La Franchise no. 6

The pocket dictionary, in episodes, of franchi- sing: in these pages we continue the publication of definitions taken from the work by Yves Marot, "Le Langage de la Franchise" La franch NGAG DE LA TRANCH Le Langage de la Franchise, 110 pages, is on sale at the FFF or at the Yves Marot firm (see the address book). Price: 49 F. • franchisee recruitment Franchising being a system of repeating success that involves a transfer with a view to reproducing the know-how, the recruitment of franchisees is a very important point in the effectiveness of the system. Not just any franchisee candidate who has the financial means is able to repeat the success of the Not just any franchisee candidate is not able to receive and then reproduce the know- how. It is therefore for the franchisor to define the profile of the ideal franchisee or at least the profile of the franchisee meeting the minimum conditions. Recruitment systems vary greatly from one network to another. In some franchises, the franchisors recruit through advertising placed in the professional sector concerned in the specialised franchise magazines: franchisors may also call on the Chambers of Commerce, etc. In other franchises, the franchisors call only on non-professionals, considering that a non-professional will follow the know-how manuals more rigorously since he will not integrate his "personal touch". In a themed restaurant network, it is true that a franchisee who has no training as a cook will better respect the culinary preparations prescribed by the franchisor, the cook surely not resisting the urge to add his own recipes and personal tricks! Franchisors have, however, moved away from this approach. They have in fact realised that the personal competence of the franchisee could constitute an excellent stimulus. It is then le Newille Chocolata Frumsais for the franchisor to know how to discipline this competence so that the coherence of the system is not thereby called into question. • jetr hide vendr Refusal to sell arises in franchising in several matters. 1. Refusal to "sell a franchise" Is the franchisor entitled to refuse a franchisee candidate even though he has the professional skills, premises and financial means required and the territory in which he plans to set up is available? Yes, without any reservation because the franchisor is alone able to assess whether this candidate meets the required conditions. Except where he rejects an application for the sole purpose of harming the person concerned, the franchisor may perfectly well say no. 2. Can a franchisee refuse to sell to a customer on the ground that this customer comes from a territory where another franchisee exists? This is not possible for him, subject however to this customer having come spontaneously to this franchised point of sale. On the other hand, the franchisor may perfectly well forbid each of its franchisees from carrying out advertising, commercial promotion actions, communication outside their territory. That is the whole difference between acts of passive competition (selling to a customer who comes spontaneously from a neighbouring territory) and acts of active competition (seeking customers in the neighbouring territory). As in a good number of distribution networks, the franchisor is often called upon to manage the conflicts that arise from these practices and to ensure the sharing of commissions. L'officiel de la Franchise no. 6 lexioue ise de A à Z H- 7fffft LOUVE A TIMHOTEL • eglemel d'exemptio European A definition is needed because the term "Block Exemption Regulation" is not obvious for the uninitiated. Article 85, paragraph 1, of the Treaty of Rome prohibits agreements because it sees in them an infringement of free competition, free competition that the authors of the Treaty consider beneficial for economic and social progress and the final consumer. Consequently, paragraph 2 of the same article 85 strikes such agreements with nullity. However, paragraph 3 exempts from nullity (that is to say ultimately "makes valid") agreements that contribute to economic and social progress and reserve to the final consumer a fair share of the profit that results from it. Franchising is unquestionably an agreement between a franchisor and each of the franchisees of the network. This agreement is therefore void by application of paragraphs 1 and 2 unless it can claim to benefit from the exemption by application of paragraph 3. Since the Pronuptia and Yves Rocher, Charles Jourdan, Ser- vices Master and Computerland judgments, it has been known that under certain conditions, franchise agreements may escape the But what conditions? To find out and have a "reassuring" answer, each franchisor could refer the matter to the Commission in Brussels to obtain an individual decision. One imagines the number of civil servants who would have been mobilised in Brussels and the extraordinarily long delays that would have been necessary to obtain a decision! That is why, as it had done previously in other fields (motor-vehicle dealerships, etc.), the Commission in Brussels published a Franchise Block Exemption Regulation no. 4087/88 on 30 November 1988. The main purpose of this Regulation is to say which are the conditions that a franchise agreement must meet in order to be valid and to benefit from the exemption laid down by article 85 paragraph 3 of the Treaty of Rome. The Regulation is applicable until 31 December 1999. • liability of the franchisor The franchisor has a contractual or non- contractual liability similar to that of most other economic agents. The franchisor's liability is called into question mainly for the following reasons: • ineffectiveness of the concept, • failure to assist the franchisees, • absence of actions aimed at developing the reputation of the brand, • failure to comply with the provisions relating to territorial exclusivities. erour su • investissemen In English: Return on Invest- ment or ROI. This is the time necessary to ensure the profitability of the capital committed by the franchisee in the franchise. The return on investment can be assessed in the following manner: capital committed by the franchisee = cash flow + financial costs Cash flow can be defined here as consisting of the sum of the operating results before tax + the allowances (for depreciation and provisions). The capital committed comprises the works and fittings of the point of sale, the initial stock, the entry fee but generally does not include the leasehold right or the key money because it is not specific to franchising. The European Code of Ethics requires that the term of the franchise agreement (see this entry) be at least equal to that of the ROI. ransmission I of the franchise agreement The transfer of the franchise agreement essentially raises the problem of intuitu personae (see this entry). The franchisor is concerned that the franchisee should not be able to freely transfer his agreement. Such a transfer could have the effect that the new franchisee would not meet the conditions required by the franchisor. It could possibly bring in an assignee who would come from a competing network. The franchisor therefore puts in place in the agreement a set of provisions aimed at prohibiting the transfer of the agreement except with the franchisor's authorisation. L'otficiel de la Franchise no. 6