2018 Top 100 Franchises Report: International Franchising

Countries with Origins Outside the U.S.

As franchising expands and gains popularity in other countries, franchises native to other countries have begun to rival their U.S. counterparts. Below is a chart presenting franchises founded outside of the United States in this year’s ranking. Some of these franchises may have moved corporate offices to another country.

Top 100 Franchises with Origins Outside the U.S.

About three quarters of the way down the ranking you'll find Lizarran (#70), a Spanish food franchise that blends Mediterranean and Spanish flavors, makes its debut in the Top 100. Currently, Lizarran is in 14 countries, including the United States.

Another non-US based franchise making the Top 100 for the first time is Eye Level Learning Centers at #74. The South Korean child education franchise caters to students of all abilities utilizing a proprietary learning method in over 20 countries.

Seeking Growth, Many Franchises Are Looking to China

With sales plateauing domestically, or not increasing as fast as they would like, several franchises are looking to the Far East to improve their bottom line – specifically China.

It should come as no surprise that China has one of the biggest franchise markets in the world with over 4,500 franchises and chains in operation. As one of the largest economies in the world, China has long been a target for U.S. franchises. With a still expanding middle class in the nation, many franchisors are finding now the time is right to make the leap.

One of the franchisors ready to take on the China franchising challenge is Focus Brands. The parent company to 7 food franchises sees China as its next market to pursue a bigger presence in. The company will start by introducing its Auntie Anne’s (#57) and Cinnabon (#65) brands to the country. “China is a priority market for us based on consumer insight research that shows broad appeal of our freshly baked products [there],” says Nicolas Boudet, president of Focus Brands.

According to the U.S. Department of Commerce, U.S. franchisors have a “particularly strong foothold in the [Chinese] food & beverage market.” The two Focus Brands will be competing with other food franchises that have already made their mark in the Chinese market like KFC and Pizza Hut, both part of Yum China, a spin-off of the larger Yum Brands.

“Our China division is off to a good start,” said Yum Brands CEO Greg Creed when discussing the company’s second quarter results. The sales uptick for Yum China led Yum Brands to boost its overall profit outlook for all of 2017. Yum China was spun off from Yum Brands in late 2016 in hopes of fostering better relations with local customers following a rough patch. It owns the rights to franchising all of Yum Brands’ outlets in the nation, which also includes Taco Bell. Of note, Taco Bell relaunched in China after a near decade-long absence last January.

But food isn’t the only U.S. franchise system export across the Pacific. Fitness is beginning to blossom.

Per a company release, Anytime Fitness (#29) is the first U.S. fitness franchise to be granted a license to franchise in China. Following the mode of expansion commonly used for expanding into a new country, Anytime Fitness is utilizing the expertise of a master franchisee.

The fitness franchise is entrusting Maurice Levine, who already owns the rights for Singapore, Malaysia and the Philippines, to guide its Chinese efforts. “The knowledge and experience of our master franchisee will greatly facilitate the success of the Anytime Fitness brand as we navigate the local business environment,” says Dave Mortensen, president and co-founder of Anytime Fitness. The fitness franchise hopes to have 300-500 gyms open in China by 2020. As of June 2017, it already had 7 locations open and an additional 20 agreements signed.

Looking towards the future, analysts expect growth will soon pick up in China’s western and inland regions as the Beijing and Shanghai markets become saturated. Kristy Guo of international law firm IPO Pang Xingpu advises franchisors with Chinese aspirations to “ensure they have appropriately registered all applicable trademarks and put serious efforts into training employees, finding local partners to work with in each Chinese market they enter, and ensure uniformity across all franchises throughout China.” Or, as she warns, “the consequences of not doing so can be quite steep indeed.”

International Franchise Market Spotlight: Germany

Germany has always been a force on the world stage. But recently, the most populous country in the European Union has been becoming an even bigger force on many fronts, especially commerce.

The German franchise market generates about 104 billion Euros annually (approximately $126 billion). The biggest share of the franchise market belongs to the service industry (about 39% of German franchise systems). Services are followed by retail (30%), food service and tourism (22%), and skilled trades (9%).

According to Germany Trade and Invest (GTAI), there are around 950 franchisors currently operating in Germany with 120,000 independent franchisees. These franchisees employ an estimated 700,000 people.

Industry officials feel there is significant room for growth in the German franchise market. “The level of internationalization in the German franchising industry is still quite low in comparison to other European countries, which means that Germany offers numerous attractive market entry opportunities for foreign franchising systems,” says Torben Brodersen, CEO of the German Franchising Association. For reference, about 20% of new franchises in Germany are foreign.

Furthermore, a GTAI report states “the majority of the franchising concepts active in Germany have less than 50 partner companies and are often not represented throughout the country.” In addition, when compared to France, which is perhaps the largest franchise market in Europe despite having over 17 million less people, the number of franchisors is 40% less in Germany.

The German franchise sectors expected to grow at a rate above the average in the immediate future include: home services (including in-home care and nursing), education/continued training, skilled trades, and health care.

Potential Implications of Brexit

Over in Europe, specifically the UK, Brexit is a top of the mind concern for franchisors. When consulted, UK franchisors identified three main areas of concern in regards to the UK leaving the European Union.

1. Investment Security. The uncertainty of the final outcome—terms have yet to be settled about exactly how the split will be handled—has left prospective franchisees as well as franchisors hesitant to commit to large investments at this time.
2. A Potentially Dwindling Workforce. Immigrants from Eastern Europe are a significant contributor to the staffing of UK franchise businesses. Policy changes connected to Brexit could noticeably curtail or even cut off this labor source.
3. Currency Impact. Since the Brexit vote, the Sterling, currency of the UK, has been trending downward—though there has been a leveling in recent weeks. UK franchisors fear that a hard Brexit—the option in which the UK leaves the European Union and doesn’t align with either the European Free Trade Association (EFTA) or the European Economic Area (EEA)—will handicap the Sterling even more against the Euro and the Dollar because of reduced economic growth potential.