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San Francisco Coffee House (SFCH) is the first American-style coffee house in Croatia. This unique place where one can enjoy

the authentic ambience of this American city got excellent reviews and unusually large media attention. ³Elite Décor´categorized

it among 6 best designed restaurants-bars-coffee shops in Croatia. The local media in Osijek, where the first one was opened,

proudly goes into detail describing the rich choices of American Mocha and Latte coffees one can enjoy- including an unique

environment with soft jazz music, foreign newspapers and magazines, free unlimited wireless internet access or ³coffee to go´

cups to take the coffee with you to the office, school or when going for a walk.

This cozy coffee shop, housed in Hrvatska, Croatia is decorated in soothing earth tones. Authentic photos of old San Francisco

adorn the coffee color stained walls and can be admired from the cushioned banquettes inside the shop. Stylish, multicolored,

poured concrete countertops add to the contemporary feel of this inviting space.

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On the return to their homeland of Croatia following a six-year visit to the United States, a couple decided to open their own

coffee house, one that is unique to the Croatian environment - a California-style coffee house that offers the quality, service,

product assortment, ambiance and efficiency found in sophisticated coffee shops in developed markets, and all for a locally

affordable price. The major challenge faced by the couple is how to grow. Specifically, should they consider franchising over

organic growth? If so, how should they go about franchising in a country where the market is developing and where franchising is

under-regulated, underdeveloped and misunderstood?

Jasmina Pacek (MFA) and Denis Tensek (MBA) after their return from the USA decided to enrich the offer in Osijek with a

completely new concept: They opened San Francisco Coffee House ± An unique place in Croatia where you can enjoy the

original atmosphere of this American city and choose one of 17 kinds of special coffees or take them with you when going for a

walk, to work or school...A year after their opening they are ready to expand. Due to a numerous requests of the visitors fro m

other parts of the country and their wish to be able to enjoy this env ironment and the coffee in other cities too, with the Franchise

Center of the Center for Entrepreneurship from Osijek they developed their franchise offer. They are already negotiating with

entrepreneurs from different cities around the country, where the speed of the implementation of the idea will be important

because SFCH is giving territorial exclusivity.

 

³"On vacation and wondering where to get that perfect cup of gourmet coffee or tea? Try the San Francisco Coffee House¶¶. This

charming shop with friendly bilingual staff is situated on the spectacular Osijek Marina and offers a comfortable outdoor place

where you can relax with friends, listen to music and enjoy a full menu of espresso drinks, smoothies and

frappes...complemented, of course, by a variety of yummy pastries and bagels! You might even want to take a bag of rich coffe e

beans home with you to remind you of your leisurely mornings in Osijek.´

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Yes , franchising will prove to be a better option for Tensek and Pacek over Organic Growth. Franchising will help them grow

faster and thus lead in competetion from other coffee houses. The option of franchising can lead them to dominate faster and to

reach far-off customers without any delay. The franchising decision can also help them to cater the large population who are

already aware of San Francisco Coffee House (SFCH) and are waiting it to open branches at different parts of Croatia.

As the franchisor we usually have the company that due to the years of successful business experience managed to built its

brand and developed the successfull business model that can be applied to another location with the knowledge transfer. For

company that is looking into expansion, the reasons to use the franchise model rather than to open more company owned units

very often are financial (common but not the only or exclusive reason). The financial reason is definitely important since when

opening a new franchise unit the largest portion of the expanses is covered by the franchisee (the franchise buyer). Even when

the financial resources are not limited , it is always better not to engage your own assets if you can engage somebody elses.

Other reasons to sell the franchise instead of opening the company owned unit are the motivation of the person running the unit

(the feeling of increased responsibility when running own company and working for himself), the shared risk, not have to worry

about the employees, utility expenses and control the daily business that are all responsibility of the franchise buyer.

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Franchise is a business model in which a company sells the right to use their trade mark and the business model to another

company that in return pays the franchise fee and the percentage of the monthly sale of goods and services. It is suitable for

almost all business segments: restaurants, hotels, bakeries, car services, real estate agents, beauty saloons, house cleaning ,

etc.

Even if in Croatia we think of franchise as something we buy from abroad, however ther are Croatian companies that are strong

enough, experienced and have a good reputation to become franchisors. It does not necceseraly requires large investmenets but

well thought out business model, that can be replicated in another location.

Although franchise as a business model undoubtedly shows an exceptional potential and the adaptability to different industries

and business environments ± even four decades after the first franchise appeared in Croatian business environment ± it still

hasn't been fully developed as a business model.

3(4((567((3863675(
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( came to Croatia in 1969 with Diners Club International. Franchise
agreement enabled the franchisee based in Zagreb to operate in the whole former Yugoslavia and other Balkan countries. Croatian
Diners Club franchisee was awarded twice by the franchisor for exceptional business results achieved in the Eastern European
market.

The first more significant discussions on the advantages and disadvantages of franchise business model came together with

McDonald's which entered Croatian market in the early 1990s. McDonald¶s established a company McDonald's Hrvatska Ltd.,

signed business agreements with key suppliers ± strategic partners in Croatia with some of them investing additionally in their

production capacities to meet the needs and quality requirements of this multinational company. McDonald's expanded

throughout Croatia by opening its own, "company" restaurants or by sub- franchising to other locations. McDonald¶s
presentations in cities where the franchisor sought partners/franchisees generated great interest of potential franchisees with

many questions referring to the nature of the franchise agreement offered by McDonald's, i.e. to the rights and obligations o f both

sides in a franchise relationship. Couple of years after McDonald's, several other franchisors appeared on Croatian market with

Hungarian bakery franchise Fornetti and an US restaurant franchise Subway standing out as the most recognizable ones.
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Croatian Franchise Association was established in 2002 with main objectives to promote and advertise franchise licensing in

Croatia, to group the franchisor companies comparing their feedback and to establish policies and standards for franchise

licensing in Croatia. Even though the mission and objectives of this Association are of great significance for franchisors in

Croatia, especially taking into consideration low level of awareness on basic franchise concepts among entrepreneurs, the

Association today has only a few members. Main activities of the Association have been based around promoting and

advertising franchise opportunities in various media and the co-organization of an international forum Franchise and Partnership

Expo in Zagreb. Over the past few years (2003-2006), this event comprised of regular franchise conferences with a number of

domestic and international experts in different aspects of franchising (bank representatives, lawyers, university professors and

the representatives of major franchisors) as guest speakers and participants.

Franchising has been present in Croatia since late 1970s, but first real promotion of this business model brought McDonald's in

1990s. However, franchising in Croatia has somewhat stagnated on a rather low level which was interconnected with general

economic situation, weak entrepreneurial climate and low level of innovation and competitiveness of Croatian companies. At the

same time, there are only two franchise support institutions operating in Croatia ± Croatian Franchise Association and The

Franchise Center ± part of Center for Entrepreneurship Osijek, both with the mission of promoting franchise as a business

model.


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SFCC need to consider the protection of their intellectual property early in the formation of the business. It is heartbreaking to

find that the idea they¶ve worked so hard to conceptualize and develop is stolen by other people and companies, where they can

end up losing their business format, and most importantly, their profits as well! Plus, failure to protect their proprietary information

could lead to complex and expensive legal actions later on.

The best course of action is to visit your country¶s patent and trademark office. In the U.S., patent grant provides "the rig ht to

exclude others from making, using, offering for sale, or selling" the invention in the United States or "importing" the inven tion into

the United States.

It is important that SFCC put in place relevant protections to prevent their intellectual property being infringed (for example by

registering their trade marks and company name). Once you have adequate protections in place they can then benefit from their

intellectual property through licensing. It is also easier to protect their intellectual property if it is registered and you can prove

ownership.

A Franchise Agreement is a sophisticated form of Licence Agreement. Intellectual property rights which can be licensed include

statutory or non- statutory intellectual property rights.

Here we consider non-statutory intellectual property rights that include know-how, trade secrets, customer lists, formulas,

business methods, personnel training and manuals.

Franchise Agreement is a key factor to promote and enhance a win/win situation and to protect the respective rights of the

parties and the entire franchise operation. It is therefore certainly advisable, particularly as franchise agreements are extremely

complex, that legal assistance from an expert skilled in intellectual property and franchising be obtained.

It needs to be reiterated that it is essential that the Agreement properly identifies all aspects of the franchisor¶s intellectual

property and other proprietary rights and that these are properly protected and licensed to the fr anchisee. The contract should

also focus on and accommodate the specific needs and requirements of the franchise operation and control the relationship

between the parties in a positive and constructive manner. ?