Franchising Opportunities

An Expert's View about Investment Opportunities in Bulgaria

Last updated: 30 Jun 2011

Summary
The global economic uncertainty brought jitters to investors and scared away some of the foreign franchisors that planned to come to Bulgaria. For a first time the franchising industry did not enjoy some growth in the small Balkan country, as less people refrained from venturing into franchising business. Franchise industry in Bulgaria had a slight downswing in 2009 and in early 2010, due to the global and local economic recession.While the franchise system had become a very popular scheme for businesses to grow faster, the majority of the Bulgarian entrepreneurs had recently faced hurdles like:
• difficult access to credit;
• high unemployment in many markets that affects demand;
• reduced spending by consumers in some markets;
• though the safest way of opening a business franchising also has risks.

Market Overview
Franchising as a marketing method is now well-known and relatively well developed in Bulgaria. The Bulgarian market for years has been ready for the many products and services that are typically marketed and sold by foreign franchise companies. Bulgarian consumers are looking for retailers that can provide a consistent selection of quality products, reasonable prices and good service. The Bulgarian consumers are willing to pay a premium for a convenient, quick and professional service and best quality products. Only a small number of Bulgarian and foreign companies have developed the retail market on a national level. Some foreign companies already have a franchise or licensed presence in Bulgaria. At this point the transitional nature of the Bulgarian retail trade presents foreign and Bulgarian companies with unique opportunity to enter the market.

A favorable factor for the development of franchising in Bulgaria is the existence of a considerable number of potential franchise partners. These are privatized or newly established private companies. They are looking to expand their activities in Bulgaria and abroad and one may be impressed by their entrepreneurial spirit and their willingness to consider franchising as a new option for business development. In spite of franchising being a relatively new concept for the Bulgarian business community, the Bulgarian business system accommodates franchise agreements nicely. Laws on labor relations are clearly spelled out, leases can be freely negotiated and the legislation protects trademarks, patents and copy rights. 

The combination of a retail sector in a process of development, an underdeveloped service sector, strong local demand for products and services of consistently high quality, and a large number of West-European tourists who are familiar with the logos and trademarks of Western franchise companies, make the Bulgarian market attractive for expansion.

Best Prospects for U.S. Companies
Franchising is most apparent in the fast-food sector with many local and internationally recognized fast-food franchises operating in Bulgaria. Among the most visible brands in Bulgaria are: McDonald’s, KFC, Dunkin Donuts, Subway, Pizza Hut, Burger King.

Sectors with the most significant potential for U.S. franchisers include cosmetics and beauty; automotive products and services; restaurants; hotel management; services in repair and configurations of computers; laundry and dry-cleaning and employment/educational/training services. Good franchise opportunities include convenience stores; textile and clothing industry; ice cream/yogurt stores; hardware stores; furniture and home accessories; specialty retail stores; commercial and residential cleaning; equipment rental centers; recreation and spa facilities/equipment and services; baked foods, candy and snacks.

Bulgarian companies consider franchising as a vehicle for expansion and they are also profiting by the advantages of being a franchisor - Happy Bar & Grill (restaurants), Jeff ( local chain of distribution of products for mobile terminals); Veni Style ( chain of clothing for women); Address International Franchising ( real estate brokerage), Polycontact (recruitment, employment, training services).

A study conducted in Bulgaria showed clearly that the branches characterized with proven profitableness, fast moving assets and relatively fast return of investment are tourism, food industry, retail stores, services. Known as a country with a low credit rating, investing in franchise projects should be oriented towards the most perspective economic sectors which supply goods and services to end users (retail market), and directed to consumers in the big cities (Sofia, Varna, Plovdiv, Bourgas) where the population has relatively high disposable income.

There are provisions of the law that require a connection fee of BGN 50,000 per planned megawatt at signing a preliminary contract, which should be paid by the investor. These are a harshly restrictive measures designed to limit the number of new projects because of the inadequacy of the outdated power grid to accommodate all of them. 

The new law further put off the stricter requirements for the use of biofuel until January 1, 2012. 

Thus, after that date, the diesel fuel sold in Bulgaria will have to contain 5% biodiesel, and gas fuel – 5% bioethanol; and as of June 1, 2012, the percentage for both fuels will be increased to 6%. 

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Posted: 30 June 2011, last updated 30 June 2011