Ukrainians invest in franchises to start their business with lower risk | KyivPost

To open a franchise for e-commerce giant Rozetka, tech specialist Roman Pasechniy invested nearly $ 23,800. He rented a 63-square-meter office in Kiev’s Troieshchyna district and, within six weeks, turned it into one of Rozetka’s first pick-up points. According to Rozetka, his franchise will bring in more than $ 1,270 in net profit each month.

Pasechniy knew from the start that his franchise wouldn’t make a fortune – Rozetka only pays him $ 0.7 for every order delivered to a customer. Still, Pasechniy thinks it’s a good deal: when the investment pays off, he could open another department and earn more.

Besides Rozetka, more than 800 local companies sell franchises in Ukraine and abroad, according to the consultancy company Most. For businesses, franchising is the easiest way to grow, attract new customers and generate profits.

Ukrainians, on the other hand, want to invest in franchises because it is safer than starting a business from scratch. Even budding entrepreneurs with no business background can buy a franchise because everything – logistics, services, and products – is already done for them.

“The biggest companies in the world have their franchises – it’s the fastest and cheapest way to grow a business,” said Roman Kirilovich, owner of Franch, a company that creates and promotes franchises in Ukraine.

Roman Kirilovich, owner of Franch, a company that creates and advertises franchises in Ukraine, speaks with Kiev Post in his Kiev office on April 20, 2021 (Kostyantyn Chernichkin)

Emerging market

Unlike the United States, where giants like McDonald’s, KFC and Burger King have been selling their franchises for decades, the Ukrainian franchise market remains untamed.

Up to 10% of local small businesses operate franchises, compared to nearly 80% in the United States and 70% in Europe, according to Kirilovich.

The franchise is the most popular in the food industry with bistros like Frans.ua, Lviv Croissants, Aroma Kava and FreshLine expanding across the country. The scope of investments in these franchises ranges from $ 36,800 to $ 63,000, depending on the location and size of the building.

The demand for franchises in the food industry has declined during the pandemic, but franchises in the security industry, fashion retail and medicine are gaining momentum, said Myroslava Kozacuk, co-founder of Franchise Group which launched franchises for security company Sheriff, beauty salon G.Bar and bistro chain Frans.ua.

Ukrainian franchises are generally popular among small businesses willing to invest up to $ 30,000 and earn an average of $ 1,300 in net profit per month.

Large companies, in turn, usually invest in foreign franchises like KFC or Domino’s because these companies are expensive and the requirements for entrepreneurs are higher.

“It is very difficult to bring a foreign franchise to Ukraine. Companies must first prove that Ukraine is a reliable market that can bring profits, ”Kirilovich said.

Wild West Franchise

Although franchising is a popular business, Ukraine remains the Wild West as there are no laws that regulate the market. Even its size estimates are rough because franchises are popping up all over Ukraine all the time and no one is tracking them, according to Kirilovich.

Experts have said this lack of regulation is good for franchising. It allows companies to resolve disputes without courts and opens the market to everyone.

Entrepreneur Dmytro Borysov, owner of the Gastrofamily restaurant chain which includes popular restaurants like Chicken Kyiv, Bilyy Nalyv, Mushlya and Dogz and Burgerz, told the Kyiv Post that many of his franchise owners had not worked in the restoration before but wanted to try.

One of them, Anton Zarichnuk, opened Bilyy Nalyv in Vinnytsa, the town of 370,000 inhabitants 268 kilometers southwest of Kiev, when he was only 19 years old and studying at the local university. . Zarichnuk’s parents helped him with investments, but it was his “adventurous idea” to buy a franchise.

Bilyy Nalyv is Borysov’s most popular franchise because it is cheaper than large restaurants and does not take up much space – almost 50 square meters. Franchise investments pay off in almost 12 months or even sooner, depending on the location. For example, Bilyy Nalyv on central Khreshchatyk Street in Kiev returned her investments in just 54 days, Borysov said.

People line up at Bilyy Nalyv Street Cafe on Khreshatyk Street in Kiev on March 27, 2021. Bilyy Nalyv is Dmytro Borysov’s most popular franchise because it is cheaper than large restaurants and does not take up much space. (Oleg Petrasiuk)

A franchise of a small cafe like Bilyy Nalyv can cost an average of $ 30,000. The relatively low barrier to entry doesn’t mean it’s easy to take advantage of a franchise. By investing in just one franchise, local entrepreneurs buy themselves their independence and work, experts say, but to make a lot of money they need to invest in more places.

Building empires

According to Andriy Khudo, co-owner of the Fest Local restaurant chain which, among others, includes restaurants like Rebernia, Lviv Handmade Chocolate, Piana Vyshnia and Beer Theater, it’s common practice for entrepreneurs who have started with a franchise. Pravda. Khudo has 125 restaurants across Ukraine, nearly 60 of which are franchised.

“If companies buy multiple franchises, that means a franchise is good,” Kozacuk said. According to her, the more franchises the company has, the higher its value.

Local franchise owners know the needs of their customers and therefore help businesses thrive in local markets, said Maxim Melezhik, franchising manager of Ukrainian parcel delivery company Nova Poshta.

Nova Poshta has more than 8,000 post offices – 6,500 of them operate franchises in towns and villages. The company works with more than 700 partners. Opening a Nova Poshta office in a village can only cost $ 3,000.

Entrepreneur Oleksandr Granovsky, who now has 29 Nova Poshta offices in Kiev oblast, mostly in villages, typically returns his investments within 12 to 18 months. According to Granovsky, his business has growth opportunities as postal services in villages are in demand.

“I see how local businesses are changing as people gain access to new customers across the country and even overseas,” with the help of Nova Poshta delivery services, he said.

A customer collects a package from a Kiev branch of the delivery company Nova Poshta. The company has more than 8,000 post offices and 6,500 of them operate franchises. (Photographer: Ievgen Ivanov)

Selling abroad

Almost 40 Ukrainian companies have their franchises abroad, usually in Eastern and Western Europe. Ukrainian franchises are good enough to compete with even American companies, Kozacuk said.

Companies that work in foreign markets have more responsibilities and responsibilities, according to Kirilovich. They also need a reliable partner to run their business in another country.

“There are many difficulties (to open a franchise abroad). This activity is risky but interesting, ”said Iryna Pohodina. She owns the hairstylist Express Haircut, founded in Ukraine, which has 130 salons in five countries, 100 of which are franchisees.

The initial fee to open an express haircut in Ukraine is $ 1000, in Russia and Kazakhstan $ 3000, and in Europe is $ 5000. The total investment in its franchise in Europe is almost $ 30,000 and $ 10,000 in Ukraine. The profit in Europe is also higher: 2,500 dollars against 1,200 dollars in Ukraine, according to Pohodina.

Kirilovich stressed that local companies enter foreign markets because the initial costs, royalties and investments are higher there than in Ukraine.

To open Piana Vyshnia de Khudo, the store that sells artisan cherry brandy, Polish and Romanian entrepreneurs have to pay at least $ 100,000, while in Ukraine it costs almost $ 75,000.

Besides Poland and Romania, Khudo has other franchises in Azerbaijan, Moldova and Latin America. He said that in order to enter a foreign market, Ukrainian franchises must have a concept that will appeal to foreigners.

“You can be very cool in Ukraine, but your idea can fail abroad,” Khudo said.

This happened with Salateira, the fast-healthy Ukrainian restaurant chain that opened a franchise in Spain and its own restaurant in Dubai, but had to close them because demand for salads there was low and competition high, according to the founder of Salateira, Alexander Savilov.

Neighboring Belarus has fewer competitors, so Savilov’s business there has taken off and is making profits. Now he has four restaurants in Belarus, the fifth will open soon. All are owned by a local entrepreneur.

Kirilovich said that it is easier for local franchisees to work in the overseas service industry because the demand for services is higher.

The Ukrainian G. Bar has franchises in Poland, Belarus, Georgia, Estonia, Kazakhstan, Russia, Cyprus and even the U.S. The initial fee for its franchise is $ 15,000, the investment in one place starts at $ 50,000 in Ukraine and $ 70,000 in Europe.

Overcome difficulties

Franchising is not always a win-win solution for a business and the owner of a franchise.
People who have never worked in business don’t understand what franchising is and how it works, Kirilovich said. “When you buy a franchise, you also buy its rules,” he said.

Some franchises don’t follow them: refuse to pay royalties or violate company standards. Some franchises just don’t take off.

“You can’t just replicate a successful restaurant in another city. In franchising, everything – from technology to business processes – has to be adapted to a new market, ”said Borysov.

Ukrainian entrepreneurs agree that running a business under the name of a famous company can be difficult, but say it is worth a try.

“I am happy that I decided to start a franchise business. After working in the tech industry, I had to change my mindset from being an employee to being an entrepreneur, ”Pasechniy said. ·

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