Commerce Blog

Dispelling 6 myths of why small brands ‘can’t’ go international

Restaurant brands know international expansion is a critical part of the food restaurant business from both a sales viewpoint — 68 percent in 2013, for McDonald’s — and profits — 70 percent for Yum! Brands in 2013. However, many smaller food companies incorrectly assume they cannot participate in the growing importance of international markets. Conversations at the recent Franchise Expo in June 2015, with over 40 casual food companies, confirmed the prevalence of this misconception.

There are six myths that often prevent smaller brands from realizing the benefits of going international. They include:

Myth 1: International development requires large investment beyond the reach of smaller firms.

The reality: The franchisee makes all the capital and operating investments in the stores, the people and the promotion. The franchisor’s investments, whether in travel, legal or the time of its employees, is limited, as discussed below and is more than offset by fees received.

Myth 2: Training will require too much time and money.

Reality: If the training is done in the franchisee’s country, the franchisee absorbs all expenses. If the franchisor must send people to this country or region, the franchisor can charge for this expense. One of our clients, for example, charges $20,000 per month, plus travel.

Myth 3: Supply side issues will be complex and costly.

Reality: It is the responsibility of the franchisor to provide clear recipes to the franchisee, who in turn, must purchase the ingredients either from local or international sources, such as Sysco. The only exception might be a food or sauce that the brand owner requires the franchisee to purchase something directly because it is difficult to make or source, such as barbeque sauce or a macaroon. This is not a common issue.

Myth 4: Legal and travel expenses will be excessive.

Reality: Franchisors need to pay for brand registration in the country of the franchisee. Franchisors and franchisees each pay for the cost of the legal advice for the agreement itself. Each is a one-time expense. As for travel, there is generally no contractual obligation for a franchisor to travel. However, it is recommended that a brand travel at least once, and ideally twice, to visit the franchisees in their home country in order to meet with key executives, assess the operation and discuss opportunities and issues with the franchisee.

Myth 5: Management time will be a diversion from management of the U.S. core business.

Reality: In the first year, the franchisor needs to share information on all its key success factors — menu, training and design. A franchisor should designate a single person to be responsible for all communications and follow up with the franchisee on these issues. This is not a time-consuming process and occurs largely at the beginning of the process. Moreover, whatever modest expenses are incurred are more than covered by the franchise or territory fee.

Myth 6: I will lose control of of my brand.

Reality: This is a very legitimate concern. Just as real estate success depends on three things — location, location, location — international brand development depends on three things — partner, partner, partner. If a brand owner has the right partner, the brand will flourish and not be threatened. Any problems can be discussed and resolved. If a brand owner makes a bad decision and chooses the wrong partner, there will be nothing but headaches, and the brand’s positioning and awareness could be threatened.

A smaller company will often be approached by international trading companies that will make many claims and promises in a partnership scenario. For example how can a U.S. company know if a firm in Qatar is the real deal or not? This requires either a lengthy and expensive trip to the Middle East, and even this may not be conclusive, or the outsourcing of this to an experienced licensing company.

Proof small brands have succeeded with international businesses

Some small fast casual brands have successfully taken advantage of global emerging markets, including in the the Midlde East, according to Euromonitor International:

“The Middle East in particular has emerged as a major fast casual target, with many US concepts now looking directly to the UAE or Saudi Arabia before they’ve even begun developing within their home regions. In developing markets such as the Middle East, SE Asia and China there is a growing middle class of younger, aspirational consumers with rising expectations and a sense of curiosity, all of which support the growth of fast casual.”

Some recent openings include:

A U.K. casual restaurant has 35 locations and will have 150 locations in the Middle East, SE Asia and China.
Shake Shack, which started as a pop-up joint in NYC, now has 21 locations in the Middle East, four in Turkey, three in Russia and two in the U.K.
Elevator Burger, which had about 20 locations in the U.S. when it entered the Middle East, now has 18 in this region.
In two years Jake’s Wayback Burgers has opened 81 stores in the Middle East
Lessons for smaller companies

So yes, a small brand can build an international business, but they need to choose the right partner, which is the most critical issue compared to finances.

The responsibilities for a franchisor or licensor includes:

Brand registration.
Sharing the key success factors of your company, including recipes, service training, design, management practices.
Follow-up with partner through frequent communications and, once or twice a year, trips to see the operations.

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