The pandemic has made people rethink their career prospects. Many left their employers fearing for their jobs or in search for more comfortable and flexible working conditions. Although most small and medium-sized businesses were at a loss, in the end of 2020, every third Russian citizen spoke about their readiness to open their own business, according to the Ministry of Economic Development and NAFI research center. All this gave a boost to the franchising market: novice entrepreneurs knew that it was an opportunity to launch their own project with fewer risks and with support from the franchiser’s experienced team.
For the past year, service franchises have been the most popular among Russians: they take 48% of all offers on the market. They are followed by trade name franchising with 26%, and catering with 22%. According to the Russian Franchise Association, medical lab franchises, as well as children’s educational and development centers, online trading platforms, delivery services and various remote services are getting increasingly popular as well.
Even amid the economic instability and lockdowns, most networks stayed connected with almost all their partners. There were even those who managed to grow. The number of companies open by franchisees increased by 7% and reached 80,000. According to franshiza.ru, Russia currently has some 2,780 franchise companies.
The number of jobs also increased by 200,000, which is some 1.9% of all employed Russians. However, franchisees still note staff shortage; market participants have a difficult time finding both skilled personnel and employees with no work experience.
Franchising moves to the regions
The share of franchisers in the regions has grown to 71%, mostly due to the national projects for the development of small and medium-sized businesses that prompt Russian regions to initiate the creation of regional franchises, their promotion and bringing them to the federal level.
Moscow has been implementing a program initiated by the city’s Department of Entrepreneurship and Innovative Development, which allows for a partial compensation for costs of loan interest payment, leasing and purchasing equipment, franchise fee, royalties, and public utility charges of up to RUR 1 mio ($ 8.9K).
Franchisees can also engage in the program for assistance to small and medium-sized businesses at the regional level, initiated by the Ministry of Economic Development. It envisages financial support for a business startup, with amounts varying by region, as well as the opportunity to receiving loans on preferential terms, such as those from the Microfinance and Entrepreneurship Fund of the Republic of Crimea. Currently, nearly every Russian region is implementing programs for promotion small business – and, in particular, for starting a franchise.
Export to West and East
Russian business is becoming increasingly aware that franchising is the most convenient and cost-efficient way to scale a business abroad. About half of the companies have already opened their franchise enterprises abroad: in the CIS countries, Europe, Middle East, and Asia.
Public catering networks and service sector have the greatest potential in this regard. Other successful projects operating in international markets include entertainment, coffee bars, fast food, and children’s clothing brands. Actively developing are ballet schools and children’s educational centers. The ROBBO Club franchise has partners in as many as 24 countries.
Russian franchisors’ export activity is facilitated by such organizations as the Export Support Center and Innovation Promotion Fund, which provide assistance in adapting products to specific legislations and translating advertising and marketing materials into the language of the exporting country, as well as in certification, efforts to organize participation in international exhibitions, and seeking local partners. This all helps franchisors avoid learning by trial and error.
Education is gaining momentum
Educational franchises, particularly in the field of online learning, are becoming increasingly popular. Amidst the lockdown, people started opting for distance learning services. With the sector rapidly developing, educational franchises currently amount to about 7% of the Russian franchise market, a significant share being projects for children’s education.
Sector-specific projects are predominantly successful in the market, such as computer programming and robotics clubs, children’s development schools, and speed-reading and intellectual development courses. One of this year’s trends has been redistribution of activities in this segment: along with standard programs such as foreign languages and sports and ballroom dancing clubs, institutes of further education have started offering financial literacy courses and those that provide information on business processes. The demand for such programs is supported by the government, and they hold leading positions in the market.
The dynamic development of educational franchises has takes place partly due to the increasing interest in additional education and children’s development services in Russia’s regions. In our experience, in recent years small cities and towns have had the biggest potential for opening computer programming and robotics clubs as there is a substantial lack of high-quality additional technology education. Plus, in such towns, the costs of starting and scaling such a business – including rent, salaries and investments in advertising – are considerably lower than in Moscow and St. Petersburg. Also, competition in regional markets is lower than in large cities, and novice franchisees consider this business as less risky.
Economic turbulence is not a hindrance
The use of proven business models and the government’s support make franchising the most convenient tool for aspiring entrepreneurs amidst the crisis. Moreover, due to the pandemic, many franchisors offer favorable and flexible terms of cooperation, as well as various anti-crisis measures and adapted marketing strategies. We can confidently say that 2022 is the best time to open your own franchise business.
By Pavel Frolov, founder, ROBBO Club international network of robotics schools