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Systems of hard and soft franchises in the FMCG sector in Poland

International Journal of Contemporary Management
Volume 58 (2022): Issue 2 (June 2022)
By:
Open Access
|Jul 2022

Figures & Tables

Chart 1

Development of franchising chain in sector of FMCG in Poland in the years 2002 – 2020.Source: https://franchising.pl/abc-franczyzy/24/franczyza-polsce-rozwoj-1989-2020-roku/ [access 2021-12-10]
Development of franchising chain in sector of FMCG in Poland in the years 2002 – 2020.Source: https://franchising.pl/abc-franczyzy/24/franczyza-polsce-rozwoj-1989-2020-roku/ [access 2021-12-10]

Division of franchising chains in Poland according to format of shop

Format of shopCharacteristic features of particular formatName of franchising chain
Convenience/local type shops

  • surface area of shop from 100 m2 to 200 m2

  • located in housing districts in small areas within proximity of the large city thoroughfares, beside bus/train stations

  • limited assortment

  • additional services (lottery tickets, receipt of packages)

  • the majority of these shops are not self-service

  • ABC

  • Żabka

  • Nasz Sklep

  • Livio

  • Odido

  • Groszek

  • Chorten

  • Rabat Detal

  • Eden

Supermarkets

  • surface area of shop from 200 m2 to 500 m2

  • located in large cities, in large agglomerations of people

  • prevalence of self-service form of sales

  • wide assortment (hundreds of thousands of assortment items)

  • Lewiatan

  • Chata Polska

  • Spar

  • Intermache

  • Kupiec

Delicatessen shops

  • surface area of shop from 200 m2 to 400 m2

  • located in shopping malls in large cities, in large agglomerations of people

  • increased standard of service

  • increased standard of visualization of shop

  • wide assortment supplemented by delicatessen products

  • Delikatesy Centrum

  • Delikatesy Bomi

  • Delikatesy Mila

Principles of cooperation between franchisee and franchisor

FranchisorFranchicsee
He/she checked the business concept in his/her own pilot unit and indicated its profitability.He/she passes on know-how to the franchisee on how to conduct business.He/she is the owner of the trademark and the brand of franchising chain.He/she passes on the instructions and solutions on how to conduct business in accordance with the concept, which is passed on in the form of an operations manual.He/she conducts business trading under the logo of the system provider as an independent entity, while his/her profit is gained from his/her business activities.He/she finances the greater part of the investment in terms of launching the facility, its equipment and purchasing of goods from his/her own resources.He/she regulates payments for maintaining the licence and the monthly fee for accessing of know-how (which is charged directly or compensated by retrospective payments from suppliers).He/she defines the price of goods in his/her premises with the exception of promotional actions organized by the chain.He/she has the majority of influence on the type and variety of goods in his/her premises with the exception of agreements entered with the producers on the part of the chain.

Regulations of Civil Code relating to franchising

Legislative basisReference to franchising activities
Art. 43.1-Art. 43.10Indicating an entrepreneur as a physical or legislative entity, who conducts business or professional activity on his/her own behalf. This individual operates as a firm that is entered into the appropriate register. The notion of a firm in the case of a physical entity is perceived as the individual's name and surname, whereas in the case of a legislative entity, it is perceived as the name of the firm.
Art. 56 – Art. 116Regulations stipulated in the first book under the fourth title relate to the legislative activities. They regulate the activities of parties associated with entering agreement. They treat the declaration of the will to enter agreement as an offer. This offer becomes transformed into an agreement, if the parties express such a wish. This will, as indicated by the act, should be presented in a written form. Similarly, all appendices and modifications to the agreement should be prepared in a written form. Simultaneously, the act assumes that the declaration of the will of unauthorized people, or those in a state that excludes the conscious or free will to make decisions is deemed null and void.
Art. 353.1 – Art. 396In accordance with the resolutions of the Civil Code, the parties entering agreement may arrange the legal relationship according to their own discretion, yet must respect the legal regulations, as well as the principles of community life. Both the debtor and the creditor should execute the obligations in accordance with the stipulated content and in a manner that is appropriate to the principles of community life, as well as the binding customs. The obligations of the parties may be of a nature of solidarity obligations. Likewise, they may also be divisible obligations, or indivisible obligations.
Art. 451The Civil Code defines the manner of executing obligations. By way of example, it assumes that the debtor, who has several debts to the same creditor, may indicate which debt he/she wishes to pay off.
Art. 471The Civil Code defines the effects of the failure to execute the obligations. In accordance with its stipulations, it is assumed that the debtor is obliged to repair the damage which arises from the failure to execute, or the inappropriate execution of the obligations.
Art. 487The resolutions of the Civil Code refer to the execution and effects of the failure to execute the obligations arising from the mutual agreements. Mutual agreements are treated as contracts, in which both parties are obliged by the declaration of one of the parties that should be the equivalent of the declaration of the second party.

Diagnosis of differences in hard systems and soft franchises

Provision of agreement“Hard” franchising suste“Soft” franchising system
PreambleThe system provider establishes the trading conditions for the system receiver with suppliers and manufacturers and also obliges the system receivers to make purchases and sell goods from the suppliers and manufacturers indicated.The system provider has a concept of the system of the sales of goods at his/her disposal, which creates the possibility of an effective form of business activity and business cooperation in the sphere of sales and promotion of goods for the network participants and independent firms.
Obligations of franchisee
  • -

    Adjustment of the trading premises from technical and aesthetic viewpoints to the network requirements,

  • -

    Application of a computer-based warehouse system indicated by the system organizer,

  • -

    Acquiring supplies of goods exclusively from the suppliers listed in the attachment prepared by the system organizer,

  • -

    Maintenance of a full assortment of the brand indicated by the system organizer,

  • -

    Absolute application of the recommendations from the protocol of evaluation conducted by the network representative,

  • -

    Passing on monthly sales reports to the system organizer that are generated from the warehouse program:

  • -

    rendering it possible for people authorized by the system organizer to have direct or remote access to the purchasing data of trading premises,

  • -

    rendering it possible for the system organizer to be able to have an insight into the financial and bookkeeping records of the franchisee at any moment in a scope that is necessary to establish the turnover, while also the application of retail prices, acquired purchasing prices and payments to suppliers,
  • -

    The system provider prepares propositions of internal and external visualizations of the trading premises and provides the franchisees with the possibility of using the propositions.

  • -

    The network provides access to the offer of purchasing computer equipment, and also provides the possibility of purchasing the warehouse program from the suppliers indicated,

  • -

    randomness of acquiring supplies of goods from suppliers from the attachment prepared by the system organizer.

  • -

    The franchisee receives suggestions relating to the recommendations from the evaluation protocol executed by the network representative:

  • -

    expressing voluntary consent to provide the purchasing data regarding goods bought from the suppliers with the aim of calculating the remuneration in the form of retrospective bonuses,

Participation in marketing and advertising actionsThe participant of the trading network has the obligation of participation in all marketing, advertising and promotional actions organized by the network, including advertising the trading premises according to the principles stipulated in the regulations for the particular action,The network participant has the right to participate in all marketing, advertising, and promotional actions organized by the network, including advertising the trading premises according to the principles stipulated in the regulations for the particular action.
Recommended suppliers
  • -

    the system organizer provides access to a list of authorized suppliers of furniture systems and also systems of lighting for the sales room, cooling equipment, and computer systems.
  • -

    There is no list of authorized suppliers.

Operational activitiesThe network participant has a trade coordinator assigned to him/her by the franchise provider, whose cyclical visits amount to one visit per week,The network participant has a trade coordinator assigned to him/her by the franchise provider, whose cyclical visits amount to one visit per month,
Additional programs and servicesThe trading network participant has the obligation to udr the programs and services prepared by the network (loyalty program for consumers, loyalty program for franchisees, competitions by means of text messaging, trade fairs),The trading network participant has the right to use the programs and services prepared by the network (loyalty program for consumers, loyalty program for franchisees, competitions by means of text messaging, trade fairs).
TrainingThe trading network participant and the workers employed in the trading premises have the obligation to participate in training prepared by the network.The trading network participant and the workers employed in the trading premises have the right to participate in training prepared by the network,
Purchase of advertising materials and consumablesThe obligation to purchase materials in cycles - 1 purchase monthly.Authorization to purchase materials.
Period of duration of agreementThe agreement is entered for an indefinite time period with a 6-month period of notice that comes into effect at the end of the calendar year.The agreement is entered for an indefinite period of time with a month's period of notice of termination.
Grace periodFollowing the termination of the agreement, the network participant may not conduct business activities in competitive trading networks for a period of 6 months.There is no grace period,
Contractual penalties
  • -

    Penalties are charged for breaching the stipulations of the agreement.

    Amount of penalties: from 1,000 PLN to 50,000 PLN.

There are no contractual penalties in the case of a failure to adhere to the stipulations of the agreement that are binding within the regulations of the Civil Code,
Franchising fees
  • -

    Entry fee to the amount of 5 PLN net for each square metre of the surface area of the shop,

  • -

    Annual licence fee to the amount of 2 PLN net for each square metre of the surface area of the shop,

  • -

    Monthly marketing fee to the amount that is established as a percentage of the turnover of the shop from the previous month, ranging from 0.6% to 0.8% of net turnover.

The quarterly licence fee amounts to between 1 PLN and 30 PLN,
Security of payments dueThe franchisee has the obligation to issue a blank bill of exchange, and also a blank bill of exchange agreement with the aim of securing all payments that are payable to the franchisor.
  • -

    There is no collateral,

Level of retrospective discounts and bonuses with suppliers and manufacturers indicated by the organizer of the system
  • -

    Discounts at the suppliers indicated from 1% to 20%.

  • -

    Bonuses at the manufacturers indicated from 1% to 12%.

  • -

    Bonuses at the suppliers indicated from 0.5% to 5%.
  • -

    Discounts at the suppliers indicated from 0.02% to 9%,

  • -

    Bonuses at the manufacturers indicated from 0.02% to 8%,

  • -

    Bonuses at the suppliers indicated from 0.02% to 2.5%.

Operations manual as a tool of franchising cooperation

Element of manualContent
Introduction

  • explanation of the method of operations of the system and the philosophy of operations of franchising activities.

  • Expectations of franchisees in exchange for the purchasing of a licence,

Operational instructions

  • detailed methods of use (guidelines for furnishing premises, instructions for equipment, data for service units, and a list of contacts)

  • operational instructions, including the following:

    • -

      opening days and hours of premises;

    • -

      samples of trading agreements;

    • -

      set of norms and procedures;

    • -

      requirements relating to dress code of personnel;

    • -

      training procedures of employees;

    • -

      recruitment procedures of employees;

    • -

      guidelines for pricing policies;

    • -

      guidelines for supplies policies;

    • -

      procedures of customer service;

    • -

      standards of goods;

    • -

      obligations of employees;

    • -

      bookkeeping procedures;

    • -

      guidelines for reporting;

    • -

      advertising and marketing;

    • -

      franchising fees, together with the description and deadline for payments;

    • -

      guidelines for making use of the trademark;

    • -

      inventory procedures.

Set of standard forms

  • work schedule of employees, nondisclosure agreements, advertising prints.

Guidebook for franchisees

  • list of contacts of employees in the chain who are responsible for settlements, marketing, IT emergency assistance, logistics, etc.

  • list of contacts of suppliers and sales representatives of manufacturers and suppliers recommended by the chain.

  • procedures for displaying goods and stimulating sales.

Similarities in hard agreements and soft franchises

Elelment of agreementProvisions of agreement
Parties entering agreementRepresentative of management of network, franchisee.
Definitions of notionsA franchising agreement, network, network participant, system, brandname, trademark, supplier, sales outlet (trading premises).
Obligations of the franchisor
  • -

    Negotiating and entering agreements on trade cooperation with suppliers and manufacturers,

  • -

    Informing the network participants of the terms and conditions of the trade agreements entered with the suppliers and manufacturers,

  • -

    Preparing and providing access to advertising actions that are aimed at making sales more attractive in the trading network by means of competitions, sampling, etc.

Operational activities
  • -

    The franchisor ensures care by specialists and assistance in preparing for the opening of the shop.

  • -

    The franchisor ensures advisory services in conducting the shop, while also the selection and arrangement of the appropriate assortment.

Liability`The franchisor does not bear any liability for the financial performance of the network participant, nor for any of the participant's activities and obligations with regard to third parties.
Confidentiality
  • -

    The network participant is obliged to maintain absolute confidentiality with regard to the concepts of the system revealed to him/her with regard to entering the agreement, and also all data and information passed on to him/her by the franchisor.

Trading system
  • -

    On behalf of the franchisee, the network organizer conducts all activities associated with entering and executing trade agreements, particularly submitting and receiving offers, participating in negotiations, and establishing the content of the agreements and also their termination. Likewise, he/she shall undertake all activities with the aim of preparing the best prices for the products to be sold.

  • -

    The franchisee authorizes the system provider to negotiate retrospective bonuses from the network suppliers.

Settlement of remuneration from suppliers and manufacturers
  • -

    Settlements are calculated as a percentage of the purchase value of the goods traded by the system organizer.

  • -

    Settlements take place on a quarterly basis.

DOI: https://doi.org/10.2478/ijcm-2022-0005 | Journal eISSN: 2449-8939 | Journal ISSN: 2449-8920
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Language: English
Page range: 27 - 38
Published on: Jul 13, 2022
Published by: Jagiellonian University
In partnership with: Paradigm Publishing Services
Publication frequency: 1 times per year
Keywords:
franchising,
franchising cooperation,
franchisor,
franchisee,
franchising agreement
Related subjects:
Business and economics,
Business management,
Management, organization, corporate governance,
Business management, other,
Industries,
Non profit organizations (NPO), foundations, charities, associations,
Public sector, public private partnerships, public administration

© 2022 Aneta Kuźniarska, Łukasz Szabucki, published by Jagiellonian University
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

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