Buying a Franchise: Has the Concept Been Tested in Practice?

An attractive shop concept and a convincing presentation do not necessarily mean a franchise is ready for more owners. Before buying into a franchise network, investigate whether the concept has been tested under conditions similar to yours. The key question is not simply whether the first outlet works, but whether an independent franchisee can replicate its operation without the founder’s day-to-day help.

Distinguish between legal requirements and ethical standards

Denmark has no specific franchise law. Nor is there a legal requirement for a franchisor to have operated the concept profitably for a set period before offering it to franchisees. A concept is therefore neither officially approved nor proven commercially viable simply because it is offered as a franchise.

Franchise agreements are subject to the Danish Contracts Act and general principles of contract law. Section 36 of the Contracts Act may, following a case-specific assessment, be used to amend or set aside unfair agreements. Other legislation, including the Danish Competition Act and Marketing Practices Act, may also be relevant. These rules do not, however, replace your own assessment of how well developed the concept is.

There is no franchise-specific registration scheme or mandatory standard disclosure package to be provided before signing. General rules on the duty to disclose information in good faith and on misleading information may still be relevant if material facts are withheld or misrepresented.

The European Code of Ethics for Franchising, by contrast, sets a standard that, before establishing a franchise network, the franchisor should have operated the concept successfully for at least one year and in at least one pilot outlet. The code is a form of self-regulation, not Danish law. Check whether the franchisor has committed to following it and what that commitment means in practice. A reference to the code is not, in itself, proof that the concept has been thoroughly tested.

Find out what the pilot has actually tested

A pilot outlet is the business in which the concept is tested before others are expected to operate it. Ask for an overview of when the outlet opened, who ran it and which elements of the current concept were in use.

It is important to distinguish between a long-established business and a long-established franchise concept. A café may have been trading for years, while its current product range, ordering system and operating model have only been in use for a short time. In that case, there is less experience behind the specific model you are buying into.

Ask for concrete evidence of:

• Which types of location and customer groups have been tested.
• Whether the business has operated through a full seasonal cycle.
• Which procedures have been changed following mistakes or bottlenecks.
• Whether regular employees have been able to run the outlet without the founder.
• Whether the current systems and manuals were actually used during testing.

For example, request anonymised staff rotas, operational records and dated versions of procedures. The aim is not to collect as many documents as possible, but to understand the connection between the lessons from the pilot and the day-to-day operation you are being offered.

Test whether success can be repeated without the founder

The founder may be the concept’s greatest strength while also masking its weaknesses. Personal relationships with customers, specialist knowledge and many unrecorded working hours can keep an outlet running even when its procedures cannot yet be transferred to others.

Ask to visit the outlet on a normal working day, rather than only attending a planned presentation. Follow a specific task from start to finish: an order, a customer booking or a goods delivery. Observe who makes decisions and what happens when something does not go to plan.

For example, ask: Who handles a customer complaint when the founder is away? Can a new employee find the instructions they need? What happens if someone is off sick or a system fails?

Pay particular attention to tasks carried out free of charge or informally by head office. If the pilot receives daily help with planning, administration or sales, you need to know whether your outlet will receive the same support or have to handle those tasks itself. Otherwise, you are comparing two different operating models.

Assess whether the experience is relevant to your Danish outlet

A concept that works abroad or at an exceptionally attractive location has not automatically been tested under your conditions. Customer habits, opening hours, staffing needs and local requirements can significantly change how the business operates in practice.

Draw up a simple comparison between the pilot and your planned outlet. Use the columns ‘tested’, ‘different at my outlet’ and ‘needs clarification’. Include factors such as location, customer traffic, language, payment solutions and necessary permits. Have the relevant Danish requirements checked separately; a trading history abroad does not demonstrate compliance with them.

If significant elements remain untested, you may be helping to develop the concept rather than simply adopting a proven model. That can be a deliberate choice, but the tasks, responsibilities and additional resources required should be clear before you commit.

Practical takeaway: Do not buy solely into the story of a successful first outlet. Establish what has actually been tested, what depends on the founder and what you will be the first to have to make work.