Italy has been ranked as the seventh-largest economy in the world in 2006, and the fourth-largest in Europe. According to the Organisation for Economic Co-operation and Development (OECD) the country was also the world\'s sixth-largest exporter of manufac
Italy has been ranked as the seventh-largest economy in the world in 2006, and the fourth-largest in Europe. According to the Organisation for Economic Co-operation and Development (OECD) the country was also the world's sixth-largest exporter of manufactured goods in 2004. This capitalistic economy remains divided into a developed industrial north dominated by private companies, and a less developed agricultural south.
Italy has been less successful in terms of developing world-class multinational corporations. Instead, the country's main economic strength has been its large base of small and medium size companies. These companies typically manufacture products that are technologically and moderately advanced and, therefore, increasingly face crushing competition from China and other emerging Asian economies.
Franchising: The Italian way
Italy has a fragmented distribution system, with a predominance of small, family-owned stores. The operators of franchise networks have the following benefits under such circumstances.
They offer a chain of small, specialised stores.
They will also be able to exploit the significant economies of scale gained through centralisation of marketing, purchasing, finance and corporate administration and, in some cases, production activities. Some of the most onerous obstacles to the implementation of the franchising system are gradually being removed. For example, part-time work, which until recently was not permitted by local labour laws, is now allowed under new government directives and widely accepted.These conditions enable them to maintain cost competitiveness not available to independent stores. Despite complex bureaucratic hurdles and the resulting delays, there has been continued expansion of new and old franchise operations in Italy.
After many years of delays and amendments, Italy passed its first franchise law, which became effective on 25 May 2004 after publication in the "Gazzetta Ufficiale" of the Italian government.
Sectors in franchising
Specialised food retailers: This sector consists of various retail trade activities such as bakeries, fruits and vegetable stores, milk and cheese stores, butchers, sausages and seafood stores, delicatessens, dietetic and natural food stores, frozen food stores, wine and beverage shops, candy and ice-cream stores, and tea and coffee stores.
The total business turnover of this sub-sector averaged 1.5 billion dollars in the past years and accounts for 8.4 per cent of the overall business turnover of franchising in Italy. The total number of employees in this sector is 4.1 per cent of the total franchise employees.
Non-specialised chains: Included in this sub-sector are small and large supermarket chains, and hyper markets (leading department store chains and discount chains). Though the non-specialised chains are small in number this sub-sector groups the largest companies and accounts for 30 per cent of the total business volume in the franchising sector. The sub-sector employs 15.2 per cent of the total franchising employees and reports annual sales of 5.8 billion dollars.
Personal items: This sector comprises categories of retail trade like women's and men's apparel, sportswear, children's clothing, formal and maternity apparel, footwear, travel items and luggage, jewellery and watches, optical items, fur coats and leather apparel.
One of the largest in Italian franchising, this sub-sector has a total sales of 2.6 billion dollars, accounting for 14 per cent of the overall franchising business. The total number of employees is 15.6 per cent of the overall franchising employment.
Household items: The sub-sector includes furniture, chairs and beds; wall paper, floorings and carpets; home textiles; kitchen and bathroom furniture; do-it-yourself items; lighting fixtures and electrical household appliances.
This is another sub-sector which has been growing at a very satisfactory pace. The annual business turnover is 708 million dollars and accounts for 3.7 per cent of the overall franchising business volume.
Other specialised trades: Other specialised trades include toys, millinery, gift items; flower and seed stores, gardening equipment and products; pet products, hunting and fishing equipment; bicycles and motorcycles; beauty products and cosmetics, sanitary items; books and stationery; office equipment; photo finishing; hi-fi equipment, computer hardware and software; outdoor items; and auto accessories. The consolidated business volume of 2.1 billion dollars demonstrates their importance.
Services
There is a very wide and diversified range of services in Italy. It includes all the services related to the new economy, such as hair care, beauty salons and physical fitness clubs; key-making and shoe repair; dry cleaning and laundry; real estate; security; travel and tourism; moving; marriage agencies; recreational clubs; photography; repairs; household maintenance; telephone rentals; car rentals and maintenance; advertising, printing and media; training and management; delivery; consulting; and various business to business services.
This sub-sector remains the most promising in terms of projected growth. The consolidated business volume is 5.3 billion dollars.
Hotels and restaurants
This sub-sector includes businesses such as hotels, restaurant chains and fast food chains. Fast food restaurants account for the majority of the outlets and the very successful performance of McDonald's has contributed to the sector.
Construction and maintenance
It includes prefabricated homes, fireplaces, patios, swimming pools, building maintenance and refurbishing services and residential fixtures. A very static trend is reported for this sub-sector. Total annual business volume has reported sales of 138 million dollars, keeping at the same level as the previous year.
Market watch: Trends in franchising
The services sector has been growing at a rapid pace over the recent years, both in terms of franchisors and franchisees. The highly flexible services sector appears to offer the best prospects for new franchisors in the Italian market. It ranks first in terms of overall growth and has the highest propensity to adopt foreign formulae. In addition, its adaptability, and the generally low financial investment it requires, make it a 'hot' prospect. New activities stemming from the 'new economy' are making a fast breakthrough and concepts linked to the Internet and e-commerce, telecommunications and information technology have a proven record of success.
Other very promising and more consolidated areas are travel and tourism, education and training and automotive services. The hotels and restaurants sector appears to be well suited for expansion.
Competitive situation
The growth figures of 5.9 per cent in the short term are proof of the dynamism of the franchising sector in Italy. Both franchisors and franchisees have shown faith in this system, investing considerably in shops and service centres, mostly located in city centres, commercial districts and prestigious shopping malls. The geographic distribution of franchising activities shows a dramatic disproportion, with 67.2 per cent of all franchisors located in northern Italy, 20.8 per cent located in central Italy and only 11.9 per cent active in the southern regions and in the islands.
Domestic production
Franchising is relatively new in Italy and started in 1971, at a time when the Italian Franchise Association was founded. There are local companies which have been in operation for a number of years and which have achieved both success and profitability.
The oldest and largest franchising companies in Italy include Il Fornaio, which launched its bakery franchising in 1980 and now has a record number of over 1,800 franchisees in Italy and 50 abroad; Tecnocasa, a real estate agency, started franchising in 1986, achieving a record number of 2,310 offices in Italy and 358 abroad; SMA, a super and mini franchising food chain, started franchising in 1990 and now has a network of 1,080 franchisees and 216 directly-owned stores; the GS supermarket chain launched its franchising in 1993, and has 202 company-owned stores and 135 franchisees; its affiliated company Di per Di, started franchising in 1990 and has now reached 520 franchisees and 120 directly-owned stores. A&O, also active in the food stores area, has 930 directly-owned stores and 330 franchised operations.
Apparel and jewellery
The apparel sector is also a market leader for franchising in Italy. The Benetton brand, though with a slightly different formula, was for many years the synonym for franchising. Stefanel, a world known brand for trendy apparel for young people, has 30 directly-owned stores and 650 franchised stores in Italy and more than 170 abroad. Calzedonia started franchising in 1987 and has since become the leader in the retail of intimate apparel, with 70 directly-owned stores, and a network of 532 franchised stores in Italy and 242 abroad.
Other successful brands
Other successful brands include Roman's (ladies clothing) with 250 stores in Italy; Max & Co., well known for quality apparel, having 180 franchisees in Italy and 30 abroad; Liola', into ladies classical clothing, has 122 stores in Italy and 60 abroad. In the jewelry sector, Blue Spirit started its franchising operations in 1987 and became the leader with seven directly-owned stores and 300 franchisees in Italy and a network of 75 franchisees abroad.
Real estate
Successful franchising organisations exist in the real estate sector, with five major local companies having developed a substantial network of franchisees. In addition to Tecnocasa, other successful brands are Pirelli Real Estate, which started franchising in 2001 and Gabetti, which started franchising in 1994 and presently has 540 franchisees and 136 directly-owned offices. Grimaldi started its franchising operations in 1980 and currently has 130 franchisees and 15 directly-owned offices. In addition to these very successful companies, many other real estate organisations have resorted to franchising as a means to give an image of reliability and efficiency to a sector which was suffering from a questionable business reputation.
Beauty, health and fitness
Another sub-sector that has responded favourably to the franchising formula is the beauty, health and fitness one. Several brands have acquired countrywide recognition. Imar-Vip Clinic, which has a cosmetology programme, has 80 offices in Italy and 1770 abroad. Club Tan launched its franchising activities in 1992 and has built a network of 591 franchisees operating tanning parlours. Figurella started franchising in 1987 and has developed a network of 230 franchisees, 15 directly-owned stores and 95 franchisees abroad.
Other well-known brands include Ideal Line System (weight-reduction), Coka-Club (beauty treatment), Portofino's (cosmetology/beauty treatment), and Virgola Parrucchieri (hair-care services).
Services
A new service, which has shown extraordinary growth, is the sale, rental and servicing of cellular phones and other small telecommunication equipment. InSip Telecom Italia launched its franchising operations in 1992 and presently has 1300 franchisees and 80 directly-owned operations. Other well-known franchise names in this sector are Spazio Omnitel and Mondo Telefonico.
Export and import climate
The expansion of Italian franchisors abroad is calculated at approximately 120 companies with a total of over 2,500 franchisees. The sector, which has experienced the greatest success, is in the area of fashion and personal items and lists 45 brands. Benetton, Stefanel, Max Mara, Mandarina Duck, Bruno Magli, Calzedonia, Intimissimi are just some of the names that are known worldwide. In addition, some of the leading and most prestigious Italian fashion designers have started franchising abroad. Other Italian brands, mostly related to the fashion/design sector such as Trussardi, Versace, Mariella Burani have good a market share abroad. Tecnocasa, a real estate franchisor, has developed a sizeable network of offices in Europe. The Segafredo coffee shops are expanding rapidly in the world, bringing the flavour of Italy to foreign countries.
Presently, foreign franchising companies in Italy are predominantly active in the sectors of fast food and hotels, services and personal items. A more accurate count shows that 16 companies operate in the sector of personal items; 30 in the services sector, 12 in the hotel/restaurants sector and 10 in the field of specialised trade.
The presence, in Italy, of brands such as Jean Louis David, which started operations in 1982 and has presently 310 franchisees, of Jacques Dessange, and of Yves Rocher demonstrates that beauty parlours and hairdressers offer excellent potential. Other very successful brands are Cacharel, with 32 apparel stores; Genevieve Lethu, which currently has 18 franchise housewares stores in Italy; and Kookai, which has 40 apparel stores and is growing rapidly. Also, Mercure Hotels has just come into the market and is becoming successful.
Local trade sources concur in concluding that the future will see an increase in franchising activities. The introduction of new brands and the export of local franchising activities to neighboring countries will be the way ahead.
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