International Marketing: Identifying Allies, Competitors
October 2009 Franchising World
If a company wants to expand its brand successfully on a global basis, it must be pro-active.
By David Solomon
Chinese philosopher Lau-tzu is credited with saying that “the journey of a thousand miles begins with a single step.” For leading retail chains looking to expand their brands on a global basis, however, there are many more miles and steps to cover, that involves approximately 195 countries, 6.66 billion people, and just under 25,000 miles circumference at the equator and between the poles to be precise.
Where are the best global opportunities for growth? Just like travelling around the world, the answers may be surprising. What is right for one chain may be very different for another. The only thing for certain is that reacting to all potential franchisees or partners who approach a franchise company is a very haphazard way to grow, often leading franchises to the wrong place at the wrong time or the wrong partner. If a company wants to expand its brand successfully on a global basis, it must be pro-active.
The first step is to conduct a “global market analytics light” study. This involves taking an airplane-level view of the world’s top-65 countries in terms of a brand’s development and growth potential. Such a study should be designed to reveal answers to basic questions, such as: In which countries will the brand find the greatest concentrations of its look-alike target customers (i.e., if it’s George in the United States, what does Jorge look like in Mexico, how many Jorges are there, and where do the highest concentrations of them live and work)? Where is the demand for my products and services the highest? What do the retail gap analyses and competitive landscapes look like in each country? In which countries do the answers to these questions overlap most favorably?
The quality of the data collected, what was paid for it, and how it gets analyzed can also vary widely. Service providers typically create and charge for pre-packaged products of data. The problem is that not only can the format, quality and coverage be inconsistent from country to country, but the franchise company can also be charged for unnecessary data it doesn’t need. For example, a food and burger chain whose target customer is young, hungry men aged 18-35 and has an interest in expanding into Tier 1 cities in China has no need for data on 199 non-food product categories, non-male 18-35 demographics and Tier 2 and Tier 3 cities.
These are some of the reasons why a global market analytics practice buys data from numerous service providers, governments, banks and universities in 65 countries worldwide, puts it all into one consistent seamless framework (so the A, B, C way data is collected in Mexico, for example, can be easily compared to their counterparts in China), and charge only on a pay-per-view basis. Analyzing and paying just for the data a firm needs results in a more tailored, accurate product and is also more cost effective.
A Closer Look
After identifying the global markets where the lowesthanging fruit lies, the next step is to focus on the top five or 10 countries and drill down deeper to get more of a helicopter-level view of how each country’s markets and sub-markets are positioned in terms of look-alike customers, retail-gap analyses, competition, real estate availability and affordability, and so forth. A franchise company can operate the best bakery in the world, and France, for example, may lead the world in baked goods consumption per capita, but if the markets and sub-markets where the highest concentrations of its look-alike customers are found to already have three strong bakeries on every street corner, there is only so much “share of wallet” to go around and that $100 plus-per-square-foot market rent will likely not be sustainable. It may make more sense to focus on other market-opportunity nations instead, where consumption is still high, but competition is more limited and market rents are more sustainable.
Analytics can also be a useful tool for setting franchise or license fees. For example, one chain this company recently worked with had initially estimated that a particular country’s market opportunity for it came to about 100 stores in 41 markets. After completing the analytics and designing and reviewing the results of more than 3,400 customer surveys, however, it revealed that the market opportunity was actually for 250 stores in 137 markets.
Once the right time to enter the right country has been identified, the next focus is identifying the right joint- venture partners, franchisees and distributors. This should be a similarly pro-active, as opposed to reactive, search. When I bought my first international franchise, from Toys “R” Us in 1994, it was only after surviving several rounds of “bake-offs” against numerous competitors who were also interested in acquiring such rights. However, that said, selling franchises to the highest bidder does not make much sense either. In the bake-off example, market realities dictated there be a refunding of fees just a couple years later. What’s important is to find the right partner and to utilize reliable analytical data as a basis for negotiating fair and similarly sustainable franchise fees.
Franchises often ask whether it is better to work with large companies and conglomerates where its brand is just another spoke in the wheel or with young, hungry entrepreneurs. In working worldwide with leading franchisors, franchisees, retailers, landlords and companies large and small, start-up ventures get lost, delayed and mismanaged in big companies and entrepreneurs who didn’t have sufficient capital and resources to properly grow the brand. Finding a balance between these two extremes is critical.
Real Estate Realities
Big or small, one area that should never be left to chance or dependent on the franchisee-partner is real estate. A new venture can ill afford one or two bad locations; this will kill the brand’s successful launch and introduction to the market. The ability to provide franchisees-partners with extensive global real estate expertise and resources needs to be among a franchisor’s core competencies and services. It is not a coincidence that one of the world’s largest chains, McDonald’s, has historically devoted as much or more resources toward real-estate development as franchise development.
Once a franchise has acquired sophisticated, reliable market analytics for target market opportunities at the country level, the next step is to go even deeper. How the data is viewed is critical. Arbitrary kilometer radiuses are meaningless. Customers don’t live and drive in circles across highways, rivers and mountains. And while drive-time is a much more meaningful statistic, drive-time in India, for example, is very different from the same drive-time in Malaysia. Ultimately, each catchment zone or (aka “trade area ”) should be determined by where 80 percent of the customers are coming from.
The next step is to rank all markets and sub-markets in order of opportunity and create a rolling three-year real estate blueprint for market penetration (focused on low-hanging fruit markets first). The analytics and plan should then be incorporated and turned into a “Site Attribute Survey” which spells out the requisite parameters and guidelines that should be common to all “A” locations. As the SAS gets filled out by each real estate professional in the field for submittal, only the best sites meeting these stringent criteria should be focused on. Vetting of the two finalists in a given sub-market should then be conducted via street level granularity market analytics viewed both with today’s data and data aged five years forward to get a better read on which of the locations has the best chance for sustained growth over the next five years.
Finally, to more easily keep track of all this real estate activity across numerous borders and time zones, also utilize a world-class real estate project management system. Such a system should be designed to achieve four core objectives:
1. Be Web-enabled so information can be accessed and shared 24/7 online across all borders and time zones;
2. Upload/download all documents in all formats so lease proposals/ abstracts, aerials, site plans, store layouts, architectural renderings, spreadsheet and so forth can be easily shared;
3. Post tasks and assignments with specific start and end dates online which the system automatically e-mails to each team member responsible for each task and assignment and then e-mails the task master back automatically upon each task’s completion. This also serves as a great personal accountability tool for tracking which team members are performing well and timely and which are lagging in their assignments; and;
4. Be protected with sufficient security and restricted access tools so that each team member can see only what’s permitted.
A franchise may have developed a world-class brand and a game plan which calls for international growth. If it isn’t cost effective and can reliably analytically-vet markets and sites with precision, prudently and profitably pick the right markets, partners and locations, and acquire or lease or dispose of or sub-lease the best and worst locations timely, the best plans of even the best run retailers, franchisors and franchisees will be for naught.
David Solomon is president and CEO of NAI ReStore, a managed network of independent commercial real estate firms and global commercial real estate service providers. Its RealTrac system manages a $45 billion, 55 country, 325 office real estate practice. Solomon is also a franchisee and has experience both in bringing U.S. brands overseas and non-U.S. retail brands into the country. He can be reached at 609-945-4000 or firstname.lastname@example.org .