The store we are currently working on are actually two seperate sites ... .co.uk and .ie , actually they aren't even on the same server , I am of the believe if you are trying to rank in the .co.uk, use a server based in the UK and vice verse (I must add this is more opinion that substantiated evidence
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Lots of stores do though use subdomains, actually I would suggest that this is more common than the approach we are talking about, for client reasons we actually created two separate domains.
We have though found it a lot easier targeting two local search results using two separate domains than we have in the past using subdomains ...
If you do go down the root of using www.domain.com/fr, you will in theory, have one website trying to target two different languages, and to be honest, I have never ever worked in that situation ,so hopefully someone with experience there can offer you some advise, thankfully we have only ever worked with English.
3 months ago I would have probably thought going with the subdomin would be the best fit, but from our recent experiences of creating two separate domains of late, I might think that would be a better fit (but once again ,its merely an opinion, there may not be no right of wrong answer here)
Hopefully someone who has worked with two international languages might advise, I mean without stating the obvious, anyone worth their salt in coding can create a script that will translate your current website into a number of languages, Google has one built in as you probably know.
But the problem there might be if you have optimised your website already to rank within google.es, and then have to adjust your website to target google.fr
I appreciate a lot of the advise here is subjective, buit its hard to offer definitive advice when I have not actually been in your position, or not sue how you are set up at the moment, but at worse it will get your brain working 
Regards
John