Franchising in Italy

A Hot Tip about Business Administration in Italy

Posted on: 7 Jan 2010

Overview

Franchising began in Italy in 1971, when the first brand was launched. Franchising has come a long way in a relatively short time. In 2004 Italy signed its first franchising law, which became effective May 25, 2004. The law set general guidelines governing franchising contracts; a decree on the discipline of franchising became effective on October 4, 2005.

 

In 2007, according to data from Assofranchising, , Italy had 847 franchisors, 52,725 franchisees and counted about 183,000 employees. A relative stability is expected in 2008. Franchising plays a significant role in the retail system of the Italian economy, and it is one of the few sectors of the economy to have registered a positive trend, growing steadily in recent years.

 

U.S. franchising is recognized countrywide as the leader in the sector and is considered the primary source for innovative concepts and profits. Thus, good opportunities exist for U.S. franchisors to penetrate the Italian market successfully, if they have the flexibility to adapt to local business practices too.

 

Successful new franchises have created awareness in the Italian business community of franchising as an innovative way to introduce a business concept. This perception is enhanced not only by events such as the franchising trade shows in Italy, but also by favorable publicity in leading financial and trade magazines. Though most of these franchises are concentrated in northern Italy, franchising is also gaining momentum in southern Italy, where it is perceived as a way to help address the effects of chronic unemployment.

 

Best Prospects/Services

The services sector has shown the best market potential and has been growing at a rapid pace over recent years, both in terms of franchisors and franchisees. Highly flexible, the services sector appears to offer the best prospects for new franchisors in the Italian market. It ranks first in terms of overall growth and has the highest propensity to adopt foreign formulas. In addition, its adaptability and the generally low financial investment required make it a "hot" prospect for U.S. firms.

 

Developed areas are food, real estate, travel and tourism, education and training. Good opportunities should arise also in the personal care services, especially seniors’ care, due to the ageing Italian population.

 

The hotel and restaurant sector appears to be well suited for expansion. U.S. food, restaurants, and beverages formulas and large hotel chains appeal to local businesses eager to identify themselves with well known brands and proven successful operations.

 

Opportunities

There are many reasons why franchising seems to be well suited to Italy. Franchising is contributing to the modernization of the Italian distribution system and to the entry into retailing of young people with fresh and innovative ideas. Entering a franchise network may be a risky undertaking, but it is undoubtedly interesting from the point of view of self-affirmation, achieved independence and financial return. This is particularly true in the southern regions of the country, where new franchising activities have been perceived as a way to offset some of the problems created by traditionally high unemployment.

 

Both franchisors and franchisees have shown faith in this system, investing considerably in shops and service centers, mostly located in city centers, commercial districts and prestigious shopping malls. The geographic distribution of franchising activities shows a disproportion, as around two out of three are franchisees located in northern Italy, one fifth in central Italy and only one tenth in the southern regions and in the islands.

 

However, the way to a full exploitation of the opportunities offered by franchising still seems a long one as the size and the number of franchised businesses in Italy is small when compared to the U.S. and other European countries.

 

The Italian business community views American franchise companies with a very open mind and recognizes their predominance in the world marketplace. At the same time, Italian companies and investors can at times be skeptical when American franchising concepts conflict strongly with Italian cultural and traditional practices. U.S. franchisors should be aware of one of the most common pitfalls, that is, an unrealistic determination of the entry fees requested of the master licensee. In most cases, local businesspeople view the entry fee as too heavy a burden for an "intangible good". In addition, the entry fee is always the starting point for a much more expensive endeavor, the implementation of the franchising project and the creation of the network. American franchising concepts that have proven successful in other European countries and have adapted to local conditions sometimes have a competitive advantage over those that are totally new to Europe.

 

Read the full market research report


Posted: 07 January 2010

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