Global Franchise Expansion: Strategies for Lucrative and Planned … · 2014-04-17 · The 200 Top...

Global Franchise Expansion: Strategies for Lucrative and Planned

Growth Philip F. Zeidman DLA Piper LLP (US)

International Franchise Expo

Washington, DC April 1, 2011

Copyright © 2011 DLA Piper. All rights reserved. 2

Survey of International Franchisors: Franchise Business Category

Source: Rosenberg International Center of Franchising


Survey of International Franchisors: Franchisors with Units Outside the USA

Comparison of international units vs. domestic units for Franchise Direct's Top 10 Global Franchises

Source: Franchise Direct


Survey of International Franchisors: Franchisors Planning to Open Units Outside the USA

System size of Franchise Direct's Top 10 Global Franchises by unit number

Source: Franchise Direct


International Growth

§  Does the Future of U.S. Franchising Lie Outside the U.S.?



The 200 Top Franchisors now have 32% of Their Units Outside the U.S.

Courtesy of Franchise Times



§  The Larger the Franchise Network, the Higher the % Outside the U.S.

Courtesy of Franchise Times



§  But Not Just the Giants. . . §  And Not Just Food Service. . .

§  And Not Just Hotels. . .

§  Service and Retail. . .


International Expansion:

Hotel Companies In The Most Countries

Source: HOTELS’ Giants Survey 2007

100

95

90

78

78

70

68

55

49

49

44

40

40

31

29

InterContinental Hotels Group (IGH)

Starwood Hotels & Resorts Worldwide

Accor

Hilton Hotels Corp.

Best Western International

Carlson Hospitality Worldwide

Marriott International

Wyndham Hotel Group

Golden Tulip Hospitality/THL

The Rezidor Hotel Group

Global Hyatt Corp.

Choice Hotels International

Club Mediterranee

Four Seasons Hotels & Resorts

TUI AG/TUI Hotels & Resorts


Does your company currently either franchise or operate locations in international markets?

Yes61%

No39%


Yes74%

No26%

Does your company plan to accelerate or start new franchise operations in international markets?


Not Important15%

Somewhat Important

19%

Important19%

Very Important13%

Extremely Important

34%

How important is international to your company’s future success?



§ Why? § Why Now, Especially?

§  And What About Tomorrow?

GLOBAL FRANCHISE EXPANSION: STRATEGIES FOR LUCRATIVE AND PLANNED GROWTH

William Edwards, CFE EGS LLC [email protected] !

"

2011 Trends In Global Franchising

Who We Work With And Where

EGS works with Franchisors such as Carl’s, Jr.®, Denny’s®, FranNet®, Golf Etc., Molly Maids®, Mr. Handyman®, Right At Home®, Rita’s Italian Ice®, Round Table Pizza® and Two Men and A Truck®

EGS has 30 Associates based in 25 countries

In 2010, EGS marketed our Clients in 20 countries on 4 continents

The U.S. Commercial Service considers EGS as the largest single exporter of US franchises

© EGS LLC, 2011

Global Trends In 2011

•  Why Go Global With Your Franchise

•  Keys To Going Global Successfully

•  Global Development Options

•  Choosing Countries To Franchise Into

•  The Bottom Line Today

© EGS LLC, 2011

Strategic Benefits of International Business

•  New sources of initial fees, royalties and product sales

•  Makes you less dependent on your home market

•  Increases brand value for all stakeholders > a global brand

•  New platform for business growth

•  Sustainable, incremental and diversified

•  Leverages existing intellectual property and resources

•  International image helps franchise sales in the US

© EGS LLC, 2011

Keys To ‘Going Global’ Successfully

CEO and Board sees International as a business growth strategy

A pro-active business plan

Trademarks

Strong training and support

Clear concept differentiation

Market and competitor research

Your Intranet

Adapted from an article by Bill Edwards and Robert Shaw in “Franchise Times” © EGS LLC, 2011

The No. 1 Requirement For International Development Success

Find, evaluate and sign the correct Licensees who will start and grow your business correctly and profitably in their countries

© EGS LLC, 2011

To Go Global Successfully Today, Franchisors Must Have These Qualities

ü  A global strategy and pro-active plan for entering other countries

ü  An excellent record of franchising success in their country •  Strong unit franchise earnings results •  Consistent unit growth with few, if any, closures

•  Proven margins despite a high level of competition

ü  Strong training, support, marketing and Intranet resources

ü  A financial and development model that offers licensees the potential for a good return on investment

© EGS LLC, 2011

Clear Differentiation Is Essential

This works for all types of franchises and is essential to sell internationally

Special Children's Education Features Abrakadoodle® Other Educational

Franchises

Local Education

Businesses

#1 Art Education Franchise in the USA* Yes No No

#1 Children's service franchise in the USA* Yes Yes No

Asia Proven: Master licensees in Japan, Malaysia and Singapore Yes No No

Multi-cultural international art education program Yes No No

Art education program for children aged 20 months - 12 Yes No No

State-Of-The-Art Internet delivered curriculum program Yes No No

Curriculum exceeds National Standards For Visual Arts Education Yes No No

Teacher/Instructor certification programs Yes No No

'Artists Of Distinction' program Yes No No

1500+ curriculum programs available to licensees Yes No No

New curriculum every 8 weeks Yes No No

Exclusive 'Drawster®' and 'Art In Our World®' programs Yes No No

Exclusive partnership with Crayola® Yes No No

School, community center and retail location programs Yes No No

Intranet based franchisee and teacher training and e-learning Yes No No

Founders have international children's franchise experience Yes No No

Online class registration and curriculum delivery Yes No No

Proprietary Intranet with large library, forums and email marketing Yes No No

* Entrepreneur Magazine 2009

GlobalProfile™ - F&B Sector

International Market Profile Developing and developed markets on an area and country level Appreciation for name brands and professional standards Local appeal for “fresh” and “healthy” attributes History of successful franchising and franchise-friendly environment

International Area Licensee Profile Strong, marketing oriented company or group, involved in a service related business Access to real estate and prior or current retail or hospitality development experience Capital to invest of US$5,000,000 on this license Must possess a thorough knowledge of the local marketplace, be well placed in the community and have the ability to staff with the expertise to assure a smooth transfer of the systems to be successful

Potential Master Franchisee Candidate Companies Food service sector; retailing and other service related businesses Real estate and property development and management businesses Developers and operators of shopping malls and retail centers Food, beverage and distribution related businesses

© EGS LLC, 2011

International Expansion Options Though Licensing

Control

Inve

stm

ent

less

less

Joint Venture (direct franchising)

Master Franchising/ Regional Licensing

Direct Franchise

Direct Investment

Adapted from Kurt Ullman

Area License

Factors To Consider When Deciding Which Countries To Franchise Into

n  Rule of Law

n  Country Stability

n  Intellectual Property Protection

n  Good GDP Growth = Investors

n  Clear Market Differentiation

n  Potential to Achieve An Acceptable ROI

© EGS LLC, 2011

Big Mac Index

The Big Mac index, published two times a year, compares the price of a Big Mac package on a certain date using the then current exchange rate In Zurich you can expect to pay around US$7 for a Big Mac. In Shanghai you will pay Labor, supply chain and rent costs usually make the difference between countries.

‘The Economist’ – October 2010

Country Rankings - 2011

© EGS LLC, 2011

Expected Market Legal Ease Of Ease Of Political OverallCountry/Region 2011 GDP Size Concerns Market Starting A Risk Ranking

Growth (Customers) Entry Business (Stability)

Brazil 1 1 2 2 3 1 1.7Colombia 1 2 2 2 2 1 1.7Hong Kong 1 4 1 2 1 1 1.7Singapore 1 4 1 2 1 1 1.7Urban China 1 1 2 2 2 2 1.7India 1 1 2 3 3 2 2.0Indonesia 1 1 3 2 3 2 2.0Viet Nam 1 2 2 1 4 2 2.0Philippines 1 2 2 3 3 3 2.3Malaysia 1 2 3 3 3 2 2.3USA 2 1 2 1 1 1 1.3Australia 2 2 2 3 1 1 1.8South Africa 2 2 2 1 2 2 1.8Mexico 2 1 2 2 2 3 2.0South Korea 2 2 3 2 1 2 2.0Middle East Region/GCC 2 2 2 2 3 3 2.3Russia (excluding oil GDP impact) 2 2 4 3 3 3 2.8Japan 3 1 2 2 1 1 1.7United Kingdom 3 1 2 2 1 1 1.7Canada 3 2 2 2 1 1 1.8Germany 3 1 2 3 1 1 1.8Spain 4 1 2 2 1 1 1.8Ireland 4 4 1 2 1 1 2.2Italy 4 2 2 2 2 2 2.3

Country Ranking: 1 is good, 2.5 is fair, 4 is worst '1' for expected GDP growth is 4% or higher Sources: ʻThe Economistʼ, Heritage Foundation, World Bank, Fraser Institute, World Economic Forum, EGS GlobalTeam™

Most Desired Franchise Types - 2011

Most Desired Franchise Types1' Is Most Desired

Country Or Region Education Food Retail ServiceAustralia 2 2 1 1Brazil 2 1 2 2Canada 3 3 1 1Urban China 1 1 1 3Colombia 2 2 2 2Hong Kong 1 2 2 2India 1 1 1 2Indonesia 1 1 2 2Ireland 3 3 2 1Japan 3 2 3 1Malaysia 1 2 2 2Mexico 2 2 2 2Middle East 2 1 2 2Philippines 2 1 3 3Singapore 2 2 2 2South Africa 1 2 3 3South Korea 2 3 3 3Spain 3 2 3 2Turkey 2 2 2 3United Kingdom 3 2 3 1USA 3 2 2 1Viet Nam 1 1 2 3 Based On An EGS' 25 Country GlobalTeam™ Survey

© EGS LLC, 2011

International License Examples: Education, Food, Retail and Service Sectors

•  Abrakadoodle® in Japan, Malaysia and Singapore

•  Carl’s, Jr. ® in Viet Nam •  Cold Stone Creamery® in

Scandinavia •  Crestcom® in Viet Nam

•  Dairy Queen® in Saudi Arabia

•  Johnny Rockets® in the Middle East and the Philippines

•  Mr. Handyman® in China •  Molly Maid® in Japan •  Precision Auto Tune® in

the Czech Republic •  Right At Home® in Brazil

and the United Kingdom •  Round Table Pizza® in

Dubai and Viet Nam •  Sir Speedy in India

•  The Melting Pot® in Indonesia and Mexico

•  Vitamin Shoppe® in India

The Bottom Line: Keys To Global Success in 2011

•  Make international franchise development a strategic direction for your franchise, not a short term source of fees

•  Your international franchise business model must have clear differentiation to succeed in other countries today

•  Pick countries where you have a good chance of making a good rate of return

•  Watch global developments monthly and be prepared to update your development plan

•  Take the time to find, fully evaluate and sign the right master franchisees, licensees and/or joint venture partners

© EGS LLC, 2011


How Will Going International Affect Your Franchise Documents?

§ Differences Arising from the Structure § Differences Arising from the Deal

§ Provisions Uniquely Appearing in International Documents

§ Different Treatment of Issues in International and Domestic Agreements


Franchise Laws Around the World: 1970


Franchise Laws Around the World: 2011


Laws Applicable to Franchising April 2011

Blue = Disclosure Law Green = Relationship Law Red = Disclosure & Relationship Laws Black = Other

The Americas Barbados Brazil Canada Alberta New Brunswick Ontario Prince Edward Island Mexico United States Federal Several States Venezuela (competition law)

Europe EU (competition law) Within EU Belgium Estonia France Lithuania Italy Romania Spain Sweden

Non-EU Albania Belarus Georgia Moldova Russia Ukraine

Central Asia Mongolia Kazakhstan Kyrgyzstan Asia

China Japan Macau South Korea Taiwan Vietnam The Middle East

Saudi Arabia (commercial agency law)

South Pacific Australia Indonesia Malaysia

Does Not Include: •  Codes of conduct which do not provide for governmental or private enforcement, even if promulgated under governmental authority.

•  Bodies of law (e.g. competition, intellectual property, etc.) which also cover franchising, unless explicitly mentioned.

Africa South Africa Tunisia


Disclosure in International Transactions

§ Required? § If so, how similar?

§ Can domestic documents be used?

§ If not required, advisable?

35

Global Franchise Expansion Factors to consider when venturing abroad

David Pepper SVP Global Development

Choice Hotels International

36

Why Global Expansion?

•  As Globaliza.on has taken hold over the last 20 years, interna.onal growth has become a “must” for any company seeking high rates of sustained future growth.

•  The “Great Recession” in western markets has accelerated the push into emerging economies.

•  Branding has become more commonplace everywhere, represen.ng a tremendous opportunity for any great franchise concept to expand its footprint.

•  However, as anyone who has tried to expand their brand interna.onally will aHest, it is much easier said than done.

37

Benefits of International Growth

•  Diversifica.on – reduce dependence on domes.c growth, establish new rela.onships/supply chain, and generate more visibility for your brand.

•  Create new customers – many consumers in emerging economies prefer Western brands which carry “pres.ge” over domes.c alterna.ves.

•  Build brand loyalty – offer your product/service in new markets so your customers won’t be tempted to try something new when traveling abroad.

•  Almost limit-‐less growth poten.al – demographic and socio-‐economic changes in Asian, South American, and African markets offer an incredible “once in a genera.on” opportuni.es.

38

Key Success Factors

•  Great Brand – it is easy to say, but you must have a concept that translates across borders and is sufficiently differen.ated/appealing enough to aHract customers that are not familiar with it. Make sure you consider any necessary “retooling” of the concept for the local market (i.e. menu items, size of guestrooms/ameni.es, etc.)

•  Human Capital – local market knowledge is cri.cal. Expect to spend more .me with franchisees to teach them your business. You need to ins.ll the same passion in your franchisees/their workforce that made you brand successful in the first place. The franchisee must have local support -‐ high touch service is a must!

39

Key Success Factors (con’t)

•  Technology – have the right systems in place to not only deliver business, but also track sales, assist with training, supply chain management, etc. Make sure upfront costs are factored in your business plan!

•  Selec.ng the right partners – this seems obviously, but it is amazing how many brands sacrifice proper screening of local franchisees for the allure of rapid expansion. The most cri.cal element for any franchise concept’s ul.mate success is franchisee sa.sfac.on! Happy franchisees can be your best advocates to help sell more unites and unhappy franchisees can be your biggest liability.

40

Where to Grow?

•  There are opportuni.es in both mature and emerging economies for the right concept. Ignoring either is a mistake, but each must be approached differently.

•  Mature markets (like Western Europe, Canada, and Japan) have different capital requirements (higher land/construc.on/labor costs), well-‐developed legal systems, and level of franchisee sophis.ca.on.

•  Emerging markets (India, Brazil, Eastern Europe, SE Asia) require a longer .me horizon due to poten.al infrastructure, bureaucra.c, and poli.cal issues that may hinder rapid expansion.

•  Have the right strategy/infrastructure in place before selec.ng which markets you want to penetrate. Think about how you will service your franchisees for a new market (establish local office, from regional center, etc.)

41

Picking the Right Type of Agreement

5 Primary forms of Agreements: •  Franchise Agreement -‐ relates to the opera.on of one hotel

•  Mul.-‐Unit Franchise Agreement -‐ umbrella agreement for 1+ hotels where franchise agreements will be signed simultaneously

•  Master Development Agreement -‐ umbrella agreement for 1+ hotels where franchise agreements will be signed over a period of :me

•  Master Franchise Agreement -‐ franchisor relinquishes full control over brand development and opera:ng rights and obliga.ons within a specified territory

•  Area Representa.ve Agreement -‐ franchisor relinquishes par:al control over brand development rights and obliga.ons and par:al control over opera.ng rights and obliga.ons within a specified territory

42

Post-Opening Issues

•  Opening process – supply chain lead .mes, build-‐out requirements, quality inspec.ons

•  Collec.ng Fees – make sure you have accoun.ng processes in place – tax strategies?

•  On-‐going franchisees support -‐ post-‐opening support visits/training, regional mee.ngs, webinars, etc.

•  Have strategy in place to replace non-‐performing or deficient units through QA process.

•  Track term of agreement/contract windows – constantly have to prove the value of your brand to the franchise.

•  Solicit Feedback – annual conven.ons, surveys, and website.

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How do you keep Intenrational Francisees Happy?

•  Deliver what you promised.

•  Be responsive – have empowered local team.

•  Communica.on – constantly engage your franchisees to iden.fy best prac.ces that can be leveraged by the system, success stories, and compe..ve threats. All kinds of ways – newsleHer, Facebook page, “town hall mee.ngs”, franchisee apprecia.on events, community service projects that can be jointly supported, etc.

•  Constantly innovate – business trends and “in” concepts can change quickly. Make sure you understand your core product and customer and be prepared to “call an audible in the huddle” if necessary.


Philip F. Zeidman is a senior partner with DLA Piper's Franchise and Distribution practice, based in Washington, DC. He devotes his practice to domestic franchising law and the rapidly growing field of international distribution, licensing and franchising law. He was recently named Global Franchise Lawyer of the Year at the Who's Who Legal Awards for the fifth consecutive year, by Who’s Who Legal, The International Who’s Who of Business Lawyers. Chambers USA/Global: America's Leading Lawyers for Business ranks him among the foremost practitioners of franchising law. Chambers Global 2010 calls him the "best-known lawyer in the world on the international front" for franchising. In 2009 it described him as "the godfather of international franchising.” In 2008 it noted that he is "considered an icon of the franchise industry" and has a reputation "second to none.” Mr. Zeidman is counsel to a number of US and foreign companies and trade associations. He served as General Counsel to the International Franchise Association throughout his career and also served as Special Counsel to the Japan Franchise Association. He has engaged in an international transactional practice, testified on franchising before governmental bodies, participated in judicial and administrative proceedings, taught at universities and appeared before business and professional groups in Argentina, Australia, Austria, Belgium, Brazil, Canada, the Czech Republic, England, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Israel, Italy, Japan, Mexico, Morocco, New Zealand, the People’s Republic of China, Poland, Portugal, Russia, Serbia-Montenegro, Singapore, Slovenia, South Africa, South Korea, Sweden, Switzerland and Turkey, and before the Commission of the European Union as well as before numerous US congressional committees.

500 Eighth Street, NW Washington, DC 20004 United States

[email protected] T: +1 202 799 4272 F: +1 202 799 5272


William Edwards, President of EGS A senior Executive with 37 years of international operations, development, executive and entrepreneurial experience, Mr. Edwards has lived in China, the Czech Republic, Hong Kong, Indonesia, Iran, Turkey and the USA. He has directed projects on-site in Alaska, Asia, Eastern Europe and the Near East and worked on projects in over 60 countries. From 1990-2001, Mr. Edwards worked with the AlphaGraphics global digital print group as a master franchisee in China and Eastern Europe and also as the company’s USA-based Senior International Executive growing the company’s global network from 4 countries in the early 1990s to 24 countries. Mr. Edwards is a Certified Franchise Executive (CFE), a Member of the ICFE Board of Governors as well as the International Committee, the Research Committee and the Supplier Forum of the International Franchise Association. He is also a member of the Advisory Board of the International Institute of Franchise Education at NOVA Southeastern University. Prior to his licensing and consulting career, Mr. Edwards had a 20-year oil and gas sector career with Atlantic Richfield and Ashland Oil while living in China, Iran, Indonesia, Hong Kong, Turkey and the US.

Edwards Global Services, Inc. 19800 MacArthur Blvd., Suite 300 Irvine, California USA 92612 1.949.224.3896 Main Office 1.949.266.5913 Fax William Edwards, President 1.949.375.1896 Direct Line

© EGS LLC, 2011


David Pepper Senior Vice President, Global Development

David Pepper is senior vice president, global development for worldwide lodging franchisor Choice Hotels International, Inc. (NYSE: CHH). In this position, he is responsible for driving unit growth for each of the company’s brands in key markets worldwide. He also is an officer of the company.

Mr. Pepper joined Choice in 2002 as vice president of franchise sales and development for the company’s new construction brands. In 2004, he was promoted to senior vice president of franchise development for North America. In January 2005, Mr. Pepper served as an integral part of the team that launched the Cambria Suites brand in direct response to strong market demand for a lower-upscale lodging product, as well as the company’s capacity to build brand loyalty in a highly competitive consumer marketplace. In September 2005, Mr. Pepper led the company’s acquisition of the Suburban Extended Stay Hotel brand, which not only expanded Choice’s presence in the extended stay brand market, but also established Choice as the largest franchisor in the economy extended-stay segment.

As part of the launch of Cambria Suites and the acquisition of Suburban Extended Stay, Mr. Pepper took on the additional responsibility for brand strategy and operations of the company’s upscale and extended stay brands (Cambria Suites, MainStay Suites and Suburban Extended Stay Hotel), including marketing, design and construction, franchise development, franchise services and quality assurance.

During his tenure at Choice, Mr. Pepper has been responsible for leading franchise sales to record levels. In fact, in the first three years under his leadership, franchise sales more than doubled.

In 2009, in recognition of his proven track record in driving significant unit growth for the company, Mr. Pepper was named to his current position as senior vice president, global development. Prior to joining Choice, Mr. Pepper spent six years with US Franchise Systems as vice president of franchise sales for Hawthorn Suites and Microtel Inns. He also spent five years with Holiday Inn Worldwide as a director of franchise sales. A graduate of Tufts University, Mr. Pepper has 20 years of experience in the hospitality industry and is actively involved in a number of organizations, including as a member of the Inns & Suites Committee for the American Hotel & Lodging Association (AH&LA) and the planning committee for the annual Americas Lodging Investment Summit (ALIS).

CONCLUSION / Q&A

Global Franchise Expansion: Strategies for Lucrative and Planned … · 2014-04-17 · The 200 Top...

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