Expanding Internationally: Development Modes for F&B Brand Franchisors

In today’s globalized world, restaurant brands are increasingly looking to expand their footprints internationally. The success of brands such as McDonald’s, Starbucks, and KFC have demonstrated the lucrative potential of international markets. However, expanding internationally involves navigating complex logistical, legal, and cultural landscapes. To achieve successful international expansion, restaurant brand franchisors typically utilize several development modes, each with its own advantages and challenges.

 

FRANCHISEBIZ explores the primary development modes available to franchisors aiming to establish their brands on the global stage

 

• Direct Franchising

Direct franchising involves the franchisor granting a franchise directly to an individual or entity in the target market.

Advantages:

• Control: Franchisors maintain significant control over brand standards, ensuring consistency in customer experience.
• Direct Revenue: Direct franchising allows the franchisor to earn franchise fees and royalties directly.

Challenges:

• Resource Intensive: Managing franchises in multiple countries requires substantial resources and infrastructure.
• Local Knowledge: Franchisors must possess or acquire in-depth knowledge of the local market, including consumer preferences and regulatory requirements.

Example: McDonald’s initial international expansion utilized direct franchising to establish a strong presence in markets like Canada and the UK.

 

• Master Franchising

In master franchising, the franchisor grants a local entity (the master franchisee) the rights to develop and sub-franchise the brand within a specific region or country.

Advantages:

• Local Expertise: Master franchisees typically have extensive knowledge of the local market and business environment.
• Scalability: The master franchisee handles local operations, allowing for faster and more scalable expansion.

Challenges:

• Control: The franchisor relinquishes some control over operations, which can lead to inconsistencies.
• Dependency: The success of the franchisor’s international presence depends heavily on the performance of the master franchisee.

Example: Subway has successfully used master franchising to expand into numerous international markets, leveraging local partners‘ expertise.

 

• Joint Ventures

A joint venture involves the franchisor partnering with a local business entity to establish and operate the franchise.

Advantages:

• Shared Risk: Both parties share the financial risks and benefits of the venture.
• Local Partnership: Local partners bring market knowledge, existing networks, and resources, facilitating smoother market entry.

Challenges:

• Complex Management: Joint ventures require careful management of the partnership to ensure alignment of goals and operations.
• Profit Sharing: Profits are shared between the franchisor and the local partner, potentially reducing the franchisor’s earnings.

Example: Starbucks has formed joint ventures in various countries, including China, to navigate complex market conditions and accelerate growth.

 

• Area Development Agreements

Area development agreements grant an individual or entity the rights to develop multiple franchise locations within a defined territory over a specified period.

Advantages:

• Focused Growth: Franchisors can achieve rapid growth within a specific region through a committed area developer.
• Economies of Scale: Multiple locations under a single developer can benefit from shared resources and economies of scale.

Challenges:

• Performance Risk: The success of multiple locations depends on the capability and performance of the area developer.
• Monitoring: Ensuring consistent quality and adherence to brand standards across multiple locations can be challenging.

Domino’s Pizza often uses area development agreements to expand in international markets, enabling swift establishment of multiple outlets.

 

• Corporate-Owned Stores

The franchisor directly owns and operates stores in the international market.

Advantages:

• Complete Control: Direct ownership allows the franchisor to maintain strict control over operations, quality, and brand standards.
• Full Revenue: The franchisor retains all profits generated by the stores.

Challenges:

• High Investment: Establishing corporate-owned stores requires significant capital investment and resources.
• Operational Complexity: Managing operations in diverse markets with different regulations and consumer behaviours is complex and resource intensive.

Example: Starbucks operates many of its international stores as corporate-owned locations, particularly in key markets like Japan and the UK.

 

Expanding a restaurant brand internationally offers immense opportunities but also requires strategic planning and execution. Choosing the appropriate development mode depends on various factors, including the franchisor’s resources, market conditions, and long-term goals. By leveraging the right approach, franchisors can successfully navigate the challenges of international expansion and unlock new growth avenues for their brands. As the global foodservice market continues to evolve, the ability to adapt and innovate in these development modes will be crucial for sustained international success.

 

At FRANCHISEBIZ, we are dedicated to supporting strong F&B brands in finding the right international partners, regardless of the chosen model. Please get in touch with us for a conversation today!