What to know about opening a franchise in Spain

The classic example of a franchise business is fast food giant McDonald’s. With 600 in Spain alone, 95 percent of its restaurants are managed via the franchise system (franquicia in Spanish).

Others you’ve probably come across in Spain include Día, Pans and Company and Telepizza.

In Spain, the franchise system is well-established and it’s not just for serving Big Macs: there are 1,471 brands with 84,664 stores that generated a turnover of €35.5 billion last year, according to data from Tormo Franquicias.

Catering and food services are the sectors with largest representation, establishments and turnover, ahead of specialised services. However the sector opening the most franchise stores is beauty and it's a growing trend tempting some.

Here’s what you need to know about opening a franchise in Spain.

READ ALSO: What you need to know about opening a language school in Spain

What is a franchise?

A franchise is basically a special agreement in which one company (the franchisor) grants another company or person (the franchisee) the exclusive right to sell certain products or services in a specific geographical area under agreed conditions. In exchange, the franchisee pays financial compensation.

The franchisor is the company that grants the franchisee permission to use its brand, trade name and store design. In most cases these ensure brand consistency and quality and can’t be changed. The franchisor also provides technical expertise, business experience and commercial support for the duration of the agreement.

The franchisee is the business owner who makes the necessary investments to get the business up and running. The franchisee pays a fee to the franchisor for the right to use their brand, similar to an ‘entry price’ to the business.

What are the types of franchises in Spain?

According to small business experts Ayuda Pymes, there are several different types of franchises in Spain:

Commercial: all elements of a business, such as marketing strategies, business model and agreements with suppliers, are transferred so that the franchisee can operate commercially.

Production franchise: the central company is responsible for manufacturing products and establishes agreements with the franchises to sell these products.

Industrial or mixed: in addition to the commercial aspects, the franchisee also has knowledge of and can use the product manufacturing process.

Shareholding or Partnership Franchise: when one of the parties participates in the shareholding of the other, which means that it has a say in decision-making and shares the profits.

Master: This franchise allows an entity to exploit the business model in one country and then further expand the business by allowing other national franchisees to operate under this model.

Regional: Each of the franchises that operate as an extension of the parent company in a specific region is considered a regional franchise.

Multiple: This occurs when a legal entity owns several franchises of the same brand.

Online franchises: These franchises focus primarily on online sales through digital channels.

Corner franchise: In this case, sales under the franchise model occur within another establishment whose business is related.

In-store: When the franchise operates within a shop but in a clearly separate space and often has no direct connection with the main activity of the shop.

What are the requirements for setting up a franchise in Spain?

Be registered as self-employed or as a company

This is essential, as if you are not registered as a natural or legal person in Spain, you will not be able to set up a franchise.

Pay an entry fee

This is one of the most common requirements for setting up a franchise. Keep in mind that you are not starting from scratch, as a franchise is assumed to be well-known, have an established customer base and be financially profitable.

Setting up a franchise will save you money on marketing strategies, product definition and market launch, which is why you'll need to pay in. Fees usually start from the tens of thousands and rise from there.

Royalty payments

In addition to the entry fee, you also have to pay the franchise a portion of your profits or sales for using its brand. The best-known brands usually have this requirement, but there are others that do not require it, or their fees are lower or fixed depending on the company.

Make sure you clarify this when signing a franchise agreement.

Registering the franchise

After opening your franchise, you must register it within three months in the business registry of the corresponding region. This includes providing information about your business, property rights, location, and licences for use.

Once registered, you will obtain a registration identifier (known as a identificador registral in Spanish) that certifies that your franchise is officially registered.

Where can I find franchises in Spain?

There are several online databases that list franchises available in Spain, usually including information on the brand, buy-in cost and location.

You can find one here and another here.

This list of the most profitable franchises in Spain also includes some cheaper options, for example General Óptica, which asks for a minimum investment of €10,000 and a 3 percent royalty payment, with no entry fee or advertising percentage.

Natur House franchise investment starts from €10,000 for a premises of 30-50 m/2, an annual fee of €600 plus VAT, with no royalties.

How much you need to invest initially depends on the business, from €100,000 for a Carrefour Express supermarket to €1 million for a Zara, although there are much cheaper franchises out there and most of them provide financing as well.

A Carte D'Or ice cream parlour requires €25,000 to start off, a City Poke food joint €39,000, an Ives Rocher beauty products shop €10,000, and the list goes on.