No need to reinvent the wheel: how Russian franchises take the place of departed brands and go abroad themselves

Last year, the departure of a number of franchise networks from Russia freed up a niche for domestic brands: according to Franshiza.ru, last year there were even more franchises in the country by 5%. The turnover of this market also increased, but primarily due to the increase in prices for final products for consumers.

The most popular areas for starting a business in 2022 were the service sector, catering and non-food products. The participants of the round table "Fontanka" spoke about the situation in the franchising market and its prospects.

Growth, decline, optimism

The geopolitical situation of last year, like the pandemic before it, affected almost all areas of the franchise business. For example, for the HoReCa segment, 2022 began optimistically — with growth relative to the previous year. But at the end of the first quarter of 2022, instability appeared. As Konstantin Sagalov, Chairman of the Board of Sushi Wok, noted, the main problems in public catering were the supply of products and their prices — in March they just took off.

— There were also objective reasons for this: for example, the rise in price of imported goods, which are actively used in our Japanese segment, — he said. — But there were also speculative stories, when prices rose on items not related to imports. The hysteria of some suppliers has affected, laying their risks in prices against the backdrop of instability. As a result, we, as an industry, entered the second quarter with problems. Everyone became wary during this period, including franchise buyers. Situations close to a deal turned into protracted negotiations. Partners were afraid to invest in franchising and business development, not understanding what would happen next. The first half of last year ended weakly compared to 2021, everything began to stabilize only in the fall. In general, in the b2c-segment, the departure of some brands allowed to increase the flow of visitors to points in the neighborhood, but this is not a systemic story.

According to him, last year was marked by a high level of uncertainty, which affected both the purchasing power in the b2c segment and franchising in general. In 2023, sales are generally better than in the middle of last year, and uncertainty no longer affects decision making — people got used to it, it came to an understanding that it makes no sense to stop development.

The situation in the market of courier services was similar. According to Elena Khudyakova, Head of Regional Development Group of CDEK in the North-West Federal District, the beginning of the year was brisk, there was an increase in the market. But during 2022, there was a redistribution due to the departure of large international players, which affected the segment in two ways.

— Of course, companies that have long-term relationships with departed players had to adapt: the need to send goods has not gone away, and it was difficult to rebuild a multi-year work pattern and re-establish contacts, — continued the expert. — Our company mainly specialized in the b2c segment, but in recent years we have also activated the b2b segment. Of course, we needed time to adapt, but the story of the departure of large foreign market participants played a positive role for us: companies came to us that had not worked with us before. As far as franchises are concerned, there was a lot of demand for them towards the end of last year, and this year it continues — including the opening outside the Russian Federation.

If in 2020 and 2021 the company's growth for the year was 34–37%, then in 2022 the pace slightly decreased. According to Khudyakova, the growth rate since the beginning of the year has been cumulatively 138%.

Over the past five years, the business community as a whole has become more trusting of franchisors.

Now franchising is perceived not as something new and suspicious, but as a completely working version for a reliable and quick start, says Olga Apalkova, Strategic Development Director of the First International School of Programming for Children KIBERone. This market is growing, and in general, according to forecasts, about 500 new franchises will be created in Russia in the next two years and more than 30,000 points will be opened in this way.

— The departure of foreign franchise companies from the Russian market has freed the field of action for entrepreneurs, — she thinks. — More interesting, high-quality and affordable brands have appeared, which can be brighter against the backdrop of the departure of Western brands. Most of the top managers from Western companies stayed in Russia — accordingly, their international competences and understanding of high standards make it possible to grow and strengthen projects within the country. The largest growth is shown by niches related to the provision of services for the development and career guidance of children, points of issue of online stores, the restaurant business or mini-markets of ready-made food, as well as the IT direction.

Ready business

Speaking about the advantages of working on a franchise, Konstantin Sagalov gave an analogy with a car. You can assemble the car yourself, or you can buy a conditional "Toyota", which has been improved over the years, worked out each node and thought out reliability. Approximately the same can be said about franchising: it is a ready-made financial model, clearly defined and proven principles of work. At the same time, it is necessary to be wary of the promises of franchisors of super profits and passive income with a certain degree of caution.

— In my understanding, this is still not about investments, but about business, complex processes and work, — he says. — Franchise — this is the model that the franchisor broadcasts to partners. This is the minimization of risks due to the fact that the mistakes were not already made by you and corrected, this is the help of the franchisor at the start, this is a brand, for the support and development of which the management company is responsible. This is not a market with huge competition and aggressive behavior of competitors — here you immediately find yourself in a well-established system, starting from the delivery and ending with the methods of communication with the guest. This is a huge infrastructure, for the maintenance of which there is an equally huge resource. In franchising, each segment has its own strong player. There is a segment of pizzerias, ice cream sellers, delivery services, aggregators and medical laboratories — Each industry has its own specific market. We work in the take-away segment of Japanese and Pan-Asian cuisine, where we are the largest chain in Russia and Europe.

The expert emphasized that a franchise is more likely for those who are not completely sure of their readiness to do business on their own.

You can start with franchising, experiment with a strong brand to understand whether the business is for you at all.

Elena Khudyakova advises when opening a franchise to focus on such indicators as its lifespan (the first office appeared in CDEK in 2008), the number of franchised offices (there are more than 4,000 of them now at CDEK). It is also worth evaluating the amount of investment and payback period.

— The advantages are that this is a ready-made business model, no need to reinvent the wheel, — she explained. — You get step-by-step instructions on how to successfully make money on your business. And you should pay attention to the format of interaction with the franchise network. When we buy a franchise, we will play by the rules of its owner. Therefore, you need to adapt your office and business to these requirements and standards. Our franchisees, who have about 350 offices in the Northwestern Federal District, came to us from various fields of activity: we have owners of marketplaces, online stores, we even have partners from the construction business. All franchisees are included in a community of like-minded people instead of a competitive environment, which helps to grow within the company.

— There are definitely more pluses, because the partner receives a proven effective business model and does not spend money on experiments, — added Olga Apalkova. — You can open your own business, having the most minimal idea of doing business. This will be a good school and will serve as a start for your business. It is in your power and interests to develop the business further. Opening a company on your own without a franchise and realizing your idea is recommended only for those people who know the principles of marketing well enough, with project management experience and an understanding of how to create price and value for customers, the ability to formulate a clear selling proposition and constantly compare themselves with competitors. If there is no such experience, then it is better to work on a franchise, where there are such specialists.

The expert also advises paying attention to the scale of the project and the duration of its work on the market (ideally from three years and the presence of its own branches), the fullness of the franchise package (including the presence of a detailed marketing plan), serious international awards and publications about it in prestigious media — and on the quality of the product. An indisputable argument in favor of the franchisor will be the presence of a department for working with franchisees.

Starting capital

In Russia, according to the results of 2022, the average investment for opening a Sushi Wok point amounted to 2.5 million rubles, the average payback — 9–12 months. According to Konstantin Sagalov, the model has not changed in recent years, but investments have increased: if 5–7 years ago a point could be opened for 1.5 million rubles, now it is a million more. The rise in price is associated with an increase in the cost of repairs and the purchase of the necessary equipment. Five years ago, during the franchise boom, successful partners achieved payback in 4 & ndash; 6 months. Now this is rare.

— The market is stable and very competitive: if you paid off within 12 months, then everything is in order with the financial model, — the expert clarified.

— If an entrepreneur decides to open the first franchise business, then he tries to minimize the risks and meet the amount of up to 1 million rubles, ideally — at 700 & ndash; 900 thousand, — added Olga Apalkova. — Good payback in this segment — around 6 months. In the children's educational direction, it is 3-4 months, if you follow the recommendations of the management company. And if we talk about the sphere of the restaurant business, then the ideal payback — 2–2.5 years, but there are millions of investments.

When opening a CDEK pick-up point, almost everything depends on the location, because the company has several formats and the amount of funds for opening an office in the regional center differs from opening an office in St. Petersburg, Elena Khudyakova explained.

— Petersburg will require about 2 million rubles — these are the costs of rent, wages and equipment, — she continued. — In a small town, you can meet a million rubles. The initial conditions are also important: if the candidate has a suitable premises in the property, the costs will be much less. The approximate payback period in a small SDEK point, for example, in Karelia — about 12 months, in a large settlement — from 3 to 6 months. As for sources of income, any of our franchisees, regardless of location, have two of them: operating income and own sales.

Out of bounds

Since last year, a huge number of relocators from Russia ended up in the CIS countries, as well as in Serbia, Turkey, Montenegro, the United Arab Emirates and Israel. Here is the most active contingent of those who have moved, they have a certain amount of funds that they would like to invest, but do not yet understand where exactly. It is with them that the franchise "Sushi Wok" is now establishing a connection, mastering new foreign markets.

— The first "Sushi Wok" stores abroad began to open in 2017, but now this line of work has been somewhat modified. We have a case with the opening of a point in Montenegro, where our partners who worked in the south of Russia relocated, — said Konstantin Sagalov. — In the city of Budva, those who moved from Russia turned out to be almost 30% of the total population. And everyone who used to go to our establishments in Russia became active visitors there too. But it cannot be said that in any other location there will be a similar situation — it's more of a lucky coincidence. For example, according to the same scheme, we were preparing an opening in Turkey. We have already picked up the premises and were preparing for repairs, but our partner — an IT specialist who moved from Moscow — suddenly did not receive an extension of the residence permit, although he lived in the country for 6 months, and was forced to leave.

The expert believes: if the franchise is of high quality and thoughtful, development abroad is possible even in the current conditions — despite the differences in the language environment.

— Now we have outlined the vectors for entering an unfamiliar market where we have no contacts, — first of all, we are not interested in the largest markets of Eastern Europe and Turkey, we look at China and America from afar, — added by Sagalov.

— We started opening foreign offices a long time ago, and even before last year there was a certain basis for successful work, — Elena Khudyakova said. — We have branches in China and Kazakhstan, a representative office in Germany. The development of franchising points is going on both in Europe and in Asia. Of course, the requirements for candidates who open abroad are higher. Franchisees must put more effort into arranging logistics and organizing turnkey work. We have many international clients and this helped a lot with the 2020 border closures. For example, our franchisees in St. Petersburg and Finland have built interaction with a major client — store Laplandia Market, which now sends huge volumes of goods to the territory of the Russian Federation, which are in great demand, and people are ready to wait for them. Every week two trucks of the cargo ordered from them come to us. Of course, the client continues to work with us thanks to the efficient work of the international department, which is actively developing new ways of delivery — from the same Finland there are already four different transport schemes.

— The countries of the Middle East are very promising, they show an active pace of development and a low level of service, — says Olga Apalkova. — There is an unspoken competition between the UAE and Saudi Arabia, and they are trying to attract the best projects to their territories. We definitely need to develop there, but only if the project has been working for more than five years and feels confident. And if we talk about the subtleties — all business processes go very slowly there. Opening a company can take 3-5 months, the final consumer also takes 2-3 times longer to make decisions. But knowing some nuances, you can easily adapt.

 Will the state help

Different regions have their own business support tools. As Olga Apalkova emphasized, in order to study them, it is better to contact the Entrepreneurship Support Fund or the SME Corporation. For example, for future franchisees, the Express Franchise loan is available. from 50,000 to 30 million rubles, business training, an umbrella guarantee mechanism in one of the 15 participating banks, and other interesting options.

— The desire to take advantage of state support comes from our partners, — Elena Khudyakova says — For example, now we have one office in the Murmansk region in this format, another — in Karelia. In these regions, franchisees use grants of a small amount to open. I think that such grants are needed in small towns, if we talk about the courier services market. There are small locations where there is not even a Russian Post, but there is SDEK. From submitting an application to opening a candidate, our employees — train, train for free and create conditions for compliance with company standards. There are many details in the CDEK franchise, and one hundred percent involvement of the business owner is required, which, in turn, will allow reaching a high level of income.

Konstantin Sagalov said that regional programs to support the franchising direction of small businesses are very different from each other. These can be subsidized loans, direct grants for lump-sum contributions and development.

— Some of our partners used them, but I did not notice any systematic work in this direction, — he says. — I would like these to be transparent, understandable and honest instruments without pitfalls and hidden conditions. Businesses need support in the form of grants and easing control.

Speed, quality, development

In our country, everything is happening very quickly, and franchising is also developing rapidly — and therefore sometimes chaotic. According to Konstantin Sagalov, the market will soon stabilize: unscrupulous franchisors, who are now lacking due to hyperdevelopment, will leave. The remaining major players will provide the highest quality and transparent services to partners, there will be less misunderstanding between the parties.

— I also hope that Russian franchises, which are still extremely invisible on the world stage, will manage to get into international markets, despite the current situation, — he continued. — We have great potential, many interesting products that are developed only in our country and could complement the rich world market. The emergence of many franchises in different areas without a specific leader — this is good, as it develops healthy competition.

— Franchisors are trying to keep the financial conditions of work unchanged, but are implementing more training for employees, control systems and automation to maintain the DNA of the brand, — summed up Olga Apalkova.

— I think the development will be more dynamic compared to last year: there is an increase in revenue, the amount of funds that customers spend on sending goods is growing, — Elena Khudyakova added. — New franchisee offices will open in small towns, the geography of presence will expand, and the market for international services will develop. The companies that provide them with the highest quality will win. In our field, in addition to the level of service, time is extremely important — it is a valuable resource for the client. So those who will be faster than others and deliver the package in 3–7 days instead of, for example, a month will also win.