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Why do franchisors crossing the Atlantic need a good map and guide?

Peter Stern reveals…

In spite of the economic downturn, the US is still a magnet for many UK franchisors. The sheer size of it, the diversity of the marketplace and the fact that it’s the very birthplace of business format franchising, are just some of the factors that entice franchisors thinking of international expansion. The fact that there is no language barrier, and only a few minor cultural differences to contend with, also makes the US seem like the most logical first step for franchisors moving towards global growth.

But, of course, things are never that easy: 50 states, four time zones, a widely varied geography and climate, not to mention a different legal system, can make the initial attractiveness of the US seems suddenly underwhelming.

Like navigating the backwaters of the Mississippi river, taking a UK franchise to the US is likely to be a complex and challenging process – even with a good skipper at
the helm!

As a UK franchisor, before embarking upon international network growth ‘the American way’, careful thought and planning are essential. To begin such a journey without carrying out a high level of due diligence will only serve to increase the chances of failure in the early stages, particularly in the current financial climate, therefore making painstaking preparation a must.

While many US companies have successfully expanded into the UK, including instantly recognisable names such as Domino’s Pizza, McDonald’s and Subway – all of which have achieved enviable ubiquity on UK high streets – the situation in reverse is a much greater challenge, mainly because of the magnitude of the US market when compared to the UK’s.

The US is a country that needs to be taken on one bite at a time. Each separate state must be considered, from a franchising perspective, as a country in its own right, usually attracting its own individual franchisees. And no, unfortunately that doesn’t mean an instant windfall of easy cash! While, on the surface, the opportunity to award multiple franchises instead of just one may seem to add to the US’s attractiveness as a foundation of expansion, the differing state laws and varying demographics will require expert knowledge and careful research. This, of course, will cost any franchisor a large amount of time, money and other resources.  

The market according to the 2009 Franchised Business Economic Outlook by PricewaterhouseCoopers shows an increase in output of 9.7 per cent between 2001 and 2005, and growth is projected to decrease by 0.5 per cent in 2008-2009, mirroring a downturn in the economy as a whole. And, 85 per cent of US franchise business leaders have strong expectations for unit growth in 2009, based on the increase in prospects looking at franchising, according to an International Franchise Association (IFA) survey in November 2008.

Helpful guidelines
Ensure the executive team is fully committed to the expansion in the market.

• Adapt your brand to the local market. A good example of this is Tesco, which is continuing to recalibrate its food offering in its Fresh and Easy convenience stores. Even with extensive knowledge of exporting its concept and customer intelligence, it is making continual changes to its offerings.
  
  
• Account for the costs in supporting local franchisees, the physical scale of the US means you will be taking a flight in most cases to support your network. Where possible use technology to reduce these costs, such as online training via your extranet.
  
  
• Willingness and openness to embrace and understand different cultures is needed. The way business is done in New York City can differ from New Orleans. Understand local business customs and enlist local professional help to evaluate the market when you visit.
  
  
• Attend the IFA Annual Convention www.franchise.org – run by The American Franchise Association. The International Franchise Association is large and professionally run to support franchisors, franchisees and suppliers. The convention should be of interest to UK franchisors with international aspirations, and takes place in the sunny south of the US in February each year. Much value can be obtained from the convention and not only from the more formal aspects.
  
  

Bill Clinton was the keynote speaker this year and there are many networking opportunities, particularly through the breakout roundtable sessions. These helpful conversations cover just about every franchise-related subject you can think of and it’s not possible to come away from the event without benefit. Next year’s convention takes place 6-9 February in San Antonio in Texas.

• Use an experienced specialist franchise solicitor as this will help you with all aspects of your launch and the registration of the Franchise Disclosure Document (FDD) in different states.
  
  
• Pilot your concept in good test markets such as Dallas and Chicago, as they can give you a soft launch to hone your concept to local conditions.
  Learn from existing US franchisors about how they support their franchisees and what it costs.
  
  
• Be open to launching in a European market before committing to the US market.
  
  
• Communicate with your domestic network so they understand there will be no gap in the support for their franchise.
  
  
• So plan carefully, geographically be targeted and be committed for the long haul to expand in the US market. The existing US franchise systems are highly professional on recruitment, management and operations, so to compete effectively you will need to be ‘Americanised’ in your processes and have a real ‘can do’ attitude to succeed with a support office in the country.