanas al 40%. Como resultado, el comercio minorista en España está sufriendo transformaciones considerables, acercándose a un perfil similar al de otros países de la UE. Sin embargo, el fenómeno de la franquicia en España trasciende más allá de una mera modificación de los modos de la actividad comercial, ya que sólo puede ser correctamente entendido si se enmarca en el contexto de otros procesos más amplios que afectan a las economías, e incluso a las sociedades, del mundo desarrollado: la globalización económica, las innovaciones en la gestión, la creación de redes empresariales o el avance hacia la estandarización, por señalar los más significativos. Bajo esta estructura conceptual los autores pretenden demostrar cómo se han desarrollado las cadenas de franquicias en España, cuáles son sus principales características y qué pautas de distribución siguen, tanto a escala regional como en el interior de las ciudades. Por último, tras señalar los impactos potenciales del sistema de franquicias en las empresas españolas, se indican algunas líneas de investigación para análisis posteriores.
Palabras clave: Franquicias, Redes empresariales, España, Comercio Minorista, Servicios.
Over the last few years, the phenomenon of the franchise as a new way of doing business has been undergoing a notable increase in Spain, with year on year growth rates of around 40%. As a result, Spain’s retail trade is suffering considerable transformations and growing ever closer to a similar profile to that dominant in other countries of the EU. This phenomenon of franchises in Spain, however, goes far beyond a mere modification of business manners, as it can only be correctly understood if it is placed in a framework of other processes with much wider dimensions linking the economies, and even the societies, of the developed world: economic globalisation, management innovations, the creation of network organisations or the progress towards standardisation, among others. Behind this conceptual structure, the authors attempt to demonstrate how the franchise networks are being implemented in Spain, what their main features are and what behaviour they follow as regards distribution of franchises throughout the territory and within the major cities of Spain. Finally, after pointing out the potential impacts of the franchise system on Spain’s business fabric, some research lines are indicated for further analysis.
Key words: Franchise, Business networks, Spain, Trade, Services.
INTRODUCTION
Of the new forms of doing business which have shown a great degree of dynamism over the last few years and in a growing number of countries, there can be little doubt that franchising is a prime candidate. Although it is not our intention here to go into too much detail about the definition and internal organisation of the concept, widely commented in most textbooks dealing with the phenomenon from the business standpoint (Bolea, 1990; Rigol, 1992; Alonso Prieto, 1997; Raab and Matusky, 1997; Díez de Castro and Galán, 1998; …), it would seem to be appropriate to give a few pointers as to the approximate limits of the franchise. Among the many descriptions available, that of Flechoso may seem the most expressive in that he states that the franchise "is a system of contractual partnership founded on continued close co-operation between two financially distinct and independent companies (the franchiser and the franchisee). Through such a contract, the franchiser allows each franchisee to reproduce in exact detail the franchiser’s system for exploiting the business and places the franchiser’s brand, know-how and business and financial methods at the franchisee’s disposal in exchange for an economic consideration" (Flechoso, 1997).
It is, therefore, a method for independent companies to formalise their co-operation agreements, for which reason it is often seen as one of the most typical forms of modern partnership in business (Parra et al., 1996). This method can comprise a horde of distinct situations depending on the characteristics of the business concerned, the type of activity to which they belong or the kind of specific relationships between the participants.
Whatever the nuances of the definition, however, there can be no doubt that the franchise is a newcomer in most countries yet is today growing at an almost exponential pace and spreading enormously quickly. To use a life-cycle metaphor, this formula could be described as being in its youth, with a still limited number of competitors in most sectors, but the average rates of return are already sufficiently attractive to bring in a growing number of imitators.
Various factors are involved in the justification of this undoubted dynamism which, despite the presence of a certain churn in business terms, has made it possible for the market to show a sequence of highly positive annual results in all of the cases studied in the technical literature world-wide. These factors have been profusely analysed by experts and proponents of this formula; their strong points could be summed up in the convergence towards two kinds of advantages:
- For the franchiser, this is a system providing for rapid growth and access to new markets through the sale of licences, with much lower costs and risks than would be associated with direct implantation, particularly through the reduction in the initial investment in fixed capital and directly employed workforce.
- On the other hand, the franchisee receives the benefits of the corporate image and brand being offered, in theory, by a consolidated and experienced company in the sector, as well as being able to gain access to the management techniques and expert sales skills forming part of the know-how that the franchiser is going to communicate to the franchisee. It is also possible to take advantage of the appearance of economies of scale with provisioning and to enjoy exclusive exploitation rights within a certain territory. All of this means the franchisee can successfully overcome some of the obstacles facing the independent retailer, thus explaining the differences in results in both cases.
Such an accumulation of advantages also justifies the positive assessment of franchising which soundly permits the current bibliography on this issue, to the point where franchising is seen as "a revolutionary concept, capable of solving the problems of old-fashioned distribution for both the manufacturer/wholesaler as well as for the retailer" (Flechoso, 1997). Yet that same vision, excessively flat and linear, also has certain flaws both when it ignores the costs and limitations inherent in this distribution system and also when it tries to maintain a micro perspective which is hardly applicable to the potential significance of the growth in franchise chains within the context of the structural change brought about in the current transition towards the new stage of incipient global capitalism (Méndez, 1997). The present text, albeit briefly, attempts to deal with both these issues.
I - THE FRANCHISE CHAINS IN THE RE-ORGANISATION OF THE DISTRIBUTION SYSTEM
The current structural changes affecting production and distribution systems, together with certain alterations in the characteristics and behaviour of consumers, have given rise to a modernisation of commercial strategies and structures, affecting both internal size and mutual relations, as well as the types of establishment or their location patterns (Salgueiro, 1996). From that point of view, franchises can be seen as a consistent answer for the new dominant conditions, bringing the operations of retail businesses and certain more or less traditional consumer services closer to the productive sector, thus contributing, to some extent, to a certain industrialisation of services, occurring at the same time as an increasing tertialisation of industry, as a result of the widening of the business value chains, to the point where the strict limits drawn up between the two sectors half a century ago have become blurred (Bailly and Maillat, 1988; Ferrão, 1992; Méndez and Caravaca, 1996).
In an attempt to clarify this significance and so establish various interpretative hypotheses for verification through case studies, a series of processes can be highlighted as essential for the new dominant logic of economic space, of which franchises are a magnificent example, scarcely mentioned in the previous bibliography on this issue.
The growth in franchises has become one of the most powerful vehicles to forge ahead with an increasing internationalisation of activities such as retail trade and certain services rendered to the public by the private sector, with the permanent hallmark of having a close link to local markets, in direct contact with clients. This process, parallel to that taking place in other distribution sub-sectors, is also indirectly spreading towards the franchisers’ suppliers, whether manufacturers or service companies, which are also driven to break loose from the borders between states.
Franchises thus become a magnificent example of these new investment forms (Oman, 1984) replacing the direct contribution of capital with strategic alliances and closer links between independent companies, instead of the classical business policies of internal growth through the creation of new subsidiaries or external growth through the acquisition of companies in other countries. The new philosophies allow companies to penetrate speedily into a larger number of domestic markets without requiring excessive growth, as well as taking advantage of the greater and better awareness of the context provided by local companies.
As a result, the establishment of franchise chains has also become a vehicle for the international spread of certain cultural ideas and patterns of consumer behaviour beyond their respective countries of origin, even though it is often more appropriate to speak of a transmission of simplified stereotypes rather than a true convergence of habits and behaviour.
One of the competitive advantages enjoyed by many franchise chains over traditional trade and services is that the franchise formula can quite often be assimilated to a drive towards innovation. In this sense, it must not be overlooked that franchises currently contribute to a renewal in attitudes in areas where the weight of inertia and the lack of resources frequently limited any effective improvement in productivity and the possibility of more professional management, thus converting these attitudes on many occasions into responses to the lack of jobs in other sectors.
On the one hand, there is a true innovation in those processes inherent to distribution with the aim of reducing costs and also increase internal flexibility in view of the unstable growth of demand. The most important mechanism to achieve this goal is the externalisation/de-centralisation of tasks represented by the granting of licences to independent operators so that they can carry on the business and act directly with clients while the franchiser re-aligns his activities to give greater importance to co-ordination issues. At the same time, the greater combined capacity as a result of such co-operation in terms of investment in R&D activities, design, marketing, advertising campaigns, etc., means that there is a certain renovation in the contents and/or image of specific products at the same time as it encourages an increased computerisation, both in logistics and in sales, so as to ensure an outstanding presence of franchises within the new areas of home delivery of purchases and services (Gámir, 1997).
On the other hand, franchises also act as a vehicle for management innovation in participating companies through the constant training provided by the franchiser, together with the dense flow of data between different links in the chain for the achievement of co-ordinated projects. This seems to contribute decisively to the majority success of a formula which includes a large number of new entrepreneurs without prior experience in the sector, with a profile dominated by a relatively low mean age, university level qualifications, generally speaking, and an outstanding presence of women, at least to judge by the results observed in Portugal or Spain (Salgueiro, 1996; Barbadillo Asociados, 1998).
In this way, franchises are acting as an organisation with an integrated, systematic operation which adapts well to the new information society and which encourages the introduction of innovation both in a vertical "inter-business" plane (from the large to the small companies) and also in horizontal business sectors (from more dynamic activities to other more stable traditional ones) and territorially (from centralised spaces to the periphery).
One of the most common debates in recent years, directly linked to interpretations of post-Fordism or the new models of flexible specialisation, is the question of opposing large, integrated and relatively independent companies to small businesses. While in the industrial plane these de-centralising tendencies have given ever-greater protagonism to small and medium-sized enterprises (SMEs) (Amin (ed.), 1994; Benko and Lipietz (eds.), 1994), the field of commercial activities has seen frequent references to the increasing power wielded by the large distribution companies and the hypermarkets versus the smaller scale and fragmentary nature of retail outlets (Dawson (ed.), 1980; Dawson and Burt, 1988; Carreras, 1990).
Without going so far as to call this dichotic view of current trends in the evolution of business strategies as a false debate, we can say that such a view gives quite a limited panorama of reality, as highlighted by the analysis of franchise chains. In this way, instead of the replacement of one structural system by another, the most significant point here is the integration of both systems within a network structure with co-existence and complementariness in terms of:
- Franchiser network companies with multiple outlets, sometimes in various countries, and
- Networks of franchised companies with variable geometry and functionally dependent on the franchisers but interlinked with each other through various degrees of intensity and different contents, with a clear dominance of vertical relationships (Belussi (ed.), 1992; Veltz, 1993).
As Castells puts it, "networks are and will be the backbone of new organisations. Networks are capable of forming and spreading throughout all the highways and byways of the global economy because they are based on the power of information" (Castells, 1997).
Franchising, then, implies the consolidation of business networks comprising only two, or at the most three, levels (when there are also Master Franchises, acting as the brand’s representatives in a particular country) and characterised by a strongly hierarchic structure in the flow of decisions within the organisation. Offsetting the siren song of entrepreneurship and the development of personal initiative which often accompany the image of franchises and bring them closer to the concept of a popular capitalism made up of small independent businesses competing in a quasi-perfect competitive market, franchise chains are subjected to strong internal control and certain restrictions on the competition between companies and between territories, occasionally even generating legal problems at the courts protecting consumer rights and competition.
On the one hand, the conditions imposed by the franchiser in the contracts are a good example of the unequal exchange and dependence relationship between the signatories (Purvim, 1994). Thus it is often obligatory for franchisees to reach a certain annual sales volume, using specific suppliers, with control of cashpoints and commercial management, the payment by the franchisee of a canon to finance the firm’s advertising campaigns, or the existence of severe restrictions regarding location and characteristics of the premises. On the other hand, it is also frequently possible for the franchiser to terminate these contracts unilaterally, without mutual agreement being required.
In short, from the point of view of its internal structure, the franchise allows for a strong degree of centralisation for decision-making and, therefore, of power, combined with a no less intense de-centralisation/externalisation of the company’s risks and activities, thus providing a high degree of flexibility.
As against the eulogy of diversity as typical of post-modernity (Harvey, 1990) propounding an advance past mass consumption towards an individualised mass consumption which adapts better to the needs and requirements of individuals, franchises seem to encourage a movement in the opposite direction, inherent in the industrialisation of services mentioned above.
In this case, the main objective is usually the seeking of a maximum possible level of homogeneity in order to transmit a perfectly recognisable brand image for clients and thus make the clients’ consumption behaviour totally predictable. This desire for homogeneity includes from the characteristics of the products and/or services offered, their price, the fitments and decoration of the premises, the employees’ uniforms (if any), client service, the type of advertising, or the relationship with banks, suppliers, etc. The existence of specific franchise manuals for each brand, zealously guarded as part of the corporate know-how and transmitted solely to its own members, becomes a useful tool for giving such corporate ID a tangible reality, as are the courses and seminars given on a regular basis.
The final result is a gradual standardisation in a type of activity where previously the dominant factor was diversity and the search for an individual identity by each company in order to attract the attention of a certain type of client and that same reduction in variety is also transmitted to the consumer areas. The growing presence of stores belonging to these chains in our cities, each one a clone reproducing the same external image in locations which are themselves very similar, with a tendency to bunch together in specific areas, is the direct consequence of this, most clearly demonstrated in the integrated shopping centres.
One of the most common characteristics of retail trade and private and public consumer services is their disperse location, highly dependent on the location of the population they serve (Moreno and Escolano, 1992; Mérenne-Schoumaker, 1996). Any analysis of the spatial structure of the franchise chains, on the other hand, allows a clear indication of a much more selective and highly concentrated territorial distribution contributing to reinforce certain prior contrasts, both quantitatively and qualitatively.
As far as franchisers are concerned, most of the chains have grown up in areas that can be defined as functionally central, as this is the location of the firms with the best consolidation and capable of creating a network as well as being those with the greatest information and know-how about the potential of the formula and prepared to take the risks inherent in any innovation. Thus, factors concerning the business structures and strategies of these areas are combining to foster a strong leadership capacity. The main consequence of this is the hegemony of United States (over 2,000 franchisers), France, United Kingdom or Japan (between 700 and 1,000) in the international sphere, complemented internally by the predominance of the large metropolitan areas.
Starting from these original foci, a process of expansion takes place in terms of hierarchy and contiguity towards dynamic spaces and enlarging markets, identifiable at the international level as a great many of the countries making up the European Union, Canada, Brazil, Mexico, etc., which have become the headquarters of numerous master franchises, as well as national franchisers. This same process of expansion occurs within state frontiers regarding medium-sized cities, tourist areas, etc., with gradual enlargement of the areas directly affected by the appearance of franchises.
As for franchisees, a couple of frequently detected tendencies can be highlighted in terms of space. On the one hand, certain Christaller-like behaviour persists in the interpretation of shopping spaces by many franchisers:
- On an inter-urban scale, special emphasis is placed on the minimum size of the population in a given urban nucleus when it comes to granting a franchise, a, question directly associated with the reaching of a certain threshold of potential demand. Apart from the mere number of consumers, attention is also paid to certain complementary features as income levels, age pyramid, consumer habits, ratio of cars per capita, etc., all factors tending to exclude rural areas, thus converting franchises into an essentially urban phenomenon.
- The choice of location is based on accessibility, visibility and cost, with exclusive rights being granted the exploitation of the brand within a given market area, depending on the size attributed to a scope or radius of influence of the goods/services on offer and the distribution of the population itself.
On an intra-urban scale, spatial selectivity is also normal, with special attraction towards pedestrian-only areas and large shopping streets in business centres or the residential areas with the greatest social status, or in large suburban shopping centres where the complementary nature of these businesses creates externalities reinforcing the attraction of each particular establishment. Thus, while small retailers tend to be influenced in their choice of location by inertia, direct familiarity with the surroundings or a highly biased view of the space due to subjective or intuitive values, the criteria governing franchise businesses seem, in general, to be guided more by economic rationality based on preliminary market studies, which is one reason to explain the fact that G.I.S. are used as a tool to determine good locations, as mentioned more and more often by the franchisers themselves.
The result is the establishment of a network of spaces comprising an increasing number of nodes in a hierarchy, each specialising in diverse activities and inter-connected through a dense mesh of both tangible and intangible flows highlighting the strategic value of certain locations while leaving others submerged or in shadow (Veltz, 1996; Offner and Dumain (dirs.), 1996), excluded from the potential advantages of the new model of territorial arrangement.
II - FRANCHISES IN SPAIN
For the time being, franchises represent a relatively incipient form of business organisation in Spain, affecting above all the distribution of certain products and services and spreading quickly to acquire the consideration of an emerging phenomenon, with results ever more visible in the urban landscape.
In order to carry out the survey, various Franchise Guides published in Spain during 1998 have been consulted. These guides have a very similar structure in terms of the available information, but the number of companies registered is different in each one, leading to the creation of a proprietary database by combining the data from the guides published by Tormo Asociados and Barbadillo Asociados, together with the data from the Spanish Franchisers’ Association (Asociación Española de Franquiciadores), in order to identify a larger number of companies than in any individual guide, despite the downside of a certain lack of precision due to missing data in some records. As a complement to this, recourse has also been had to the guides published by the Official Madrid Chamber of Commerce and Industry, the Mediterránea de Franquicias consultancy firm and the El País 1998 Yearbook, as well as both of the reports entitled Informes de Situación de la Franquicia en España (Franchise Situation in Spain), carried out by the Barbadillo Asociados firm in 1996 and 1998, on the basis of a questionnaire sent out to a sample of firms.
Spain joined the bandwagon of franchises with considerable delay in comparison with other nearby countries, so it can fairly be said that, although its origins are more remote, franchising in Spain is essentially a phenomenon of the nineties.
On the one hand, 1980 saw the existence of only 40 franchises, mostly foreign imports, which grew to 150 by the end of the decade before climbing to the 684 counted in our survey in January, 1997, after comparing all the data contained in the Franchise Guides mentioned above. Among these franchises, 80% of the chains currently operating were incorporated after 1990 and more than half (54% of the total) were set up in the last four years (Figure 1). The great youth of the age pyramids, a combined result of the recent origin of most franchises and a certain churn of the components, represents a certain lack of maturity in this process, perfectly visible in some of the characteristics commented below.
Figure 1: Franchises in 1997 by date of incorporation of the chain
The 684 firms mentioned already control a total of 22,846 establishments in Spain, double the number only two years ago, apart from another 233,000 abroad, as they often form part of the large trans-national groups in the distribution sector, from McDonald’s or Benetton, to Western Union, Kentucky Fried Chicken, etc. Although it is quite difficult to obtain reliable data on their economic activity, the annual reports produced by Barbadillo Asociados allow us to estimate the total volume of jobs generated at around 53,000 in Spain (less than 20,000 in franchisers). On the other hand, although the turnover considerably exceeds half a billion pesetas (562,000 million pesetas in 1997), its relative importance is still quite modest, as it only represents 5% of the GDP produced by the distribution sector, far below the 25 % achieved in other European countries where the process is more long-standing and has reached a certain maturity by now (Husson-Dumoutier and Olivier, 1993).
The franchise phenomenon, initially associated in United States with specific sectors such as fast-food restaurants, car maintenance services, dry-cleaners/laundries and some stores specialising in fashion, cosmetic products, etc. has long since ceased to be exclusively limited to the terrains of certain activities and has spread into a more and more heterogeneous set of activities.
Table 1. Structure of franchises by type of activity in 1997.
|
TYPES OF ACTIVITY
|
Nº of Brands |
% Total |
Nº of Establishments |
% Total |
|
Clothing TOTAL |
108 684 |
16.3 100 |
1,840 22,846 |
8,1 100 |
Source: Guías de Franquicias 1998 and own production.
If manufacturing franchises are excluded (i.e. companies selling their own manufactures and quite unusual in Spain), then both product distribution franchises and service franchises are quite similar in importance, but there is still a certain protagonism for some of the traditional franchise lines. Thus, as shown in Table 1, the greatest volume of brands still corresponds to fashion outlets and catering/restaurants, with a considerable presence of fast food, representing altogether one third of the franchises and 20% of the establishments. In this sphere, large international chains, especially from the US (McDonald’s, Burger King, Pizza Hut, Kentucky Fried Chicken, Dunkin Donuts, Subway, Domino’s Pizza, Häagen Dasz, Levi’s...), co-exist alongside some European names (Benetton, Alain Manoukian, Rodier, Lacoste...) and Spanish-owned companies which have enjoyed fast growth to the point where they have opened up abroad (Telepizza, Pans & Company, El Paellador, Mango, Cedosce, Adolfo Domínguez, Don Algodón, Springfield, Tintoretto, Roberto Verino...), and numerous other smaller firms with an equally small territorial dimension.
If these activities are added together with the specialist stores and services ranging from photographic material to shoe repairs, recycling, leisure or home delivery services, they account for 57% of brand names and 45% of all establishments. There then follows a range of activities so varied in terms of characteristics and value of the products or services on offer that it is difficult to establish any overall opinion except to point out the high number of stores in the food distribution chains, because of "Día" supermarkets (1,749 premises) and the transport and courier services, because of "Seur" and "MRW" (790 premises).
This same mishmash characterises the business organisation too: existing firms can be analysed from the point of view of their size, the source of their share capital, or the relationships between the franchiser and franchisee, although certain dominant traits can be identified.
In terms of the size of the chains, the most important thing to point out is the small-scale of the holdings, despite the presence of some world leaders in their respective sectors, a situation that can be detected by numerous indicators:
- The chains settling in Spain have on average 33·4 establishments each between fully-owned and franchised outlets, but this figure is a mere statistical figment resulting from the presence of a few companies with a very high number of outlets that introduce a bias in the average. In this way, the 57 franchises with more than 100 premises 8·4% of the total) account for a total of 12,168 establishments (53·3% of the total), whereas the other 627 only amount to 10,678 (46·7%) with an average of 17 establishments each (see Table 2). In addition, more than half the brands (297) do not have over ten premises and 24% of them do not exceed five, figures which can easily be associated with the weakness and/or recent origin of many of these franchises, still far from reaching the maturity stage.
- Half of the franchisers only opened one pilot unit before creating the franchise chain and in a similar proportion the prior experience was less than two years, which contradicts some of the theoretical presuppositions and represents another reason for fragility in the future development of these initiatives.
- The mean turnover per chain is between 100 and 200 million pesetas, although there are large differences between the extreme values, representing an estimated total turnover of 562,107 million pesetas in 1997.
- As for premises, another dominant feature is their small size, although in this case the requirements of each activity also lead to a large degree of dispersion vis-à-vis the mean values. While 49·7% of franchisees require an average area of between 25 and 125 square metres and an initial investment of less than 20 million pesetas, there is a small group with a much higher initial barrier, namely 21 cases where the requirements are in excess of 50 million pesetas in investment and 200 square metres of premises. At the opposite extreme, a total of 29 franchises do not require any premises as the activities can be carried out from home.
Table 2. Size of franchises by number of establishments in 1997.
|
Nº of Establishments
|
Total franchises |
% Total |
|
From 0 to 4 From 5 to 9 From 19 to 24 From 25 to 49 From 50 to 99 More than 99 No data
TOTAL |
163 134 153 87 59 57 31
684 |
24.0 19.7 22.4 12.8 8.7 8.4 4.0
100 |
Source: Guías de Franquicias (Franchise Guides) 1998, and own production.
As far as the source of the share capital of the franchisers is concerned, mention must be made of the rapid permeability of Spanish entrepreneurs in this phenomenon, where they are in the majority both in terms of the number of brands and in the number of establishments they control:
- According to the Franchise Guides consulted, the brand names with Spanish capital now represent three quarters of the total (74·7%) and even a slightly higher proportion of the establishments (see Table 3). Although this figure may be inflated as a result of the presence of master franchises which are identified as being Spanish when they are merely agents of companies originating abroad, the result is practically identical to the latest report by Barbadillo Asociados (73·3%), which gives the figure a degree of reliability.
- Of the foreign franchises, amounting to 140 in total, those of US, French or Italian origin are in the majority (104 franchises with 3,472 establishments), followed by the other EU countries (28 franchises and 586 establishments).
- Despite their generally still limited penetration on the Spanish market (a penetration that will almost certainly grow in the near future), many of the brands installed in Spain already have a consolidated network in the rest of the world (for instance, 48 of the companies have more than 500 establishments outside Spain). The enormous size of the US companies is worth stressing as 28 of the 45 companies with a presence in Spain have more than 500 establishments world-wide, with extreme cases such as Western Union (35,000 premises), McDonald’s (21,022), Subway (14,983) or Pizza Hut (12,583).
- As for Spanish-owned franchisers, the 1996 survey showed that 19% of them carried out some activity abroad, whereas the 1998 survey pushed that figure up to 31% with a clear tendency towards the neighbouring countries of Portugal (60% of cases) and France (52·5%), and to South America (47·5%) and the other EU Member States (40·0%), where it is most common now to have a Master Franchise (42·5% of companies).
Table 3. Franchises in Spain in 1997, by country of origin.
|
Country of Origin |
Nº of franchisers |
% Total |
Nº of Establishments |
% Total |
|
Spain TOTAL |
511 684 |
74.71 100 |
17,965 22,846 |
78.63 100 |
Source: Guías de Franquicias (Franchise Guides), 1998.
Finally, to look at the franchise contracts, the data available indicate that the usual length is for five years, with the possibility of renewal in 80% of cases. The services which the franchisers undertake to provide affect, mainly, the training of the franchisees (87·8% of interviewees), marketing and advertising (83·3%), management advice (78·9%) and the supply of products (75·0%) in return for receiving an initial canon ranging from 500,000 to 2,000,000 pesetas in addition to an annual payment calculated (in 70% of cases) as a percentage of turnover (around 5% of total sales). Furthermore, the franchiser reserves the exclusive right to supply products (69·4% of franchises) and services (56·1%), as well as establishing regular inspections, in exchange for the exclusive exploitation of the brand in a specific territory for each franchisee in 87·2% of cases (Barbadillo Asociados, 1998).
III - SPATIAL ORGANISATION OF FRANCHISE CHAINS IN SPAIN
The search for spatial logic underlying the sundry and diverse business strategies is one of the essential goals of economic geography and it is also one of the lines of research with the greatest future potential, in view of the lack of development so far occurring in the analysis of franchises. The data so far available only allow for an initial approximation at the inter-regional and inter-urban scales and must be complemented by means of intra-urban surveys using other additional sources.
From that standpoint, the basic distinction drawn is that between the location of franchisers, dominated by a strong polarisation, and that of franchisees, apparently more dispersed but not without quite a strict selectivity in terms of the criteria used for taking decisions, thus allowing clear differences to be established with regard to traditional retail trade.
The emergence of franchisers from endogenous initiatives or through the installation of franchisers from abroad is, above all, an urban and metropolitan phenomenon, directly linked to the size and dynamism of the cities generating positive externalities. This relationship is reflected in the concentration of parent companies in the most densely populated urban areas with a high level of income/consumption, as well as with a high level of services provided for companies.
On the regional scale (see Table 4), more than two thirds of franchisers (468 firms, 69·23%) are located in Madrid and Catalonia, from where they control a total of 17,956 establishments (78·6% of the total), as most of the widest and most consolidated franchise networks have their management headquarters in these areas. A long way behind come the Valencian Community and Andalusia (13·16% of franchisers, controlling 8·12% of premises), which seems to corroborate the displacement of the centre of gravity of Spain’s economy towards the Mediterranean, at the expense of the Atlantic and hinterland regions.
This imbalance is all the more evident when the spatial units used are smaller than provinces (Figure 2).- This highlights the hegemony of Madrid (240 brands, controlling 9,346 establishments) and Barcelona (203 and 7,901 respectively), i.e. two thirds and three quarters of the respective totals, well ahead of the other 48 provinces which barely account for 30% of brands. The greatest relative dynamism among these latter regions appears in the provinces located along an imaginary Y sweeping from the Basque country along the Ebro river to the Mediterranean axis, whereas there are 14 provinces (mostly around Madrid) without any brands at all.
Figure 2: Location of franchisers in 1997 by province
. Nº of franchises
. Source: Franchise Guide and own production.
Table 4. Regional distribution of franchise chains in Spain.
|
Autonomous Communities |
A % of franchisers |
B % of Franchised Establishments |
C Market Share 1996 |
D Economic Activity Index 1996 |
(B/C)100 Location Quotient |
|
Andalucía TOTAL |
5.47 100 |
10.24 100 |
16.71 100 |
12.56 100 |
0.61 1 |
Source: Guías de Franquicias (Franchise Guides), Barbadillo Asociados, La Caixa, and own production.
The true measure of polarisation, however, can only be achieved by disaggregating the data down to the municipal level (Table 5) where it can be seen that the seven towns with the largest number of franchisers, equivalent to 59·44% of the total correspond to the seven core cities of Spain’s metropolitan agglomerations with over one million inhabitants each. These are followed by some medium-sized towns which are also the chief towns of their respective provinces, mainly located in Mediterranean areas (Palma de Mallorca, Castellón, Granada, Lleida, Alicante, …), and several metropolitan boroughs around Madrid (Pozuelo de Alarcón, Alcobendas, Coslada, Las Rozas, …) or Barcelona (Terrassa, Castelldefels, Cornellá de Llobregat, …).
This dominance of both metropolises is most clearly seen in the case of the foreign-owned franchises, since 63 of their headquarters are located in the Barcelona agglomeration and another 48 in that of Madrid, thus accounting for 80% of the 140 in the survey.
Table 5. Distribution of brands by township in 1997.
|
Townships |
Nº of Brands |
Nº of Establishments |
Townships |
Nº of Brands |
Nº of Establishments |
|
Madrid |
194 |
8,084 |
Alicante |
4 |
39 |
Source: Guías de Franquicias (Franchise Guides) 1998 and own production
The great number of small business units existing and the fact that the available data come from the franchisers make it much more difficult to estimate this aspect than the previous one, despite its greater importance from the standpoint of consumers or urban planning. Nonetheless, some significant trends can be pointed out and should be the subject of later more specific research.
The regional location of the establishments (see Table 4) illustrates a slightly less unbalanced distribution than that of brands, with a clear dominance of Catalonia (31·69%), more than doubling the proportion of Madrid (14·92%) and tripling that of Andalusia (10·24%), which on this parameter beats the Valencian Community (8·92%). The single-province regions, for their part, together with Extremadura, are at the lower levels as they do not account in any case for more than 2% of the franchised premises in Spain.
If these figures are compared with the market share corresponding to each region in 1996, according to the Anuario Comercial de España (Spanish Commercial Yearbook) published by the La Caixa savings bank, an evident correlation can be seen, as is normal in activities which involve, for the most part, direct contact with clients and handle requests for end products generated by that same population within generally limited market areas. Examined more closely, however, the relationship of both parameters by means of a location quotient highlights a somewhat more complex spatial behaviour in the case of franchises, which show a greater presence than would be expected solely on the grounds of purchasing power of the most urbanised territories with a high level of income, significant presence of tourists and a greater adoption of foreign purchasing habits, as happens in Catalonia, Madrid, Basque Country, Balearic and Canary Islands or Cantabria (Table 4 and Figure 3).
Figure 3: Regional distribution of franchised establishments in 1997
. Franchised establishments ( % Spain)
. Location quotient
. More than
. From to
. Up to
Although no data are available for smaller spatial units, the population analysis required by the brands for the establishment of their franchised premises ensures that this is a typically urban phenomenon to the exclusion of rural areas which do not yet attract the interest of such firms both through failing on may occasions to achieve the minimum demand levels required and also through retaining consumption patterns markedly different from those of urban residents. In this way, only 31 of the 555 franchises (5·5%) are prepared to install a new establishment in townships of less than 10,000 inhabitants, whereas 182 are prepared to consider this figure as an adequate threshold as against 178 who raise the minimum to 50,000 inhabitants, another 130 who raise it to 100,000 residents and only 34 demand a minimum of 200,000 local residents.
CONCLUSION
In any case, only the exploitation of additional sources apart from the use of questionnaires and interviews will make it possible to make significant advances in our knowledge and to this end various complementary research lines at different scales could be put forward:
- On the business front, the competitive strategies of the companies should be investigated in terms of the use they make of the territory through an analysis of the development of some large chains over a period of time, paying special attention to the spatial spread of both their wholly-owned and their franchised establishments.
- In terms of sectors, it may be interesting to analyse some activities of particular relevance such as fast-food restaurants or fashion stores, so as to define their inter- and intra-urban location patterns, as well as establish a potential hierarchy by internal chains attending to a clientele segmented by purchasing power, age, etc. No less important would be the identification of the kind of job created in each case, particularly the expansion of various forms of precarious employment which seems to accompany the spread of franchised restaurants and stores where the presence of women and young people seems particularly significant.
- Territorially, the focus should be on the intra-urban location, where their most evident effect is the occupation of the central spaces most highly valued by franchisers which drive out other uses and minority companies, thus renovating the commercial landscape, or on the comparison between the "franchise hives" (Flechoso, 1997) of the suburban shopping centres. As a result, the study of these strategies and the potential problems deriving from them might contribute to providing action proposals from an urban planning point of view (Carreras, 1990; Cachino, 1994). An additional target might be to identify the motivations of consumers when entering these leisure and consumer centres and how they use the services supplied by the franchised establishments.
Apart from proposing a theoretical interpretation on the meaning and the true reasons for the spectacular recent growth in order to act as a spur to debate and analyse the situation, the analysis of the Spanish case also allows verification of this contradictory phenomenon, far from the excessively flat and optimistic view given by many of the texts on this subject. These diverse effects lead to a variety of interpretations depending on the inconsistent effect on participating companions, on outsider companies, on citizens and on territory. Without attempting to answer these concerns now, here are some basic ideas on the subject from a general viewpoint:
- Faced with the increase in efficiency and productivity represented by the innovations in generally traditional activities, franchises may represent increasing competition for small retailer, thus increasing the crisis and ending up by destroying jobs, eventually contributing to a less favourable outcome.
- Versus the opportunities opened up for SMEs, both from the standpoint of franchiser and from that of franchisee, through allowing incorporation into first-level markets and making it easier to communicate knowledge and innovation or to become more international, there is evidence of a growing dependence of numerous retail companies on large groups controlling increasingly important segments of the distribution channel by organising networks with a strong hierarchic structure and contributing to standardise consumption by very diverse populations.
- Against the access to products and services which franchises seem to offer for territories normally left to one side by the mainstream distribution channels, the verification that this is a highly selective process from a spatial standpoint, excluding a large part of the territory not meeting the requirements of the brands, thus contributing to make demand even more segmented.
In his analysis of the recent trends in the distribution sector, Salgueiro questions the current existence of a "revolution in the points of sale, in business structures and in consumer habits" through processes of business concentration, innovation and internationalisation, reflected in "new techniques for the sale and display of items, other types of establishments with location patterns different from traditional patterns, accompanying the functional re-organisation of urban areas in polycentric metropolises" (Salgueiro, 1996). In the growth of franchise chains, parallel to a growing protagonism of distribution companies in economic circuits, this internal re-organisation offers one of the most outstanding manifestations, as contradictory and dynamic as the system itself, that must be increasingly analysed over coming years.
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© CYBERGEO 1999
A. GAMIR, R. MENDEZ, No.97, 17 mai 1999