ARTICLE FROM QSR MAGAZINE – JULY 2008
FRANCHISING: By Laura Tutor
THE GOLD RUSH
Tapping into global franchising opportunities offers a respite from U.S. economic woes.
Nick Vojnovic is betting that somewhere in Brazil there’s a city in need of an American-style neighborhood sports pub. There are families in Brazil. Most people – old and young – are involved in activities that take them into the country’s vibrant city centers. And market research shows a lack of consistent restaurants that offer a reliable, franchisable product.
As president of Beef O’Brady’s, Vojnovic and others looking to grow the brand are casting their eyes southward to find new markets for franchise expansion in the hope of offsetting a downturn in the U.S. restaurant industry that experts say will last another two years.
“We definitely are very bearish right now,” says Vojnovic. “Oil, the housing market, the overall economy…consumers are really pulling back.”
Scanning the first-quarter sales of quick-serve, fast-casual, and full-service dining reveals that almost every major franchise or national brand has negative sales numbers when compared with previous years.
Responding with slowing consumer spending, many franchisors have put the brakes on franchise sales expansion plans in the U.S. At franchising trade shows, developers looking to buy franchises are increasingly coming from farther afield. The U.S. economy might be stalled, but the demand for U.S. food – specifically its franchised restaurants – has never been greater.
“The money is out there,” says Patrick Callaway, president of Francorp, itself an internationally franchised company in the business of helping other companies franchise. “At trade shows, they are stacked with international opportunities.”
One reason global franchising is attractive to franchisors is simply because an oncoming recession has made it harder for Americans to buy a franchise. In past recessions, Callaway says, franchise sales picked up as workers and professionals leery of mainstream business wanted to take more control of their financial futures. They bought a franchise to get some security. This time, however, the credit crunch and collapse of the housing market has made banks reluctant to finance such ventures.
Overseas entrepreneurs don’t have this problem. They have money and are willing to buy an imported expertise and business formula, Callaway says.
Dunkin’ Donuts, Starbucks, and McDonald’s are among the biggest brands that have emphasized their global intentions, both in opening new stores and increasing sales in existing markets. Dunkin’ announced in January its plan to open 100 stores in mainland China over the next 10 years. A month later, Starbucks announced that former Starbucks executive Arthur Rubinfeld was back to serve as president of global development, a new position charged with site selection, design, and creative concepting for Starbucks stores worldwide. While not franchised, Starbucks’ global emphasis is seen as a bell cow for U.S. products overseas.
McDonald’s turned in double-digit first-quarter profits for its stockholders based largely on comparable global sales and its international performance. One analyst pointed out that half of McDonald’s profits were generated from international sales.
Dunkin’ already has a presence in 31 countries, and President and Chief Brand Officer Will Kussell describes its plans as “expanding globally at a robust pace.” The key, he said during the company’s China expansion announcement in January, was finding a good international operating partner.
Vojnovic and his group are looking for that partner, too. He says Beef O’Brady’s is in the process of interviewing consultants to help find an international developer to help the U.S. franchisor avoid many of the mistakes that some other, earlier franchises have encountered. Ideally, Vojnovic says, the partner would be someone with U.S. foodservice experience.
“There are pitfalls out there, if you don’t know where to look,” Vojnovic says. “In the Middle East, you have to close so many times a day. You need to worry about communication so many time zones away from the home office. What about supply lines? We really see finding that partner as the key step.”
Callaway, who in April released the book Franchising Your Business with his grandfather and co-author, Donald Boroian, says it’s essential for U.S. franchisors to find a local connection to help a brand deal with any cultural concerns. If a restaurant is going into an international market, someone needs to read the signage, the menus, and the promotions to make sure nothing is lost or changed in translation. Some color schemes aren’t acceptable in certain countries, and décor will make or break a U.S. venture in a new market.
Beyond finding that partner, a few other considerations come into play. For instance, the dollar’s current value in the rest of the world means those fees that had been exorbitant in years past are now more affordable. While many U.S. franchisors might hope to find a multiunit developer, may international partners might be interested initially in only one or two units.
Callaway and Boroian’s book advises brands considering a global expansion to study the infrastructure in their potential markets. That includes local business customs, demographic trends, and consumer habits. That same litmus test must be applied to training employees, and it can be as basic as making sure portion sizes are scaled right for the culture.
They also advise against going for a big, one-time fee. Not only can that price a franchisor out of a country’s economic setting, it might also scare off potential franchisees that could bring a lot to the organization. Royalties and advertising plans need to be scaled for the local market; often that means adjusting expectations from what’s been the norm in the U.S. or Canada operations.
One element U.S. franchisors won’t have to fear on their first international venture is a reluctance to buy.
“In spite of the political negativity – or a negative opinion of U.S. politics right now – our brands, our country, and our business concepts are highly respected,” Callaway says.
The food is not always so much the emphasis, Callaway says, as the U.S. culture. He explains that a cup of Starbucks costs three times as much in some overseas markets as the prices consumers pay in the U.S. Haagen Dazs ice cream in China sells for $4; a slice of Pizza Hut pizza goes for $10.
Vojnovic says his company will keep fairly close to home on this maiden voyage. Mexico has a population of 140 million, of which 20 percent eat out on a regular basis. Yet, only 2 percent of the country’s restaurants are franchised.
“They want the consistency, the branding power of franchised concepts,” Vojnovic says. “Most have not got that vision.”
