Elvi Franchising as a Formula of Success

   Elvi stores in Latvia are a visible example of activity advantages given by franchising. Among these advantages the most significant seems to be the one providing possibilities for the local capital to live and compete in such processes that are characterised by extensive integration within the international capital networks.

 In the year 2000 it became clear that retail trade in Latvia would develop the same way as in Germany and other Western Europe countries, that small-scale merchants would not find it rentable to exist and function on their own, and that the possibilities of profitability lay in developing a stores network.  The first franchising partners of Elvi were Vita Markets, Essa, LM Jurmala.

Janis Cernavskis, Elvi group Ltd. chairman of the Board, explains, “The idea to create the franchising stores network appeared taking into consideration the development tendencies in retail trade both in Western Europe countries and Latvia. It was clear that with competition among small-scale merchants getting higher, their individual activity would not be economically profitable for them, and possibilities to increase their profit were hidden in the development of stores unions or networks. Our task was to offer local merchants an opportunity to develop their business in conditions of growing competition”.

The development of Elvi stores network began in the year 2000 after the decision to develop a stores network after the principle of franchising involving successful local small-scale merchants was made. Having developed the concept of franchising network of Elvi stores, the experience of small-scale merchants and the most successful franchising networks examples in the Eastern Europe countries was thoroughly investigated in cooperation with business consultants. “The experience of small-scale merchants in the eastern countries gave us an idea of what kind of stores network we wanted to develop and it also helped us to start developing the concept. The most essential discrepancy is that we have to secure the development of this network at a faster pace than, for instance, in Germany where such franchising networks have been developing in the course of 50 years”, says Janis Cernavskis.

Elvi decided not to go the traditional way when, firstly, a concept is worked out and only afterwards the partners are being involved. The search and attraction of potential partners was happening simultaneously with the development of single trade brand, network concept and marketing. In the beginning it was really hard for none of the potential partners actually wanted to get involved into such a risky enterprise. The first man of brave spirit was Imants Rendenieks and the company Vita Markets. The further concept was developed together with the first franchising partners.

The most difficult decision for potential and new partners was to refuse from their own name. The offered franchising possibility was a dilemma for they would have to choose between their own name and potentially higher income. With the development of the concept, in the course of time the fresh franchisees also had to be determined to remarkably re-organise their stores.  Nowadays, there is a lot of local examples of the advantages of franchising to be demonstrated, however, in those days the first partners had to face certain ambiguity.

To show the aim of Elvi and also to demonstrate what a contemporary stores network has to be, 3 trips to Germany for potential partners were organised in the year 2000 so that they could get acquainted with activity of the similar retail trade stores network in Germany. All in all, approximately 45 potential partners went to Germany for that purpose. Those trips and the possibility to get acquainted with the German experience were the essential means of making potential partners the existing ones. New partners always find it very difficult to refuse from a possibility to make their own decisions for in the franchising network such decisions are unitary made.

In 2001, alongside with the unified brand, network concept and marketing, Elvi also offered their partners a unified purchase. It was a significant step in attracting potential partners. From 2001 till 2002 Elvi stores network was experiencing the fastest breakthrough in terms of its development. 5 Elvi stores were open in 2000, 12-in 2001, whereas in 2002 the number of stores had reached 31. In 2002 the unified accountancy system was introduced, the development of which contributed to the unified purchase growth. Consultations and staff trainings as a service for partners were started in 2003.

In 2004 one more essential step was made by introducing the unified logistics. The first logistics company that participated in goods distribution was Balta Bura Ltd. However, in 2005, having started co-operation with the second logistics partner ELBI International Ltd., Elvi centre of logistics acquired new goods groups and also improved its deliveries to stores. Due to that, goods that had to be transported at special, cool temperature were included into Elvi centralised logistics, and, alongside with that, the amount of other goods included in the logistics increased in certain groups of goods determined by the temperature regime. Before that logistics comprised approximately 5.4% of overall Elvi turnover, but co-operation with a new partner would develop new growth. Elvi group and its logistics are able to provide stores with optimised assortment and the best purchase conditions regarding these particular goods. The speed of orders fulfilment increases as well. Besides that, stores location away from big cities is no longer an obstacle for optimal goods delivery.

In 2005 Elvi was still the only locally owned provisions stores network in Latvia with its centralised logistics. Elvi logistics consists of about 780 various items of goods and Elvi logistics centre secures 10% of the average stores goods assortment. Centralised logistics delivers goods to all Elvi stores from 35 producers and suppliers in all Latvia. Logistics has become both a condition and an essential additional service and a possibility that a franchisee gets increasing by this his/her competition. Moreover, all services taken together, - unified purchase and accountancy system, consultations and trainings, unified logistics, - it is all still developing, as well as new services that remarkably enrich and expand franchising offer  are being developed.

The increase in the number of partners and stores shows a logical necessity of more developed services. There were 45 stores in 2003, whereas in 2004 the number of Elvi stores comprised 61. During this time the franchising network had significantly expanded in regions and provinces contributing to the trade brand overlay all over Latvia. Franchising network rapid expanding and growing in number clarified the criteria according to which the choice of partners is defined – the location of a store (according to the consumers flow, as well as so that Elvi stores do not compete among themselves), what can be made out of this store (possibilities to expand, to landscape, etc), a partner’s willingness and possibilities to invest into reconstruction of this store, equipping it.

Adequately the increase in the number of stores, the overall Elvi stores turnover has also grown. If in 2000 the overall Elvi stores gross turnover was Ls 5 mln. lats, in 2001 it was Ls 12 mln., in 2002 it was Ls 24 mln., in 2003 it was Ls 31.5 mln., but in 2004 it comprised Ls 42 mln. In comparison with the indicators in 2003, the overall turnover in 2004 was more than 33%. Overall turnover of the store trade area of one square meter in 2004 was 262 Ls/ m^2. In 2004 Elvi stores average turnover per month comprised Ls 3.5 mln.

Thank to the principle of franchising, it was possible to successfully position the image of Elvi stores, trade brand and quality among the competitors. It is the emphasis on everything that is local – local capital, locally produced goods, local service traditions, and local customers’ habits. Such a positioning gives Elvi its own face and essential differences from competitive international stores networks.

The status of franchising allows local stores accomplishing additional purchases and receiving additional supplies from local small-scale producers who manufacture interesting and qualitative goods, but are not able to satisfy big needs of centralised logistics. This keeps local customers’ favourite values in the store and provides a special face and value to Elvi stores in a particular region. Sometimes it gives a possibility to reveal the potential in the production of small manufacturers to get goods into Elvi logistics characteristic only to this stores network.

According to the data of the public opinion research centre SKDS, in 2005 Elvi stores are the most popular among the inhabitants out of stores networks with a local capital that are not foreign networks. In May 2005 at the contest “Baltic Brand 2005” Elvi brand was declared the Brand of the Year 2005 in the nomination of stores networks. Consumers in Latvia have estimated Elvi as the fifth most reliable brand in the country (among Laima, Hansabanka, etc).

Successful franchising and its development policy is also proved by the partners’ success. According to the information provided by the partners, having joined the Elvi franchise, their turnover has increased by at least 50%, but in some cases, for instance, in Karsava-the owner’s turnover has grown up to 400%.

In terms of their future plans, Elvi group sees many possibilities to increase the competitiveness of Elvi stores, to develop their trade brand and marketing, as well as to further develop the already commenced services-unified purchase, accountancy, and logistics, to continue the already existing and new partners’ trainings. They also keep developing new services to later offer to franchisees.

Stores space enlargement will be continued strategically as it is lately marked by the trade tendencies that are implemented in co-operation with the existing and new partners, for instance, the recently opened Elvi stores in Ogre (trade area of 1600 m²) and in Jelgava (trade area of 1500 m²). To achieve this, many working stores will be re-constructed, as well as new ones will be built.

Alongside with that it is planned to develop the centre of logistics, to introduce the customers’ loyalty programme and unified market prices, as well as to increase the investments in marketing. The most significant strategic aim of the Elvi stores network is to increase its market share up to 15%. 

The experience of Elvi stores network demonstratively proves as vital capacity of franchising and success in terms of the local conditions, as its significance in the existence of the local capital, furtherance and growth in the globalisation processes.