Franchising is essentially a system for the distribution of goods and services to the end consumer, where the owner, known as the franchisor, of a registered product grants to a third-party entrepreneur, known as the franchisee, the right (franchise) to conduct business activities for a predetermined period with specific goals in a designated area. A crucial condition is the use of trademarks, trade names, products, services, and the operational methods developed by the franchisor.
However, the operation of the business is governed by the terms specified in the franchise contract. Franchising is based on the principle that the franchisee follows a proven operating model developed by the franchisor. Therefore, franchisees do not have the freedom to unilaterally decide on matters that may affect the business or the image and reputation of the franchisor or other network establishments. According to industry experts, franchising is the most successful method for business development. A Franchise Network ensures high product quality, frequent and timely product range updates, and is characterized by a good price-quality relationship, increased reliability, and recognizability.
Type of franchising system
The ‘VENETIS’ franchising system, based on the method of incorporating franchisees into the system and their degree of dependence on the franchisor, falls into the category of Subjection Franchising.
In this prevalent scenario, the franchisor, who is also the original creator and owner of the know-how, plays a dominant role not only by providing guidelines but essentially by determining the business policy of the franchisees. A characteristic of this type is the unilateral submission of franchisees to the organizational and business guidance of the franchisor. This simply means compliance of franchisees with the strict instructions of the franchisor and their subjection to his control regarding compliance with the guidelines and specifications within the framework of the system he devised and developed, even if the franchisees have an independent business entity.
The collaboration between the franchisor and the franchisee is affirmed by signing the Franchise Agreement, which generally and indicatively provides:
Duration of the Agreement
- The franchisee is granted, for the duration of the contract, a) the right to retail the products and services of the Franchisor and b) the right to use the distinctive title, registered trademark, product names, and services, as well as the know-how.
- The duration of the contract is set at twelve years, with the possibility of extension (another four years) or renewal after the expiration.
The boundaries of the protected area, within which the franchisee has the right to the exclusive operation of their establishment as a member of the franchisor’s network, are precisely defined and recorded. The franchisor, aiming to increase the market share of the franchising system as a whole, has the possibility to open or agree to the opening of other establishments in any other area outside the granted region during the term of the Franchise Agreement. The Franchisee acknowledges that they have no right to exclude, control, or impose terms on the location or development of other establishments outside the boundaries of their area.
General Obligations of Franchisor and Franchisee
- The franchisor protects the contractual area and consistently provides advice, expertise, guidance, and other support services (training, marketing, decoration guidelines, merchandising, etc.) throughout the duration of the contractual relationship.
- The franchisor fully applies the franchising system without deviations, following the binding principles, specifications, and guidelines aimed at maintaining and improving the reputation of the system and the network of establishments. These efforts aim to establish and maintain the identity and uniformity of the network, ensuring the best possible implementation of the system from an economic perspective while preserving the fundamental quality standards. General obligations include sufficiency of qualified personnel, confidentiality, non-direct or indirect financial participation of third parties in the business without the franchisor’s prior written consent, application of commercial methods, strict compliance with product shelf life, destruction of unsold products after the respective retention period, and more.
- The successful completion of initial training and participation in additional training sessions throughout the contractual relationship is a prerequisite for a candidate franchisee’s inclusion and continued participation in the system.
- The franchisor must ensure that the franchisee’s establishment operates exclusively with the goods supplied by the franchisor or third parties approved by them. He is also obliged to introduce in his store and make available any new product (new Codes) of the Licensor or third parties indicated by him. Store operating licenses are issued at the licensee’s expense and responsibility.
- The franchisee is a financially and legally independent entrepreneur and conducts his business in his own name, on his own account and at his own risk.
- Wholesale pricing policies are exclusively determined by the Provider and are a function of the acquisition or production cost of products or services, organizational expenses, management and promotion costs, and market penetration policy. The franchisor issues a catalog of suggested retail prices, determined by the cost of acquiring or producing products or services, organizational, management, and promotional expenses, as well as market penetration policy. The suggested retail prices are in line with the corresponding market prices.
- The franchisor performs, at their own expense, any repairs and replacements required to maintain the establishment. Additionally, they are responsible for necessary renovations, modifications, or the complete or partial replacement of fixed equipment.
- The franchisor enters into and maintains all required insurance imposed by law (spaces, objects, personnel, etc.) and any necessary additional insurance to ensure the continuous and uninterrupted operation of the establishment.
Commercial/Credit Policy and Rights Payment
- The franchisor pays the franchisee an entry fee of fifteen thousand (15,000) euros plus VAT as an entry right to the franchise system.
- The franchisor is not obligated to pay ongoing monthly fees (franchise fee or royalties). This refers to the imposition by the franchisee of a continuous fee (monthly fee) to the franchisor, in the form of a percentage of the turnover (sales) of the former. For this reason, there is a particular insistence on the prohibition of purchasing products from third-party suppliers, except for the franchisor and those approved by it.
- The monthly participation of the franchisor in the expenses of the marketing and advertising programs of the Franchisor’s Network is set at two percent (2%) of the value (wholesale) of the products purchased from the franchisor. This participation of the franchisor aims to promote, strengthen, and showcase the products, services, reputation, and competitiveness of the Network, ensuring the continuous implementation of advertising and promotion programs of the Network, products, services, trademarks, etc.
- Additionally, the franchisor, with its own cost and with the support and guidance of the franchisee, ensures local advertising, customer attraction, and public relations for its store.
- The minimum initial inventory of the store is set at €10,000 (purchase prices from the franchisor and approved suppliers). The selection of products is made by the Franchisor due to its knowledge and experience in the marketability of products and market conditions.
- The Franchisor does not undertake to take back any stock of goods that has remained unsold in the franchisee’s store. The Franchisor is not obliged to take back any inventory (stock) of goods that has remained unused in the Franchisee’s store.
- Orders from the Franchisor addressed to the franchisee are transmitted in writing and executed within 24 hours.
- Transportation means belong to the franchisor. Product transportation is at the franchisor’s risk, the transportation expenses are solely borne by the franchisor. To ensure higher quality and compliance with applicable product transportation rules, the franchisor may assign an external partner the exclusive transportation of products to the Network stores.
- The value of the Franchisor’s orders is paid the day after receipt, before receiving the new order and as a prerequisite for executing the new order.
- To become a Franchisor in Greece, the candidate must make an initial investment starting from €160,000 (VAT not included) depending on the initial condition of the store. The Franchisor must verify that the capital is available and immediately accessible before the prospective Franchisor starts the training program. The Franchisor does not grant loans to its franchisees and does not guarantee their loans.
Competition, related economic activities, and transfer of contractual relationship
- During the validity of the contract and in case of renewal or extension, the Operator, its partners, legal representatives, and relatives are not allowed, without the prior written permission of the Provider, to operate or be directly or indirectly involved in another business with activities similar or related to that of the system.
- During the contract’s validity and in case of renewal or extension, the Franchisor, its partners, legal representatives, and relatives are not allowed, without the prior written permission of the Franchisor, to operate, directly or indirectly participate in another business with an activity similar or related to that of the system. The Franchisor also cannot transfer any right arising from the contract to substitute third parties into the contract, sell, lease, sublease, etc., its store, or modify the initial corporate form or composition without the prior written approval of the Franchisor.