+-----------------------------------------------------------------------+
| # Country or Region: Portugal                                         |
|                                                                       |
| #                                                                     |
|                                                                       |
| # FRANCHISING SERVICES                                                |
+-----------------------------------------------------------------------+
| Celeste Conde                                                         |
|                                                                       |
| Date (June/2007)                                                      |
|                                                                       |
| ID: 140193                                                            |
+-----------------------------------------------------------------------+

####### SUMMARY

Franchising is still a best prospect sector for Portugal, as the
country's market continues to grow at a steady, albeit slow pace. The
Portuguese are very receptive to franchising, and are looking for
innovative franchise concepts to bring to market. Services, generally
speaking, are the "new need'' for Portuguese consumers with regards to
franchising. Existing and new master franchisees are expanding, and
though relatively developed, the sector has yet to reach full maturity.

Currently, there are 450 franchisers operating in the market. The number
of franchised units is estimated to be about 10,700. Portuguese
franchisers represent 51 percent of the total market share, followed by
Spain at 18 percent, the U.S. at 9 percent, and France at 6 percent.

Even though Portugal's greatest concentration of franchise businesses is
in services (48.3 percent of the market share), there are still strong
opportunities for U.S. franchisers. The sub-sector is not fully
developed yet, and Portuguese consumers are now looking for various
service providers that could potentially improve their quality of life.
The effectiveness of a service is very important to Portuguese
consumers; they are willing to pay a higher price for comfort and
status. Services are followed by retail/clothing at 42.5 percent, and
hotel/restaurant (including fast food) at 9.2 percent.

The market trend for services in the next few years shows a greater
emphasis on quality. U.S. firms should consider Portugal as a market to
target.

####### MARKET DEMAND

The general attitude in Portugal towards franchising is very positive,
as the Portuguese are very receptive to franchising. They are constantly
looking for new concepts. Overall, service franchises are not yet
saturated, and are, therefore, an excellent market for U.S. franchises.
Entertainment and children's/elderly services are some examples of the
sub-sector opportunities in this market that is comprised of over 10
million people. From a U.S. perspective, there are many aspects of life
in Portugal that are expensive and inconvenient, which could be
ameliorated with the help of American franchising concepts. These
American concepts have been implemented in many other parts of Europe,
but they are mostly absent in Portugal. Examples would be: educational
entertainment, outdoor theme parks, children activity centers, and so
on. Portugal's economy relies significantly on tourism, and the
Portuguese seek to develop the country more as a global tourist
destination in the coming years. U.S. franchise concepts that fit within
this development plan would generally be welcomed by investors and local
entrepreneurs.

Portugal's entrance into the global economy in the last decade has
created a demand for business services, as well. Since Portugal is a
relatively small country with a still nascent entrepreneurial culture,
the business service niche has yet to be fully developed. Franchise
concepts that specialize in management training, business support
services, and associated activities would have strong market
opportunities in Portugal -- particularly in the large city centers of
Lisbon and Oporto.

####### MARKET DATA

Franchised businesses generate 63,000 jobs in Portugal, accounting for a
3% share of GDP, while total sales volume equals \$3.8 billion. Total
sales from U.S. franchises operating in Portugal equal \$230 million.

**Statistical Data:**

I.  **General Info:**

Dec 06 Dec 05 Dec.04

Existing Number of Units 10664 9830 9160

Number of Employees 63086 58849 56064

Vol. Of Business (\$ m.) 4110 3371 3018

II. **Share Of Franchising Units per Sector:**

Dec 06 Dec 05 Dec 04

Retail: 42.5% 44.4% 45.6%

Clothing 15.1 17.3 17.5

Home Prds. 5.6 6.5 7.2

Other 21.8 20.6 20.8

Hotel/Rest: 9.2% 9.6% 9.6%

Fast Food 6.3 6.8 6.6

Hotel 0.1 0.1 0.1

Other Food Concepts 2.8 2.7 2.9

Services: 48.3% 46.0% 44.8%

For Individuals 30.2 29.1 27.4

For companies 18.1 16.9 17.4

III. **Franchises by Country of Origin:**

Brands % of Total Market Share

USA 44 9

Portugal 246 51

Spain 88 18

France 29 6

Italy 18 4

U.K. 17 4

Brasil 10 2

Others 29 6

Receptivity Score (1-5): 3

Exchange Rate: 1 USD = Euro 0.74

Inflation Rate: 3%

####### BEST PROSPECTS

####### 

####### Children's and Elderly Services

####### Business/Private Services

####### Environmental Products and Services

####### Educational Services

####### Entertainment

####### "Market niche" Services (pet food delivery, comparative pricing, etc.)

####### 24-hour diner chains 

####### 

####### KEY SUPPLIERS

Currently, Portuguese franchises represent 51% of the total market
share, followed by Spain with 18%, the U.S. with 9%, France with 6%, and
Italy and the UK both have a share of 4%. After domestic firms, Spain
has the largest market share: 18% in the franchising industry. It must
be pointed out that the main reason for this is the proximity of the two
countries to one another, and the fact that Spanish franchisers are very
proactive and aggressive in the expansion of their market.

There are 45 U.S. franchises in Portugal, which accounts for 9 percent
of the market share. Re/Max is the current market leader of all the U.S.
franchises. It has 185 operating units. The estimated annual growth for
the next three years is around 4 percent.

In general, foreign-owned franchises play an important role in Portugal
with 49 percent of the total market share. Some sectors are dominated by
concepts from specific countries: i.e. the fast food/restaurant and the
real estate sector by well-established U.S. flagships (McDonald's, Pizza
Hut/ Re/Max, Era Portugal); the clothing sector by Spanish brands (Zara,
El Corte Ingles, Cortefiel); and the coffee scene is dominated by
Italian brands (such as Segafredo and Lavazza).

European firms have a better knowledge of the Portuguese market and are
also geographically closer. For this reason, U.S. marketing techniques
must be well planned, aggressive and flexible if they want to compete
with European enterprises. Over a decade ago, when franchising was
almost non-existent in Portugal, a high master fee was a normal
requirement. Now, U.S. companies need to be flexible with initial fees,
financial terms and in many cases adapt to the existing market
conditions. The financial sector is now better aware and interested in
financing the specific needs of this segment of the economy.

The "Top 5" U.S. Concepts:

Re/Max 185 units

Era Portugal 157

McDonald's 119

Pizza Hut 90

Century 21 54

####### PROSPECTIVE BUYERS

Potential franchises can be sourced from among those who have received
severance payments upon being "downsized" and wish to use their previous
experience in establishing a new business. Another source is the small
and medium-sized business community. While representing the backbone of
the Portuguese economy, they may find difficulty in competing with large
service and retailing chains. Both represent potential franchisees with
different capabilities. Prospective master franchisers and franchisees
should be properly screened. It is advisable to conduct a feasibility
study and to invest in a pilot operation prior to implementing a
business plan, especially if it has not been previously attempted in
Europe.

On the consumer side, a standard end-user profile is hard to pinpoint in
such a diversified industry. End-users' needs and patterns are
reinforced by cultural, educational, financial and generational factors.
High quality is very important for Portuguese consumers and they are
willing to pay a higher price for comfort and status.

The market trend for the next few years shows a greater emphasis on
quality and innovative services. For this reason, U.S. firms should
consider Portugal as a target market.

####### MARKET ENTRY

There are no trade barriers for foreign-owned franchises in Portugal.
However, there are some key elements to consider when entering the
Portuguese market:

> \- Portugal is a country of only 10 million people, so do not
> overestimate the size of the Portuguese market.
>
> \- Accommodate national preferences, if at all possible. U.S.
> franchisers often want to apply what works at home across the board.

\- Do not introduce a service that is too specific and dependent on a
small market niche.

> \- Do not choose a partner based simply on its financial strength. By
> doing so, one might be associating oneself with large firms that have
> many interests. Smaller firms, which offer less capital, may see the
> position of the master franchiser as their main investment and
> therefore, devote more time and resources to ensure its success.
>
> \- The most successful franchises in Portugal have proved to be
> shareholding companies and individuals, who may not have a deep
> knowledge of how to operate a franchise, but have a personal drive to
> succeed.

Because of its size, expanding to Portugal may mean a lower upfront
franchise fee. However, it may be attractive in the long term through
long-term fees, as well as the opportunity to introduce a brand to a
growing market, which may include not only Portugal, but
Portuguese-speaking African countries as well.

Last, but not least, U.S. companies should be sure to take into account
the differences existing between the U.S. and Portuguese markets,
especially when establishing the master franchise fee. U.S. franchisers
should understand that the amount of the fee should not be based on what
is the practice in the U.S. or even in other European markets. For
example, documents need to be translated - including operation manuals
and contracts. Real Estate in Portugal is one of the highest in Europe.
(highest what?) The collateral financial investment that a Portuguese
franchiser must make to set up a franchise should be taken into
consideration when setting the master franchise fee.

####### 

####### MARKET ISSUES & OBSTACLES

In general, there are no barriers for foreign-owned franchise companies
in Portugal. The banking system in Portugal is liberalized, as well as
the open market mentality. Credit access provides excellent
opportunities for companies to operate.

At the same time, the increasing high cost of real estate can be a
potential barrier. Also, bureaucracy continues to be a constraint in
Portugal (i.e., wait times for securing licenses, approvals, and
government authorizations).

######## 

######## 

####### TRADE EVENTS

ExpoFranchise 2008

(National Franchise Exhibition)

April/May 2008

FIL -- Feira Internacional de Lisboa

[www.fil.pt](http://www.fil.pt/)

Fair organizer: IIF -- Instituto de Informacao em Franchising

####### RESOURCES & KEY CONTACTS 

####### 

####### IIF -- Instituto de Informacao em Franchising 

####### (Franchise Institute)

(Acquired by IFE Group -- International Faculty for Executives)

Rua Basilio Teles 35 -- 1o. Dto.

1070-020 Lisboa

Tel: (351) 210 033 800

Fax: (351) 210 033 888

####### [www.infofranchising.pt](http://www.infofranchising.pt/)

#######  APF -- Associacao Portuguesa da Franchise

(Portuguese Franchise Association)

Rua de Lisboa 1-C, Sala 22

2765-240 Estoril

Tel: (351) 214 649 330

Fax: (351) 214 649 330

[www.apfranchise.org](http://www.apfranchise.org/)

Government:

IAPMEI - Instituto de Apoio as Pequenas e Medias Empresas e Inovacao

(Public agency, which provides technical/financial support to SME's)

Rua Rodrigo da Fonseca 73

1269-158 Lisboa

Tel: (351) 21 383 6000

[www.iapmei.pt](http://www.iapmei.pt/)

Financial Institutions:

Caixa Geral de Depositos, SA

Av. Joao XXI, 63

1000-300 Lisboa

Tel: (351) 21 795 3000

[www.cgd.pt/empresas](http://www.cgd.pt/empresas)

Banco Espirito Santo S.A.

Av. Da Liberdade 195

1250-142 Lisboa

Tel: (351) 707 200 300

[www.bes.pt](http://www.bes.pt/)

Banco Espirito Santo S.A.

Av. Da Liberdade 195

1250-142 Lisboa

[www.bes.pt](http://www.bes.pt/)

Source:

IIF -- Instituto de Informacao em Franchising

[www.infofranchising.pt](http://www.infofranchising.pt/)

####### For More Information

The U.S. Commercial Service in Lisbon, Portugal can be contacted via
e-mail at: celeste.conde@mail.doc.gov; Phone: (351) 21 770 2527; Fax:
(351) 21 726 8914 or visit our website:
[www.buyusa.gov/your_office](http://www.buyusa.gov/your_office).

####### The U.S. Commercial Service --- Your Global Business Partner

With its network of offices across the United States and in more than 80
countries, the U.S. Commercial Service of the U.S. Department of
Commerce utilizes its global presence and international marketing
expertise to help U.S. companies sell their products and services
worldwide. Locate the U.S. Commercial Service trade specialist in the
U.S. nearest you by visiting <http://www.export.gov/>.

*Disclaimer: The information provided in this report is intended to be
of assistance to U.S. exporters. While we make every effort to ensure
its accuracy, neither the United States government nor any of its
employees make any representation as to the accuracy or completeness of
information in this or any other United States government document.
Readers are advised to independently verify any information prior to
reliance thereon. The information provided in this report does not
constitute legal advice.*

*International copyright, U.S. Department of Commerce, 2006. All rights
reserved outside of the United States.*