With thousands of different franchise opportunities, the franchise industry in the United States is certainly not lacking in concepts or ideas; yet, even so, some franchise companies based outside the U.S. have managed to successfully bring their concepts to the U.S. market. For example, Kumon, an after-school math and English tutoring franchise, originated in Japan yet has successfully spread to the United States. Cartridge World is an Australian company with abundant franchise locations throughout the U.S. But how exactly does one set up shop in a territory as large as the United States? Here are three strategies that non-U.S.-based franchisors have used to do just that.
1. Find a Master Franchisee.
Finding a U.S.-based master franchisee, or an individual who is responsible for recruiting and training franchisees, is by far the most common route used by non U.S.-based franchisors to expand into the U.S., according to Sean McGarry, founder and CEO of Franchise Direct, a franchise portal with a network of websites dedicated to the U.S., Canada, the U.K./Ireland, Spain, France and Germany.
It’s the route that Guatemala-based Pollo Campero used to first bring its chicken restaurant concept to the States in 2002. Finding the right master franchisee is of crucial importance. However, in the case of Pollo Campero, no searching was involved. An experienced restaurateur actually approached the company about expanding the brand and subsequently committed to opening locations in several markets on the West Coast, says Roberto Denegri, Campero U.S.A president and chief operating officer. Since launching in the U.S., Pollo Campero has successfully entered several other international markets, including Mexico, Europe, India, and Indonesia.
“Our advice would be to seek out franchisees with experience developing other [franchise] brands in the U.S. marketplace, as well as a strong entrepreneurial spirit,” says Denegri. “This perfect combination leads to efficiently-run [franchises]. Also, make sure franchisees share a passion for your brand and business philosophy.” Having a master franchisee on board can be helpful because that individual will have local business knowledge of what will work and what won’t, says McGarry. However, McGarry cautions against awarding too much territory to one master franchisee. “The scale of the U.S. market is such that the awarding of more than one master license should be [carefully] considered,” he says. “California, for instance, has an economy the size of France. In some sectors of the economy, state laws can vary significantly, and having a master licensee who is familiar with operating in your sector at the state level can be of benefit.”
2. Set Up a U.S. Office.
Franchisors wishing to have more control over their company’s expansion in to the U.S. may choose to set up a U.S. office as Aussie Pet Mobile, an Australian mobile pet grooming franchise, did when it first entered the U.S. in 1999. Beyond just setting up a physical office, expanding into the U.S. required hiring staff, finding an engineer to design their first trailer, standardizing the franchise offering, creating appropriate marketing materials, and completing the legal setup including creating the Franchise Disclosure Document. While extensive work was required to set everything up, Rick Arevalo, president of Aussie Pet Mobile, reports that expansion into the U.S. was actually “easier than [expanding into] other countries because it has been done so many times before.”
Teriyaki Experience, a Canadian quick-service restaurant franchise, likewise made its foray into the U.S. in 2007 by opening two field offices in Atlanta and Phoenix. Having a physical presence in the U.S. helped the company establish a general U.S. presence, and it was able to get local support and actively expand by signing on area developers or individuals who commit to developing a certain number of stores based on population and within an agreed timeframe.
However, finding the right area developers or the logistics of setting up a physical office aren’t the most challenging aspects of U.S. expansion, according to Joe Arancio, Vice President of U.S. Development for Teriyaki Experience. “The most difficult issue in expanding to other countries is understanding the culinary cultures,” he says. “Different countries have different taste requirements.” Arancio also cites setting up distribution and getting the product and equipment to meet the required specifications as additional hurdles.
3. Partner With a U.S.-Based Company.
The masterminds behind The Grounds Guys, a Canadian-based full-service grounds care franchise, always knew that the United States was a great market for its concept and originally planned to expand into the U.S. on their own. But when they came across The Dwyer Group, a U.S.-based holding company of six franchise businesses, they felt confident that it was the right company to partner with. By teaming up with The Dwyer Group, they tapped into a pool of resources and knowledge that greatly facilitated the daunting task of introducing their concept to the U.S. “With the power of The Dwyer Group behind the brand, The Grounds Guys system is expanding much quicker than it would have had we continued on our own,” says Peter van Stralen, president of The Grounds Guys, Canada. Since officially launching in February 2010, The Grounds Guys has awarded eight franchises in six states.
Thanks to their comprehensive understanding of U.S. franchise requirements and their extensive experience launching startups, The Dwyer Group quickly and systematically put a plan of action into place. “The U.S. is a much more highly regulated franchising environment than most countries,” says Ron Madera, president of The Grounds Guys, U.S., who is based at The Dwyer Group’s corporate headquarters in Waco, Texas. “Whereas most other countries rely simply upon contract law to govern franchisor-franchisee relationships, the U.S. market is very complicated by comparison. Non-U.S. based franchisors would do well to learn from existing franchisors, and the IFA [International Franchise Association] is a good resource for that knowledge base.”
Are You Ready?
Think your franchise concept could flourish in the United States? McGarry offers the following tips and advice to make the process seamless:
Get informed. “Carry out some market research in your industry,” says McGarry. “International franchising can fail because the product or service is good in the home market but needs to be modified to work in the United States.”
Seek out expert assistance. “Consult a good franchise lawyer and franchise consultant,” McGarry advises. “Their knowledge and expertise will be vital to success.”
Put your strategy in place prior to entering the U.S. market. “Prepare a business plan detailing the rollout,” says McGarry. “The plan will have to be realistic as to the time it takes for a new company to recruit franchisees. Just because your franchise recruitment is steaming ahead in your local market, which you may have built up over 10 years, does not mean you will have the same experience in this most competitive marketplace.”
Be sure your concept is marketable in the U.S. “America has a very dynamic and competitive market,” McGarry cautions. “Unless the overseas franchise can bring some distinctively perceived value in terms of product or service, they will not be able to compete with U.S.-based franchisors.”
Get your paperwork in order. “The overseas franchise will have to deal with is the preparation of an FDD [Franchise Disclosure Document],” warns McGarry. “In very few countries outside the United States do franchisors have to prepare and update such detailed documentation.”
Know the facts before entering the U.S. McGarry highlights the following:
- The scale of the market increases the costs of entry.
- Understand the regulations concerning intellectual property rights. “There have been instances of franchisors planning to launch in the U.S. only to find their business name already registered or, because of language differences, either inappropriate or difficult to position in the market niche the franchise wants to succeed in,” he says.
- Be ready to modify your marketing materials, if necessary, in order to hit a nerve with U.S. consumers.
Sara Wilson is a freelance writer who specializes in issues related to small businesses. Contact her at [email protected]