Posted by: Michele Smith and Anatoliy Sakhno, U.S. Commercial Service Ukraine
“The perseverance of franchising in Ukraine during the last year shows that Ukrainian businessmen and women usually find a way to turn negative factors to their advantage” Myrosalva Kozachuk, Managing Partner of the Franchise Group
With a market of 45 million people, Ukraine is one of the largest countries in Europe and should be on the radar screens of all major franchisors. Recognizing, however, that franchisors lacked information about Ukraine, the U.S. Commercial Service partnered with both the Franchise Group and the Retail Association to start filling this data gap with Ukraine’s first-ever franchise business outlook report. “Ukrainian Franchises Resilient in Turbulent Times,” a 2015 special report, was presented by Anatoliy Sakhno, Commercial Specialist for Franchising of the U.S. Commercial Service, together with the Franchise Group at the opening of the Franchising 2016 trade show in Kyiv in February.
The report includes a survey of more than 100 franchised and non-franchised retail operators in Ukraine and reveals an amazing – and surprising – story about Ukraine’s entrepreneurial spirit. Despite the conflict in eastern Ukraine and extremely challenging circumstances in the retail sector, the majority (65 %) of franchises reported an increase in annual revenues in 2015. Both franchised and independent retailers are optimistic about 2016, with more than three in four survey respondents anticipating that their company’s annual revenues will increase by 6 % or more in 2016.
The report had its roots in a disappointing trade show experience last summer. In June 2015, the U.S. Commercial Service led a group of 20 Ukrainian entrepreneurs to the International Franchise Expo in New York, one of the largest trade shows in North America and world’s largest gathering of franchising professionals. Although the Ukrainian delegation was one of the largest ever taken to the U.S. for any trade show, and although the Commercial Service and Ukrainian Consulate in New York conducted a promotional seminar about Ukraine’s business climate, U.S. franchisors expressed little or no interest in doing business in Ukraine. The main reasons they cited were the military conflict in the East, the economic crisis, the annexation of Crimea, and a lack of serious market data about the Ukrainian franchise market – its size, trends, and potential.
The reports documents significant growth potential for Western brands in Ukraine’s market as the country turns the corner on its recent economic hardships. A deep dive into this sector also reveals that Ukrainians are not just looking for big franchise brands, but for reliable and innovative business models and best practices in process and business management. Why? Because recent data has proven that franchising is a reliable way to reduce operating risks and improve a company’s chance of long-term survival. For example, after ten years of operations, nine in ten enterprises working under franchise arrangements stay in businesses, compared to just 18 percent of all enterprises that remain in business after their first ten years. In a nutshell, Ukrainian entrepreneurs have figured out that their long terms chances of success are five times higher if they use the franchising model.
To help build a data-rich history of this sector in Ukraine, the U.S. Commercial Service and the Franchise Group will issue a second survey and report on franchising in Ukraine in 2016. Working together, we aim to help spread the word that Ukraine’s franchising market is alive and well and making a positive impact on businesses’ development. Read the 2015 report and learn more about opportunities for trade between the U.S. and Ukraine in the franchise sector at the U.S. Commercial Service in Kyiv’s franchising page.