The big news in franchising this week – Subway’s overtaking of McDonald’s as the world’s biggest franchise – bears out two growing paradigms in the industry: the lure of the Asian market and the attraction of low-cost franchises.
The Guardian wrote a good story about Subway’s rise within the context of the success of low-cost franchises this week. For this post I’m more interested in the lure of international expansion. On the back of the Subway news comes a report by the Wall-Street Journal that Dunkin’ Donuts are planning to expand in Asia “with thousands of new outlets in China in coming years and ambitions to open its first stores in Vietnam within 18 months”.
Now this in an interesting development. Dunkin’ Donuts plan to co-brand their new Asian units with ice cream franchise Baskin Robbins in many places, which ensures that the stores will be full of diversity. That said, the donut is not exactly a staple breakfast meal in Asia. In pursuing global expansion, Dunkin’ Donuts are taking a risk – they will have to convince this broad new market that they need to eat their products.
There are other risks as the WSJ outlines:
“Despite the opportunities for growth in Asia, retail-food operations face significant risks, in large part because of the rising commodity costs squeezing profit margins. The costs of wheat and other grains, for instance, are at their highest levels since 2008, while prices for coffee—another Dunkin' staple—have also soared over the past year.”
That said, franchises like Dunkin’ Donuts are going to continue to look to Asia. It’s paying off for Subway and McDonald’s. Nobody thought subs or Big Mac’s would be popular in China or Japan but over time, these franchises boomed. The lure of these developing economies is such that franchises like Dunkin’ Donuts will expand there, no matter what. We hope it pays off for them.