In today’s world we see international franchises all over the place. Just go out your place, walk for about 10 minutes and spot how many McDonald’s or Starbucks you see out there. Globally, international franchises are playing an essential role in the expansion of restaurants. In fact, according to a Standard and Poor’s survey conducted during 2014, Yum! Brands and McDonald’s (the two biggest companies in the restaurant industry), achieved more than 50% of their sales, through their overseas markets during 2013. Also, studies have proven that most major franchisors are currently looking for international franchisees (Alon, 2010, cited in Ni and Alon, 2010). However, a high percentage of them fail, mainly because there is no currently an accurate analysis on the degree in which these franchises can adapt.
With this in mind, this short text will aim to explain which four pillars the franchisors should follow when expanding internationally in order to achieve a positive outcome and survive in a different market:
Product adaptation to different cultures
Many food entrepreneurs from big companies and also small sized ones have agreed that adaptation to the foreign market is essential. When a franchise is opened overseas, it is vital that the business model adapts to the local culture, to successfully provide a service to these new customers, in which understanding the cultural differences is vital (Best, 2013).
The cultural differences that each country possesses influences in the adaptation of the product. For example, in order for McDonald’s to compete and grow in Latin America, it needed to include items on their menus that are not seen in other places. As a study conducted by Taylor Barnes (2012) mentions, although finding the ‘Big Mac’ in any McDonald’s branch in Latin America is possible, an ‘arepa’ bun was included in the breakfast menu in Venezuela, a ‘pao de queijo’ (cheese-flavoured bread) in Brazil or a Kosher big Mac for the considerable Jewish population living in Argentina.
When a franchisor chooses a franchisee there needs to be a deep evaluation on who will be the individual or group who will either take your brand to success or failure. This player will be the ‘face’ and will be representing your brand in a different market. Experts in franchisor and franchisee selection agree that there is little known about how franchisors and franchisees go about choosing one another (Altinay, 2006; Clarkin and Swavely, 2006, cited in Perrigot, Basset and Cliquet, 2010).
Finding the right partner might also be critical for the future of the brand, as not always the franchisor and franchisee have the same goals or objectives. To support this claim, Levent Altinay (2006) mentions that when it comes to international franchises: “the process of selection is not just about employing a number of selection criteria, it is a substantial multidimensional organisational activity which involves human dynamics”, which evidences the fact that it is a complicated procedure and is not accomplished overnight.
Marketing Strategy Adaptations
You can’t reach potential customers using the same channel or tool that you use in France than the one you will use in Saudi Arabia. Each market, and therefore each population has different marketing strategies and different ways to reach and engage customers.
For example, in India, Dunkin Donuts (U.S based chain) had to rebrand its image through a marketing advertising campaign, since the menu had almost as many burgers as McDonald’s (due to cultural and religious characteristics both chains offer beef-free burgers) and let the Indian community know about this (Rana, 2014).
This also relates to new technology being implemented in these new marketing strategies and how to reach new customers. Applying this insight into the international restaurant franchise context, KFC in China could be used as an example. This franchise is employing self-service kiosks (in Hangzhou, China) with facial recognition, in which customers pay only by looking at the camera (Kioskmarketplace, 2017). Adapting to the market in this technological aspect, has allowed the franchise (managed by Yum! Brands) to have a growth in sales for KFC of 7% (during 2017), while Pizza Hut increased only in 1% in the same country and year (Yum China Holdings, 2018).
Where the restaurant will be located can have a huge impact on the revenue the brand can generate. Choosing it incorrectly could also cause a disastrous outcome in which the companies needs to leave the market. As Eric Johnson (Senior international trade specialist for the U.S. Department of Commerce's) states: “To grow internationally we should focus on location, location and location.” (Johnson, 2016), but choosing the right location may sometimes be uncertain for many franchises, and they may also vary depending on the country and culture.For example, for U.S franchises in Korea, the result of a study conducted by various academics showed, that from the franchisor perspective, they mainly prefer shopping malls and department stores for the location of the franchise (Lee, Kahn and Ko, 2010), clearly this will depend of the type of restaurant and target market they are aiming for.
Even though these recommendations are followed and evaluated by the franchisors and the decision-makers, there are always external factors that do affect the performance of the restaurant franchise. Let’s keep in mind that the restaurant industry is one of the most volatile ones in the market (Slattery and Olsen, 1984, cited in Sun and Lee, 2013). My personal suggestion would be that franchisors need to perform a deep evaluation, applying these crucial factors mentioned above and also be prepared for unplanned events that could consequently affect their brands. However, it is not impossible to expand internationally or to new markets. Of course, they do demand in most cases a high investment, but principally, they demand trust in the person or group who is going to take forward your brand to new horizons. The good part is that people still have to eat, and more and more people are open to new foods, cultures and culinary experiences.
· Barnes, T. (2012) ‘Franchising boom in Latin America and the challenge of adapting to local tastes’, Latin Trade.Available at: https://0-search-proquest-com.wam.city.ac.uk/docview/1011566988?pq-origsite=summon. (Accessed 02 January 2019).
· Best, M., (2013) ‘Adapting Your Franchise Model to Suit Different Cultures’. Franchising World, 45(6), pp. 52-55. Available at: https://0-search-proquest-com.wam.city.ac.uk/docview/1404762812?pq-origsite=summon(Accessed 02 January 2019).
· Johnson, E. (2016), ‘Localization of Franchise Systems: Adapting Core Identities for the Global Marketplace’, Franchising World, 48(6), pp. 20. Available at: https://0-search-proquest-com.wam.city.ac.uk/docview/1805463749?pq-origsite=summon. (Accessed 02 January 2019).
· Kang, K.H., Lee, S., Choi, K. and Lee, K. (2012) ‘Geographical Diversification, Risk and Firm Performance of US Casinos’, Tourism Geographies, 14(1), pp. 117-146. doi: https://doi.org/10.1080/14616688.2011.593043.
· KFC restaurant in China tests self-serve kiosks with facial recognition. (2017). Available at: https://www.kioskmarketplace.com/news/kfc-restaurant-in-china-tests-self-serve-kiosks/.(Accessed 02 January 2019).
· Liqiang Ni, and Ilan Alon. (2010) ‘U.S.-Based Fast-Food Restaurants: Factors Influencing the International Expansion of Franchise Systems’, Journal of Marketing Channels, 17(4), 339-359, doi: https://doi.org/10.1080/1046669X.2010.512861.
· Perrigot, R., Basset, G. and Cliquet, G. (2011) ‘Multi-channel communication: the case of Subway attracting new franchisees in France’, International Journal of Retail & Distribution Management, 39(6), pp. 434-455. doi: https://doi.org/10.1108/09590551111137985.
· Pizanti I., Lerner, M. (2003) ’Examining Control and Autonomy in the Franchisor-Franchisee Relationship’, International Small Business Journal, 21 (2), pp. 131-5159, doi: https://0-doi-org.wam.city.ac.uk/10.1177/0266242603021002001.
· Rana, P. (2014) ‘Dipping In to India, Dunkin' Donuts Changes Menu; Adapting to Local Tastes, Chain Downplays Doughnuts, Adds Veggie Burgers’, Wall Street Journal. 28 November. Available at: https://www.wsj.com/articles/dipping-into-india-dunkin-donuts-changes-menu-1417211158. (Accessed 02 January 2019).
· Sun, K. & Lee, S. (2013) ‘Determinants of degree of internationalization for U.S. restaurant firms’, International Journal of Hospitality Management, 33, pp. 465-474. doi: https://doi.org/10.1016/j.ijhm.2012.11.006.
· Yum China Holdings. (2018), Yum China Reports Fourth Quarter and Full Year 2017 Results. Available at: https://www.prnewswire.com/news-releases/yum-china-reports-fourth-quarter-and-full-year-2017-results-300594944.html.(Accessed 02 January 2019).