Selling the World on Franchising : Marketing: Communism’s retreat in Eastern Europe and new democracies’ hunger for Western-style products spell opportunity, franchise group’s chairman says.
By his own estimate, Arthur Karp has devoted only 30 days this year to running his chocolate-chip cookie business. He says he has a more pressing mission: to sell the world on the concept of franchising.
As chairman of the International Franchise Assn., Karp spends most of his time leading business groups on international trade missions.
The opportunities have been plentiful since the dearth of communism in Eastern Europe, Karp said. The new democracies are hungry for Western-style products and government officials have been bending over backwards to allow U.S. franchises, he said.
“There are opportunities there for people of vision that are just laying around on the street,” Karp said in a recent interview at the Atlanta offices of his franchised Great American Chocolate Chip Cookie Co.
“In the future, when they talk about the ‘good old days,’ they’re going to be talking about the 1990s.”
IFA’s push in Eastern Europe comes on the heels of a decade of sharp growth in franchising in the United States.
Domestic franchises are expected to account for $716 billion in retail sales in 1990--a third of the nation’s total retail sales, according to IFA. That’s more than quadruple the $160 billion in sales from franchises during 1983, the Washington-based group said.
The number of franchises is expected to grow to 533,000 establishments this year, up from 442,400 in 1980, IFA said. It said a rash of gasoline station shutdowns in the early 1980s had offset the establishment of new franchises, but the total number of franchises has risen steadily since 1984.
Under a franchise agreement, a company grants a franchisee the right to sell its products or services in a certain area. The franchiser usually provides business guidance, promotional assistance, financing and other benefits in exchange for a percentage of the sales or profits.
The support system behind the arrangement provides a safety net for the franchisee that leaves less room for error as a business develops, Karp said.
“You’re not reinventing the wheel,” he said. “We (the franchiser) have probably run into the problem that that individual is facing 100 times before. And we’ve learned how to handle it . . . from marketing to construction to purchasing, to whatever it is.”
Economist Al Niemi agreed that Eastern Europe presents favorable opportunities for selling consumer goods, though he cautioned that those going there in search of a quick buck likely will be disappointed.
“It’s going to take longer than some people think,” said Niemi, dean of the University of Georgia College of Business Administration. “There’s a basic infrastructure there that needs to be rebuilt.”
Niemi said the demand for consumer goods in the former communist strongholds is enormous. To suddenly provide a U.S.-style variety of products, he said, “would be like going to fantasy land.”
John Amos, executive director of Dallas-based I Can’t Believe It’s Yogurt, said he has made contacts in Eastern Europe from his participation in IFA trade missions. But he said he believes it will be a few years before Poles and Romanians are licking yogurt cones.
“I think there are enormous opportunities in the Eastern Bloc countries, but it will be some time before the logistical system is in place to support the growth,” Amos said. “You can take almost any commodity there on the back of a semi and sell it. But there are no systems in place to support distribution.”
In addition to the Eastern Bloc countries, Karp also has led trade missions to Australia, Switzerland, France, Spain and Mexico during his one-year term as head of IFA.
