fbpx

Italy has become a very popular franchise market, both among the international franchisors who want to enter the country, and the Italian entrepreneurs who are keen to introduce new brands to their home market. There are many factors that affect the success of a particular franchise in a new market. That’s why it has become increasingly popular to run a “pilot” operation first.

What is “pilot” franchising?

In simple words, a pilot is a “trial” or “test” period during which the parties check if the franchise does well in a given market. If the pilot is successful, the parties proceed to expand franchise operations further. Strictly speaking, this is a not a legal term but it is widely used by franchise professionals. “Pilot” franchises are often structured as an initial phase of a long-term contract. This means that the parties enter into the franchise contract regulating their full-scale anticipated cooperation, but for example, agree that the first 12 months will be a test period. Further units will be only opened by the franchisee if the test proves to be successful. If the test is not successful, then usually one or both parties have the right to terminate.

Sometimes the parties sign a short-term contract, only for the pilot phase, and then enter into a full, long-term commitment only after the pilot phase is successful.

“Pilot” franchising in countries with disclosure laws

One of the challenges with pilot franchising is whether the full regulatory requirements of franchise disclosure laws need to be complied with even in respect of the pilot phase. For example, Italy’s franchise disclosure law creates certain difficulties when it comes to “pilot” franchising, which we address below.

Pre-contractual disclosure

In countries such as Italy, there are pre-contractual disclosure obligations on franchisors. This means that no later than a certain period (in Italy 30 days) before the franchise contract is signed, the franchisor is required by law to give to the franchisee certain information. Such pre-contractual disclosure requirements generally include, for example, basic information on the franchisor, (if requested by the franchisee) the franchisor’s balance sheets for the last 3 years, information about trademarks used for the purposes of the franchise system, a list of franchisees, and information on disputes.

Even though this is not rocket science, it takes some time for the franchisor to prepare a proper disclosure. This time and the 30-day stand still period between sharing the disclosure information and signing the contract, can cause an unwelcome delay to the pilot project. This can be particularly problematic if the parties intend to have a relatively short “pilot” term such as 6 months, when they realize that the preparation of the disclosure information combined with the stand-still period would take up half of the anticipated “pilot” term.

Minimum term of franchise contracts

In Italy, the franchise contract must be concluded for at least 3 years. The parties usually intend the “pilot” period to be shorter.

Limited case law

So far, in Italy, there have not been many court decisions on franchising in general, and to our knowledge there are none on “pilot” franchising. This means that there is no guidance on how the courts view such relationships and what verdict may be expected if there is a dispute between the parties as to some aspects of the “pilot” franchise.

Gerardo Taglianetti

Sono un esperto di retail e franchising, founder dei marchi dei marchi Phonup e Matassa.
Dopo il loro sviluppo in Italia ed all'estero ho lasciato le operazioni e deciso di mettere a disposizione la mia esperienza come consulente di alcuni progetti interessanti che vogliono espandersi in Italia ed all'estero, soprattutto nella mia amata India.
View all posts

Add comment

Il tuo indirizzo email non sarà pubblicato. I campi obbligatori sono contrassegnati *

Gerardo Taglianetti

Sono un esperto di retail e franchising, founder dei marchi dei marchi Phonup e Matassa.
Dopo il loro sviluppo in Italia ed all'estero ho lasciato le operazioni e deciso di mettere a disposizione la mia esperienza come consulente di alcuni progetti interessanti che vogliono espandersi in Italia ed all'estero, soprattutto nella mia amata India.

Seguimi sui social

Instagram

Error validating access token: The session has been invalidated because the user changed their password or Facebook has changed the session for security reasons.