I wrote my last column on international franchise expansion from a café in the thriving city of Istanbul, where I confess I didn’t see any Canadian franchise brands and wondered “why not?”
Come to think of it, I didn’t see many American ones either, although there are plenty of Starbucks and at least one Marks and Spencer, neither of which are franchised.
International expansion of a franchised business is risky, and all the riskier when your international location, or locations, are thousands of kilometres from head office, operate under a different legal system, and customers and staff work in a different language. And there will often be different cultural norms to deal with.
From the food business perspective, menu items that work well in North America might go over poorly in other parts of the world for cultural reasons, lack-of-supply reasons, or even presentation reasons. For example, in Japan customers normally want to see what the meal looks like before they order it, so the front of many restaurants feature a display case with plasticized models of your lunch or dinner options. The Muslim world won’t be interested in pork ribs. In a Hong Kong McDonalds, I once ate a “Shogun Burger,” which I’ve never seen in North America.
Oh, and you can drink wine at McDonalds in Paris.
So you can’t expect that if a concept works well in Toronto or L.A., you can replicate it exactly for Istanbul or Sapporo. Things will need to change to deal with the fact you’re not in Kansas any more. And sometimes (like wine at McDonalds in France), it might be a good thing.
But if you’ve made the decision to open a franchise in Istanbul, Bogota, Havana or Dubai, or even Seattle, how do you do it structurally?
Although your company could directly franchise one location to an international franchisee, I’d have to say that in my experience, this rarely happens. In part, it’s because the resources to ensure consistent quality and supply of inventory, as well as brand protection, training and support, just isn’t worth doing for one outpost. Also, why “sell” one location in Turkey or South Africa for $50,000 when you might sell the entire country for a million or more?
When franchise companies expand internationally, they normally do it in one of two ways. Either they master-franchise the country (or individual provinces or states in that country) to a local operator, or they use a local area developer to “develop” the new territory. Either way, you should be dealing with someone from that country who speaks the language, knows the cultural norms, has experience in the industry, and knows how business has to be done “on the ground.”
There are many individuals and companies in other countries who are interested in acquiring North American franchised brands for their countries.
Here’s the essential difference between a master franchisee and an area developer:
When you master franchise a country (or part thereof), you enter an agreement with the local operator that he or she has the franchise rights for that country (or part thereof) and that all franchise agreements with individual franchisees will be with that master franchisee.
If the country, province or state has franchise disclosure requirements, it will be up to the master franchisee to do its own disclosure for all its individual franchisees, although you might have to prepare a disclosure document for the grant of the master rights.
There will be a fee for the master franchise rights, which will always be more than the franchise fee for one location, because you’re selling more than one location, aren’t you? You’re selling a geographic territory that can conceivably support many locations. So the fee for the master franchise rights may be a function of how many individual locations are likely to be opened in the territory.
