International Franchisees: Taking Flight Across Borders
This winning scenario can help domestic franchisees and international growth-oriented franchisors to work together.
By Matthew Patinkin
When domestic franchisees think about growth, they typically consider opening new stores within their community, the broader city, or a close-by territory. Once they’ve achieved scale and operating efficiencies – and confidence – the logical next step is to expand into different states and regions of the country. But a new growth path is opening for some domestic franchisees: international expansion.
From a franchisor perspective, international growth often follows a fairly well-established protocol: first, do the market research, then put together your franchise documentation, complete the legal work to protect your brand, build out your financial and growth models, etc. After all of that is in place, it’s time to find a local partner to become your unit operator, area developer, or more likely, master franchisee in a particular country. You have enormous faith that this partner will succeed, yet this is precisely where the biggest risk comes into play. No matter how well-developed your foundation, if you choose the wrong franchisee partner, you will likely fail.
To mitigate this risk, franchisors often hire franchise consulting firms to source candidates, conduct background checks, and perform due-diligence. These professional firms have strong histories of attracting solid performers. But another avenue is opening to franchisors which could significantly increase their likelihood of success.
Larger, multi-unit franchisees are always seeking new paths for growth, but in some cases the runway for growth in the U.S. has stagnated, limiting expansion potential. In other cases, domestic performance has softened, and the financial returns aren’t as attractive as they once were. International expansion is a logical alternative, offering clear advantages to both franchisees and franchisors who pursue this option. But there are also challenges which must be considered and addressed.
Choosing the wrong international franchisee has a broad range of negative consequences. There is a long list of “first-to-market” failures introducing brands into new countries. Invariably the most common point of failure is because the master franchisee either didn’t have the skill to open and operate effectively or underestimated the financial commitment necessary to succeed. Either way, the consequences can be catastrophic, and the brand suffers.
“In some cases, the runway for growth in the U.S. has stagnated, limiting expansion potential.”
Choosing an existing multi-unit franchisee effectively eliminates many of these risks. From understanding the brand proposition, to operational expertise, to systems and process, training and development, product preparation, and much more, current franchisees simply don’t have any of these hurdles to overcome. Successful, operating franchisees already have the experience and the passion to both lead and succeed.
Another important benefit to franchisors is that they won’t have to spend time teaching new franchisees the ropes. These ongoing savings compound over time, allowing the franchisor to devote its attention to other critical brand development activities. Put simply, franchisors who don’t tap these growth-minded franchisees for international expansion are foregoing enormous savings and opportunities.
From a franchisee perspective, opening an international territory is an exciting new opportunity. The combination of blending brand awareness and superior operational abilities with the exclusivity of a master franchise agreement in a new country presents significant upside potential; being first-to-market can be an enticing draw. But pursuing this path also comes with risks which should not be underestimated.
Among other challenges, the most obvious is the language barrier. If this is your issue, choose a country such as Canada or the U.K. where you will also likely benefit from other cultural similarities. But certainly not everything is the same. Franchisees must still deal with local menu variations, supply chain and distribution issues, variances in marketing techniques, and of course, differences in the tax and legal structure.
“Choosing the wrong international franchisee has a broad range of negative consequences.”
These are all areas where the franchisor can step up to assist its master franchisee with additional support, a trade-off for the savings associated with having a seasoned operator and brand ambassador in place. Franchisors should provide their master franchisees with local market knowledge, supply-chain support, marketing and brand building, and other local data points. They should share demographic surveys, contribute more to the marketing effort, conduct product tests and menu variation, and help support the franchisee to work through legal and other local area issues. All of these are part of the collaborative process to help ensure success.
Existing multi-unit franchisees understand the brand, the product, the systems and process, and bring operational expertise to the table – all the tools they need to be successful operators. These franchisees already understand what it takes to run a growing operation and can save the franchisor time and money they would otherwise have to spend to train and develop these basic skills. What they may not have is local country knowledge, which is where the franchisor can help.
Franchisors look for trustworthy brand representatives who understand how to operate multi-unit, growth-oriented entities. Recognizing the skill set domestic franchisees already have, it behooves franchisors to work with existing franchisees to help them become successful master franchisees in other countries. This requires sharing of knowledge and data the franchisee may find difficult to obtain but will help smooth the transition from domestic to international.
Matthew Patinkin is co-founder of Double P Corp, a franchisee of Auntie Anne’s Pretzel’s, Cinnabon, and Red Mango Frozen Yogurt stores. He also serves as a member of the IFA Board of Directors and Chair of the organization’s International Committee. Double P owns and operates 80 stores in eight states and is the master franchisee of Auntie Anne’s in Canada. Find out more about Auntie Anne’s at www.franchise.org/auntie-annes-hand-rolled-soft-pretzels-franchise.