International Expansion: Proven Strategy During Economic Uncertainty
Global growth allows a franchise to invest in more than one option so that you don’t risk everything on a single opportunity. In other words, you hedge your bets.
By Lee Sanders
Rationale for International Expansion
Let’s face it, if you concentrate only on market penetration within the United States, you will eventually reach a point of saturation and be forced to look at relying solely on other market development strategies. These may include targeting competitors’ customers, attracting non-users in your segment or convincing current guests to buy more from your company, more often. Of course, you should have long-term plans for achieving all three of these objectives already in place, however, they do represent more challenging and costly methods of gaining business in the short-run.
As the United States reaches capacity in the buying power of several economic segments and, simultaneously, many domestic retail categories become over-built (e.g. QSR and casual dining), it becomes imperative for American businesses to develop new territories and franchise partners. Other chains, including McDonald’s, KFC and Baskin-Robbins, learned and implemented the power of international expansion some time ago and, in some cases, have stronger brands overseas than they do domestically.
Johnny Rockets established an international presence more than 10 years ago. Now, in today’s economy, we don’t have to suddenly crack the code for doing business outside the United States. Instead, we have merely stepped up our efforts to expand in countries we’ve identified as under-served within our category.
The appeal of the international marketplace is becoming more apparent. Many countries have increasing affluence and the emerging middle class required to support many U.S. brands and concepts. Many also have positive currency conversions, limited home-grown international franchises and a high consumer demand for American brands. Other countries may also have less challenging franchise registration requirements and legal hurdles than we have domestically.
There are many advantages to early international brand development. Overseas markets are generally under-penetrated with most U.S. brands for which there is strong consumer demand and they usually offer limited competition from other franchisees.
Another advantage: Due to current exchange rates, more surmountable regulations and limited legal startup costs, U.S. brands may actually realize a value in some international locales. What’s more, many economies are counter-cyclical to the United States and can provide an economic balance within organizations.
It does help to have a flexible business model, offering direct franchising and the ability to sell combinations of country rights: master franchises, sub-franchising, area-development agreements and single franchises. This flexibility helps allow for the simultaneous development of two lines of business: international and domestic.
Of course, there are disadvantages to expanding your borders, as well. The search for international partners and locations may distract from your core business and siphon resources from other core corporate efforts. It requires a dedicated line of business, unlike simply adding another domestic market to your existing marketing and operations mix. It is unlikely that you will be able to just duplicate your domestic systems and processes because some countries have different regulations than the United States and some concepts and products must be adapted to local preferences.
Another consideration is the cultural difference existing in franchise sales, guest services, marketing and pricing. And, although it may be an advantage in some cases, exchange rates may reduce actual income and necessitate that the supply chain be paid in dollars. Initial entry may also require newly established units to stand alone in creating brand awareness and equity.
How do you overcome these disadvantages? There are five initial steps we have proven necessary for success.
First, it is highly advised that you retain an international business advisor who has first-hand experience with successfully establishing a brand (or brands) in other countries. For Johnny Rockets, we were fortunate to have Bill Van Epps on our board of directors, who has led the international divisions of Papa John’s, Yorkshire Global Restaurants, as well as AFC Enterprises and Western Sizzlin, Inc.
Second, it is necessary to retain a local agent or broker to help you “source” developers and franchisees. They will serve as indispensable liaisons, familiar with local customs, laws, politics and business etiquette. They should also be able to introduce your system to beneficial allies and steer clear of unhelpful operators and vendors.
Third, to optimally develop your brand in a new country, it is recommended to establish a flagship store in a key location. Our best example is China. We have learned that to evolve any significant brand awareness or perpetuate the sale of franchises in other areas, we first need to open signature Johnny Rockets restaurants in each province. Despite the fact that we have “footprints” ranging from 500 to 2,500 square feet and a multitude of different operating models, we build our biggest, brightest, full-service restaurants, first. These not only demonstrate that our “classic Americana” concept works, they also establish a base of operations for us in each of those areas and provide the ideal settings for future franchise sales.
Fourth, you should plan on a longer lead time than opening a new domestic market. We typically double the window between final contract and grand opening to make way for local hurdles and nuances.
Fifth, an emphasis on the legal protection of your rights should be paramount when offering your brand outside the protection of U.S. trademarks and copyrights. Obtaining similar protection in other countries is sometimes difficult and often expensive. Plus, litigation against infringement is often risky. To prevent future headaches and expenses, retain a legal team that has experience exporting brands and whose counsel you trust.
Of course, throughout the entire process, communication is key. It is important to include international operators in the information process from the beginning. This can be accomplished through a password-protected franchisee portal on your Web site, regularly-scheduled conference calls, annual conferences, “road shows” and timely access to sales, purchasing, marketing and design assistance.
In this same vein, a franchise system should have already established methods of initial and ongoing support for new partners. They should have access to management training, on-site opening support and ongoing assistance with establishing supply lines, purchasing, marketing programs and regularly scheduled visits from the home office.
What to Expect
Once a brand is successfully introduced to other parts of the world, it will be evident that international expansion can be a proven growth strategy in times of economic uncertainty. In this season of tough economic times, it is great for our team to be able to communicate that our franchise is not only surviving, but we also are experiencing a time of unprecedented growth and success. We are proving the exportability of Americana and the advantage of a flexible business model. There are many countries with consumer demand for U.S. brands, limited competition and a growing number of consumers with increased spending power. This success can be attributed to a strong brand, wise counsel and ongoing innovation in the arenas of food quality, customer service and convenience.
Lee Sanders is president and CEO of The Johnny Rockets Group, Inc. He can be reached at 949-643-61231 or