FRANCHISING: BANKING SECTOR IS A PILLAR OF EFFECTIVE BUSINESS
Franchising as one of the most progressive forms of business is becoming an increasingly comprehensive phenomenon from the modern economy. According to the experts, 2021 is expected to mark the year of professionalization for franchising: competition for brand new franchisees has never been more intense. Thus, an adaptable approach and new solutions are needed from market players – both growing franchise networks and top range brands – to improve competitive efficiency.
“Franchisors will need to maniacally concentrate on franchisees' profitability”, predicts Joe Mathews, founder of the Franchise Performance Group, part of the International Franchise Association (IFA). “Brands will appear to build exclusive strategic lending relationships with banks, fleet leasing companies, along with other financial institutions to gain access to start up and expansion capital, securing liquidity for his or her system”.
At the same time, it may well be that the rise of franchising will not only change franchisors' behavioral patterns, but additionally encourage the banking sector to develop unique and relevant products. Due to the growing demand for franchises, banks and microfinance organizations are likely to introduce special, more lucrative offers for those who want to get a loan for a franchise, while the requirements for borrowers will get more favorable as well.
An upward trend in the popularity of franchising is of particular relevance in Russia: the annual increase in the number of enterprises doing franchise business in the country is no less than 15%. The holding of the World Franchise Forum in the previous year in Moscow, combined with the annual edition of Moscow Franchise Expo, became the actual recognition of Russia's franchise market achievements. Around the sidelines of the event, Moscow Mayor Sergei Sobyanin noted the high rates of franchising development in the Russian capital: “Franchising networks already unite 10 thousand sites within our city. This includes more than 200 thousand jobs and 40% from the city's market of goods and services. The industry is developing at a good pace and it has great potential for further growth”.
It is noteworthy that within the second decade of the 21st century, the economic crisis of 2021 has been one of the factors that spurred the development of franchising in Russia. However, this correlation has a fairly logical explanation: financial instability induces entrepreneurs to exercise extra calculation. This applies to both start-ups and well-known business owners: for the former, buying a franchise helps steer clear of the risks of starting a business that could outweigh potential benefits; for the latter, franchising offers one of the most efficient network development models with an established operational management.
In this regard, you'll be able to expect an increasing interest of both franchisors and franchisees to get support from the banking sector, that is able to provide not only financial, but additionally equally important external expert support: for example, before approving a loan to buy a franchise, a bank gives the company that sells its product an extended look, scrupulously checking its business model as well as its financial and legal documents.
In late February, Credit Bank of Moscow, one of the country’s largest banks in terms of lending to enterprises and organizations, was a partner of the Russian Franchise Association (RAF) – an extremely outside-the-box solution, given that members from the banking sector can be relied on fingers. However, the bank considers membership in the RAF as a resource that will permit more efficient financing of entrepreneurs who're going to purchase or develop franchises. Alexey Rudakov, Md at Credit Bank of Moscow highlighted the benefits of banks' participation in franchise cooperation: “It is essential that we offer solutions for revenue collection, including self-encashment terminals, in addition to tools for working with balances on settlement and deposit accounts. Using such complex solutions, we are able to completely cover the financial needs from the franchisee”. RAF membership typically covers networks that do business in the HoReCa field (e.g. Hilton, Mcdonalds, Domino’s) and food retailers. The second includes, for example, Pyaterochka, the supermarket network and partner of CBOM – that's part of X5 Retail Group, a multi-format retail company which was listed among Europe’s 10 largest retailers in 2021.
One has to admit that the Russian banking sector has yet to go a long way in adapting its purports to the needs of franchisors and franchisees. Some banks in the country (for example, VTB, which launched an airplane pilot project on lending to entrepreneurs who create a franchise business in 2021) have already entered the marketplace with special products: Sberbank and Alfa Bank are another two banks with tailored proposals. However, today they're still playing rather the function of pioneers since targeted lending for franchising purposes in Russia isn't as developed as, for example, in the UK. The largest British banks, for example HSBC, Lloyds TSB and RBS/NatWest, have specialized units which are solely responsible for working with franchisors and franchisees and understand the nuances that distinguish franchise financing from traditional start-ups.
Against the backdrop of franchising development in Russia, this practice seems relevant and has all the chances to take root, providing business with additional support and stability. Here, the Russian banking sector should incorporate the key voiced in particular by Catherine Hayes, the previous head of franchising at HSBC and now heading a similar department at Revive! Auto Innovations: “The best business banking isn’t nearly money – it’s also about creating strong supportive relationships”.
