• LinkedIn
Telefono: 02 36 52 29 61 | info@studio-pandolfini.it
Franchising in Italy
  • HOME
  • ABOUT US
  • THE ITALIAN ENVIRONMENT
  • SERVICES
  • RESOURCES
    • Subscribe to our newsletter
  • BLOG
  • CONTACT US
  • Search
  • Menu Menu
expanding franchise italy master franchising problems

Expanding a franchise in Italy through Master franchising: how to face (and avoid) possible problems

11 September 2020/in Franchising, News

Master Franchising is widely used in Italy, but of course it may have  some problems, most of which can be avoided by careful foreign franchisors. Probably the most critical factor influencing Master franchise success is the inability of master franchisees to recruit sub-franchisees. This issue is closely linked to the selection of the Master franchisee, which is indeed a crucial process that should be managed by experienced local advisors and brokers. Other solutions to ensure success are to limit time and territory granted to the master franchisee, and to prepare a balanced development plan, regulating carefully the consequences in case of non-compliance by the master franchisee.

Index

1.Master franchising: a very common method of expansion in Italy, but are there any problems with it?

Master Franchising is the most frequently used method to expand a franchise network in Italy; according to the 2021 survey made by Assofranchising, 60% of foreign brands currently adopt this model in Italy.

However,  this does not mean that Master franchising is a completely problem free expansion model.

Surveys conducted by several consultants show that the most significant problems that foreign franchisors face with their Italian master franchisees are the following:

  • franchisors’ lack of understanding of Italian market;
  •  inadequatemaster franchisee’s training;
  •  inability of master franchisees to recruit sub-franchisees.

As a matter of fact, the first two problems can be easily avoided by careful franchisors.

A lack of understanding of the Italian market can be easily overcome by performing a serious preliminary feasibility analysis of the Italian market, and a careful legal due diligence. If a feasibility study and/or a legal due diligence have not been done, or if they have not been done properly, than difficult problems may arise, not always easy to remedy.

Inadequate master franchisee’s training can be a major problem as well. Training and support are important to the success of master franchisees; most franchisors may not have documented properly each of the processes they follow in their day to day activities, at least in a way that can be  easily usable by a master franchisee in Italy. Adequate training programs can be created, but this  requires time and investment.

2.Selection of the “right” Italian Master franchisee is a crucial process

Probably the most critical factor influencing Master franchise relations and success is the inability of master franchisees to recruit sub-franchisees. This issue is closely linked to the selection of the Italian Master franchisee, which is indeed a crucial process.

While the master franchising structure is useful for spreading costs of administration, training and support, much depends on the quality of the master franchisee. A wrong choice can wreak havoc on a franchisor in the Italian market for years. Finding the “right” master franchisee can be time-consuming and expensive. The best master franchisees may also demand a better return on investment than ones of lesser quality.

A Master Franchisee should have the necessary experience, managerial skills and knowledge of the Italian market. Typically a company acting as a master franchisee (these are generally not sold to individuals) should be much more sophisticated and better capitalized than the average individual franchisee.

In the selection process of the Italian Master franchisees’ candidates, a crucial role is played by local advisors and brokers. Foreign franchisees will rarely have the necessary resources and knowledge to manage properly this delicate task. Although they might be tempted to accept the first Italian candidate that presents itself for this role, caution and patience is absolutely needed to find out and select the most appropriate candidate.

3.Limiting time and territory

In any Master franchise agreement concerning the Italian territory (or part of it), a sort of trial is often provided, which is also useful to the  the franchisor to test the franchise concept in Italy, verify the appropriate adaptations to the local reality and allow the Master franchisee to sign a minimum number of sub-franchise contracts.

This trial may consist of a limited exclusivity period of time (for example one year), with possible later renewal, and/or a limited territory (for example a region such as Lombardia or Lazio, or even a smaller territory such as the Milan or Rome area).

As far as master franchising is concerned, an initial cautious approach is recommended, as it allows franchisors to test their expansion project, thus creating the premises for further expansion.

While it is tempting to choose a single master franchisee for the entire Italian territory, because of the challenges outlined above, sometimes it is better to divide the Italian territory into smaller areas, such as the northern area – which is the richest and therefore often the most attractive for investors – or the central-south area, which is the most populous, thus having several master franchisees instead of one.

Granting the whole Italian territory to one master franchisee may result in strong development in only some parts of Italy, leaving other valuable opportunities unrealized.

4.Failure by Master franchisee to meet the development schedule

The main obligation of a Master franchisee is to promote the franchise concept in Italy, identify and select the sub-franchisees, and signing sub-franchising agreements with them. The franchisor might develop targets by testing the market through an initial direct franchise arrangement. However, that rarely happens; therefore,  the franchisor is left to study the market in other ways to determine the unit levels that can and should be attained by the Master franchisee.

This creates  a high rate of failure, since many times targets in master franchise arrangements are not met. If the franchisee fails to comply with its development obligations, the whole expansion project in Italy might be at risk.

 How to avoid this?

First, careful attention should be kept to set clear growth targets for the Italian master franchisee. This implies a careful analysis of the Italian market and competitors, that should be performed by a serious feasibility analysis.

But even the most appropriate analysis cannot avoid at all failures, especially if the Italian Master franchisee has not been selected properly and/or does not perform well its developing obligations.

In such case, the most severe consequence would be to terminate  the Master franchise agreement in its entirety. As a less severe consequence, the franchisee’s development rights may be terminated. The franchisee would continue to service existing sub-franchisees and may be given the right to continue to develop on a right of first refusal basis.

Alternatively, its exclusivity may be terminated, which would allow the master franchisee to continue to develop in competition with the franchisor or another franchisee appointed by the franchisor. The franchisor would not, however, be able to grant exclusive development rights in the territory to the newly appointed franchisee.

The franchisee’s failure to comply with its development obligations could also result in the surrender of part of the territory for which exclusive rights were granted. This would allow the franchisor to develop the territory itself or to enter into a new franchise or other agreement with a different franchisee.

 

Avv. Valerio Pandolfini

For other in-depth articles on issues relating to franchising: visit our  blog.

 


The information contained in this article is of a general nature and is not to be considered an exhaustive examination of the various issues, nor is it intended to express an opinion or provide legal advice. Specific legal advice must be provided with regard to individual cases.

Share this entry
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on Pinterest
  • Share on LinkedIn
  • Share by Mail
https://franchisinginitaly.com/wp-content/uploads/2020/09/expanding-franchise-italy-master-franchising-problems.jpg 800 1200 Valerio Pandolfini https://franchisinginitaly.com/wp-content/uploads/2020/12/franchisinginitaly-pandolfini-logo.png Valerio Pandolfini2020-09-11 10:19:082021-12-02 14:18:40Expanding a franchise in Italy through Master franchising: how to face (and avoid) possible problems

About the author

Avv. Valerio Pandolfini
CONTACT US

Latest posts

  • expanding franchise italy main features pros and cons why whenExpanding a franchise in Italy through Master franchising: a brief guide17 February 2023 - 09:09
  • franchising preliminary agreements letters of intent loiFranchising and preliminary agreements in Italy: the letters of intent (LOI) and option agreements30 November 2022 - 09:59
  • misleading advertising italy what are sanctions for franchisorsFranchising in Italy: the regulation of Mmisleading and comparative advertising: the sanctions for franchisors29 November 2022 - 10:05
  • duration franchise agreements in italyFranchise agreements in Italy: duration, renewal, withdrawal, termination29 November 2022 - 09:43
  • disclosure potential franchisees what provided italian law franchisingDisclosure to potential franchisees: what it is provided for by Italian Franchise Law29 November 2022 - 09:16

Search

Subscribe to our Newsletter

For further information and to schedule a first telephone interview or a non-binding fact-finding meeting, you can fill in the form to be contacted:

By phone:

+39 02 36 52 29 61

By mail:

info@studio-pandolfini.it

Or, filling out

the following form:

I authorize the data controller to use my personal data for sending communications relating to this contact request in accordance with the provisions of the privacy policy Privacy Policy

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.
Studio Legale Avvocato Pandolfini | VAT nr. 04848740967 | C.F. PNDVLR64M04D612F | Polizza Generali INA-Assitalia n. 764104068 | Polizza Elite Insurance n. 2015/R/130223
Mail: info@studio-pandolfini.it | Telefono: 02 36 52 29 61 | Privacy Policy | Cookie Policy | Manage Consent | Realizzazione sito web: Alkimedia Web Agency Milano, Realizzazione siti web Milano
Expanding a franchise in Italy through Master franchising: what changes are...expanding franchise italy changes franchisors documents manual trainingarea development contract used italian franchise practiceArea Development: a contract increasingly used in Italian franchise practic...
Scroll to top
We and selected third parties use cookies or similar technologies for technical purposes and, with your consent, for other purposes as specified in the Cookie Policy. You can freely give, deny, or withdraw your consent at any time by clicking "Manage Consent" at the bottom of the page. You can consent to the use of such technologies by using the “Accept All” button or deny and close the notice by using the "Reject All" button. Settings

Reject All Accept All
Manage Consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
_GRECAPTCHA5 months 27 daysThis cookie is set by the Google recaptcha service to identify bots to protect the website against malicious spam attacks.
cookielawinfo-checkbox-advertisement1 yearSet by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category .
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
CookieLawInfoConsent1 yearRecords the default button state of the corresponding category & the status of CCPA. It works only in coordination with the primary cookie.
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
CookieDurationDescription
_ga2 yearsThe _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
_gat_UA-154928096-61 minuteA variation of the _gat cookie set by Google Analytics and Google Tag Manager to allow website owners to track visitor behaviour and measure site performance. The pattern element in the name contains the unique identity number of the account or website it relates to.
_gid1 dayInstalled by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
Save & Accept