Blog Hotspot for Franchise News ...

Franchise Direct’s Top 100 Global Franchises has barely been published two weeks and we’re already seeing franchises competing to improve their standing for next year’s rankings.

News comes to us from the Financial Times that Pizza Hut UK are considering serious expansion over the coming months. The UK’s eminent business paper has reported that Pizza Hut UK is considering opening up 30 - 50 new units by the beginning of 2010.

“Delivery has been a very successful part of our business over the past 12 months or so,” said Jens Hofma, head of Pizza Hut UK, told the FT.

“Clearly, the economic situation has caused customers to dine in more often and resort to pizza delivery. So this is definitely a sector which is in strong growth.

This is interesting on a few levels. For one, it backs up all of our statements about the state of the pizza franchise industry, which we published in our inaugural franchise study.

At the same time, it backs up the foundation of our Top 100 Global Franchise study, which claims that the franchises that are expanding internationally are best positioned to thrive in this struggling.

It will be interesting to see where Pizza Hut finish on next year’s list.

Over the next few weeks, we’re going to be analyzing certain components of our Top 100 Global Franchise rankings. There’s enough material in here to keep us blogging until Christmas. I hope you’ve been finding the poll as informative as we have.

Today, we’d like to tale a general look at emergence of international franchising. The Wall-Street Journal recently wrote a long and informative story on how American franchises are exploring international options in order to discover new markets. The timing couldn’t be better, as the next day we published our Top 100 Global Franchises rankings. The story focuses on a few big franchises, like Subway, Curves and McDonald’s. Basically, it states that larger, more established franchises are now looking to foreign markets to expand. Look at McDonald’s. This year they’ve opened 53 units in America. Compare that with 286 units abroad. Subway has opened 202 more franchises abroad than in America since January 2008. These are the top two franchises in our Top 100 Global Franchises and they provide the template for any franchise looking to expand. Franchisors looking at foreign markets must take an already easy-to-replicate franchise concept and streamline it further. “We’ve kept costs and fees low, and our operation very simple,” says Don Fertman, Subway’s director of development told the WSJ. “It’s the type of business that just about anybody can get into.” Now take a look at our rankings. Of the Top 100 Global Franchises, 85 are based in America. Six of the top ten franchises sell food. Let’s say you’re a food franchisor. You’re doing well and you want to grow your business. There’s the highly competitive domestic market, and there’s the wide-open world of international franchising. It’s one that’s fraught with risk, but nothing was ever gained without something being risked. It’s an interesting time for franchising. As countries around the world like France and Germany emerge out of recession, perhaps the best opportunity to grow lie in far-away places. The beauty of franchising is that it not bound to any single language, just a single concept.

For all of the talk about the economic meltdown, many franchisors are still successful and  currently eyeing new opportunities. For the truly ambitious franchisor, an international leap remains a tantalizing, and potentially lucrative, challenge.

An interesting article in the latest issue of Franchise Times recounts the discussions that took place at the Faegre & Benson International Summit in the  Twin Cities late last year. Many of the pertinent aspects of bringing a franchis outside America were talked about, and they’re worth a second look.

The first thing franchisors eyeing an international move should keep in mind is that such a big endeavor should not be used to mask business problems at home.

“International won’t fix domestic problems or generate enough cash,” warned Kay Ainsley, partner with Michael Seid & Associates (MSA). “That one-time fee goes to the bottom line (just) one year.”

Equally, patience in an international launch may bring its own rewards.

“When I was with Domino’s, we’d let Pizza Hut go in first and educate people about what pizza is and then we’d go in and say, ‘we deliver,’” she said.

The article points out these other questions that franchisors must ask themselves before opening foreign branches:

• Is there a demand for the product?
• Can the ingredients be sourced locally?
• What will it cost to go there?
• What will the market look like?
• Do you want company units?

Also worth considering are subtle culture differences that may make the difference in your company’s success. Mo Sawda of Buffalo Wild Wings described a moral problem his company faced when it eyed expansion in Saudi Arabia. The Middle Eastern country bans females from eating in restaurants, but the Buffalo Wild Wings president is a woman. What’s a franchisor to do? It’s likely foreign franchising will throw up similar conundrums when you plan to expand.

The overarching sentinment from the summit seems to be that international franchising, if done properly, can be profitable and fulfilling. Franchisors, though, are strongly urged to do as much homework as possible before making the leap outside of North America. It’s a big world out there, and educating yourself is the only way to guarantee your future success.

Global franchise expansion is a natural evolution for businesses proven popular in their original markets. The International Franchise Association (IFA) cites three major regions as the best places for franchise international development: North America (Canada and Mexico), Western Europe and Latin America.

Although buying and starting a franchise in the US can be complex, the uniformity of laws, customs and language make it easier than launching a franchise in a foreign country. For one thing, laws vary from country to country on small business operation and franchise licensing.

Here a just a few differences in franchise law in different countries:
* The disclosure acknowledgment and “cooling off” periods are longer in Australia than the US.
* Brazil requires the Franchise Agreement be translated into Portuguese and registered with the Brazilian Patent and Trade Office.
* There are special stipulations about terminating the Franchise Agreement in Mexico.
* Spain imposes special registration laws applicable to franchises.

The IFA has a detailed guide to franchise laws in various countries at its web site: http://www.franchise.org

Franchisors looking to expand into international markets typically start with Master or Area Developer License arrangements. A Master License allows an individual to sell franchisee rights within a fixed territory, such as an entire country. The Master Licensee in effect becomes the franchisor for that country and sells franchise licenses, for which the Master Licensee receives a portion of the fees. An Area Developer actually runs franchise units rather than sells licenses in an assigned territory; and must have substantial resources to invest, backed by business experience.

One new and increasingly used practice in international franchise development are “test periods” of one or two years, during which the franchisee operates as an Area Developer and must meet minimum unit openings and operation before advancing to a Master license.

Because there are diverse cultural, language and legal issues to address for international franchise development, franchisors look for certain qualifications in prospective franchisee candidates. Obviously, speaking the language is important. Individuals who already own or lease a potentially good location are also more likely to be awarded a franchise license. US Embassies in foreign countries have a commercial service that provides information to native residents about local business opportunities through American-owned companies.

There are many business consulting firms that specialize in helping prospective franchisees find the right international opportunity. These consultants can help the franchise understand and navigate through the legal requirements and local customs. You can find consultants for individual countries as well as larger international markets at this web page:
Business Consultants

Check out international franchise opportunities at these upcoming expositions:
September 28-29: Shanghai International Franchise Exposition
October 8-9: 6th Annual Polish Franchise Exposition, Warsaw
October 2-3: Franchise Association of India Convention & Expo, Mumbai
October 10-17: IFA International Trade Mission to Australia: Melbourne and Sydney
October 23-26: 13th Macao International Trade and Investment Fair
October 23-24: Caribbean American Franchise Forum, Santo Domingo, DR
November 5-6: International Symposium on Franchising, Los Angeles

Franchising has taken root around the world with many franchises of all types now operating across the globe. Many popular American franchises – MacDonalds, Pizza Hut, KFC, and Subway – now have numerous stores in international locations.

The future looks bright for franchise owners, and prospective master license holders looking to establish new international franchise territories. Consider these facts about international franchise growth:

• In Australia, franchise business are an ever expanding part of the small business sector, and now represent 14 percent of Australia’s national Gross Domestic Product. About 600,000 Australians are employed in franchise businesses.

• Franchising has grown especially strong in Brazil over the past decade. According to the Brazilian Franchise Association, franchise businesses have been increasing at a sustained rate – one that is higher than the average Brazilian Gross Domestic Product index.

• Canada is second only to the US in franchise growth, with Canadian franchises achieving more than $100 billion in sales. There are about 76,000 individual franchise operations in Canada, operating under 900 different brand names. Analysts estimate that there is one franchise operating for every 450 Canadians.

• The UK has also experienced tremendous growth in franchise businesses. In 2006, the franchise industry grew twice as fast as the overall economy. Franchising increased by 44 percent over the past decade in the UK, and accounts for about ₤10.8 billion annually in sales.

• India now has many well-known franchises, including Pizza Hut, Dominos, KFC, McDonald’s, Gold’s Gym, Kodak, Subway, Holiday Inn and others. The Indian franchise market has achieved steady growth of 30 to 35 % per annum during the first decade of the 21st century. The annual revenues generated by franchise businesses in India exceed $3.3 billion US.

• Saudi Arabia has seen many American franchises take hold, with fast food franchises accounting for more than 60 percent of the total franchise market. American firms dominate the franchising landscaping and account for more than 70 percent of all franchised operations in Saudi Arabia. American franchise products and services, including fast food, hotels, car leasing, laundry services and printing, are in demand. With 44.4 percent of the Saudi population is under the age of 15, brands such as McDonald’s, Hardee’s, Burger King, Popeye’s, Chili’s, Pizza Hut, Saks Fifth Avenue, Limited Too, Mail Boxes, Anne Klein and more are expected to keep growing in popularity.

• South Africa has an estimated 400 franchise systems, with 23, 000 franchise outlets employing 300,000 people. The annual rate of growth for franchising is about 13 percent.

• China is experiencing tremendous growth and potential for franchise expansion. The low cost of labor coupled with the huge and growing consumer market makes the People’s Republic of China especially attractive for investments by foreign companies. In 2001, China joined the World Trade Organization, and in 2004, the country liberalized regulations on foreign investments in China. KFC was the first American franchise to open in China, and many other popular brands now operate there.