“Even in the face of an unprecedented crisis, there are positives in the business environment. As soon as the economy of Belarus reaches a plateau and stabilizes, we will see the expansion of existing and the emergence of new franchise networks,” says Olga Leontyeva, chairman of the Belfranchising association. The specialist is sure that the market will grow thanks to Belarusian and Russian brands, but before development begins, something else must happen: business must stop thinking only about survival. What happens to franchise networks after February 24, 2022? And what kind of networks are developing right now? Read the answers to these and other questions in Olga’s interview for Pro Business.
“Belarusian and Russian franchises allow the market not to die”
– The initial forecast for the franchise market for 2022 is a recovery to the level of the pre-crisis 2019. Something went wrong?
— I would like to start by saying that the franchising market is subject to two effects:
- Firstly, a franchise is just one of the tools for creating and developing your business. And therefore, the trends that affect entrepreneurship in the country as a whole also affect this area.
- Secondly, in times of crisis, the franchise market is growing. This is explained quite simply: everyone wants to reduce their entrepreneurial risks. People without experience get into business, because there are massive layoffs and bankruptcies of organizations. And those who have not thought about working for themselves before are looking for opportunities to organize their own business. Franchising in this context is an attractive and profitable tool. Because aspiring entrepreneurs want to work with networks, save money, enjoy support and experience.
When negative events in the economy and politics occur, we see a sharp drop in the number of requests for franchises and completed deals. As the first shock passes, the market stabilizes and begins to grow at a faster pace. We saw this situation in March and August 2020 — after some time the situation really stabilized. From November 2020 until the second half of 2021, the volume of requests grew rapidly: it came to the point that in some months the demand was 3-4 times higher compared to a relatively calm period. We had the right to expect that demand would be converted into closed deals in the second half of 2021 or in the first half of 2022.
But this did not happen, because it became worse with lending and the strategies of the entrepreneurs themselves changed: now they spend much more time studying the market and calculating risks, approaching the investment of any funds more carefully. This is normal after a shock. In addition, in the fall of 2021, information appeared about the upcoming change in tax legislation, and adjustments to the work of the IP began. Franchising networks often attract partners in the status of individual entrepreneurs – and when the registration and registration of individual entrepreneurs was suspended, we also recorded a gradual decrease in the number of requests.
All these processes also put on pause many transactions that were already in a high degree of completion.
And since the end of February 2022, the situation has become even more threatening: the franchise market has decreased by 20-30%.— How did foreign and Belarusian franchisors behave after February 24?
— Large franchise networks have not announced their withdrawal from the Belarusian market. Therefore, there is no reason to think about reducing the representation or liquidation of Western companies. But it is important to understand that this may not happen at the will of business owners: when there are disruptions in supply chains and the cost of logistics rises, certain difficulties may arise in the functioning of foreign chains and brands in Belarus. Unfortunately, there are no requests for the emergence of new companies in our country.
More than half of our market consists of Belarusian and Russian chains. And they feel a little better than foreigners, because they are used to working in these realities. A number of Belarusian companies continue to think about developing their own networks: they are making plans and looking for potential partners. For example, Krasny Pischevik, which has more than 80 franchise outlets in its network, notes that over the past 1.5 years there has been a noticeable decline in requests to open franchise stores.
Now existing franchisees are showing activity – they are opening new points, changing locations to more profitable ones in terms of traffic. Since March, the flow of requests began to recover – 3-4 applications from potential franchisees arrive daily. Minsk Meat Processing Plant will present its franchise in the coming days – this company will develop a network of food trucks through franchising, offering finished products from the meat products of the meat processing plant. A franchise network of points for the sale of cakes this year was launched by the Slice of Happiness company.
In public catering, the Khinkalnya franchise network is developing most actively – 19 outlets operate there, the twentieth is preparing to open. The network owners are preparing to launch a new brand in the near future. The network of Adrenaline fitness clubs continues its development – 4 franchise clubs opened last year, 2 – this year. Among the Belarusian franchises developing in the markets of other countries, one can cite the example of the ZROBIM architectural bureaus – their partners work in 4 states, negotiations are underway to open a bureau in a fifth country.
But there is no talk of market growth any more. These factors simply keep the franchise segment from shrinking.
Production, technology and IT franchises have the maximum chances for development
– What is your prediction – what will happen next?
— Normalization of the external situation is necessary to preserve the market. Any continuation of the escalation, the growth of tension with foreign partners and contractors will inevitably lead to a deterioration in the state of networks in the country. It can hardly be assumed that foreign brands will not react to what is happening.
I think that the situation will develop according to the scenario of 2020, when franchise networks did not develop, but there was no mass closing of outlets either. Still, in partnership it is easier to find rational responses to the challenges of the time. If everything goes like this, then immediately after the unprecedented crisis, the situation will begin to stabilize. New franchisees and franchisors will appear, entrepreneurs will think about development in this area. And we can see from the behavior of companies, the state and various associations that everyone is working to ensure that the market recovers as quickly as possible.
But it’s too early to plan. Business still does not think about development, but only about survival.— Franchises in what areas can be in demand in 2022 the most?
— Russia has been and remains a priority development market for Belarusian chains. Therefore, now there are good chances of success for brands working on import substitution or closing the deficit in certain goods or services.
I see the maximum chances for development in production and technology franchises, as well as in the field of IT. Belarus, as a state, is interested in supporting these areas, so the current situation can become a new opportunity for them to grow.