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Nov, 01 2006

THRIVING ON FRANCHISING 760 FRANCHISORS WITH MORE THAN 41,000 OUTLETS

It is the third-largest economy in the world and the largest in Europe. It has the fifth-largest economy by purchasing power parity (PPP) and a GDP of over $2 trillion.

It is the third-largest economy in the world and the largest in Europe. It has the fifth-largest economy by purchasing power parity (PPP) and a GDP of over $2 trillion. Its currency unit, the Mark, is one of the strongest in the world. There is no doubt, during times of such global competitiveness Germany has been able to maintain an excellent market economy.

With changing trends in business, Germany has very well adapted itself to the growing concept of franchising. It has, over a period of time, become a major trading partner for many countries. Almost everyone wants to be active in the German market, and for the most part, almost everyone already is. A country that has understood Germany's great potential is America, which stands as the number one investor in the German market. America already has around 50 established franchisors in Germany with 2100 franchises.

Franchising in Germany

Franchising has become a popular way of doing business for investors across the world. The concept has made available a lot of business opportunities to them. Franchising, as it is followed today in Germany, started around the early 80s and has been growing ever since. At present, according to the German Franchise Association, there are around 760 franchisors in the country with more than 41,000 outlets.

Among different industries, the fast food industry is the most lucrative in Germany's franchising sector. The country has approximately 600 food-related franchises, out of which 78 percent are held by US investors. The franchise market has observed an annual growth rate of 21.9 percent in the preceding years and a growth of another 10-15 per cent is expected in the near future.

The other top, fast-growing industry in the country is the service sector that comprises education, laundry services, tourism and the hotel business, studios, car-care centres, motor shows and show-business.

Consistent growth is expected in all the franchising sectors, but the best prospects are observed in specialized consumer services. Consumer services are much in demand as the continuous growth in population adds to it.

Further, the busy lifestyles demand the best consumer services. With the rise in the rate of unemployment, franchising in Germany has allowed many people across the country to establish their own businesses without the need of having prior employment.

Fast Food: the most popular industry in German franchising

Germany is one of the fastest-growing markets for fast food, thanks to the abundant franchise opportunities. With changing trends and eating habits, American food, offered by companies such as McDonald's Golden Arches, has moved away from being just American food to an international cuisine. Most of America's top fast food brands are very successful in Germany, and have the maximum share in franchising. The franchising sector has made brands like McDonald's and Burger King earn high profits and has created strong markets for them in the country. Nordsee and Yum! Brands also hold a large share of the fast food market in Germany and throughout Europe.

German economists predict that the fast food market will continue to grow as most of the people have a fast-moving life style that allows minimum time to cook at home. As a result, they prefer eating out where food is easily and quickly available and can be had in no time at all. This trend will continue and fast food franchises will continue to profit. While burgers are the most popular fast food in Germany, there are plenty of opportunities for growth in healthier alternatives also.

German Franchise Associations

Anybody looking to establish himself in Germany's franchising sector can gain knowledge about the same from the different associations set up solely for this purpose. Located across the country, these associations provide excellent service and assistance to new investors, and guide them towards the best business opportunities.

Franchise laws in Germany

There are no specific codified franchise laws in Germany. Both the franchisor and the franchisee are obliged to enter into a contract before starting up any business with each other. The country allows both the parties to choose the law on which they want to base their contract. However, mandatory legal provisions, such as consumer protection provisions, cannot be avoided. In general, typical contracts do not lead to any personal dependency on the part of the franchisee.

Franchisees enjoy reasonable protection in Germany by virtue of some laws. For example, earlier, according to the German courts, the franchisor could bring debt collection proceedings against the franchisee and the court would terminate the franchisee's contract. However, this no longer holds true. The court does not terminate the franchise contract for non-payment of the franchise fees by the franchisee without considering the facts of the termination notice in question. This new provision, instead, allows the German courts to strike out unreasonable termination clauses in the contract. If the clause has been struck out, it no longer applies, so the termination for non-payment becomes impossible.

In the recent Burger King case, the court of Berlin struck out a clause from the agreement between the fast food brand and its franchisee. This clause entitled Burger King to terminate its franchise agreements in the event that the franchisee did not pay royalties, due within 10 days of having received a written reminder notice. The court came to the conclusion that franchise agreements involved long-term relations and such clauses created an imbalance in the rights and obligations of the parties and were therefore "unfair". Thus, before termination of the franchise contract for non-payment of franchise fees, franchisees must be granted a "period of grace". This period depends upon the nature of the contractual relationship between the parties, particularly its duration and the amount of money invested by the franchisee.

The court decided that termination for non-payment is justified only if the delay exceeded a period of six weeks. The court suggested that Burger King start debt collection proceedings to recover the amount outstanding.

Conclusion

The strong German market attracts many investors, both international and national, and promises them high returns on their investments.

Germany has actually worked towards a progressive and developed franchise sector. With each passing day, the country's economy is booming and the franchising sector cannot be overlooked, as it is responsible in substantially developing the German economy.

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