A fruitful year abroad? Consider these trends and insights for 2020
Illustration by Jonathan Hankin
Unsurprisingly, the appetite for international expansion is set to increase. Franchise systems are more savvy in devising well-informed strategy and implementing their international expansion programs. This includes mature brands that have previously confined franchising efforts to their home jurisdiction. HomeVestors, with more than 1,100 franchises in 174 U.S. markets, is one of them. HomeVestors spent a large part of 2019 planning and preparing for its push into Canada.
“We have plans to begin awarding franchises in Canada in 2020, which will be our first-ever international expansion,” said David Hicks, CEO of HomeVestors. Canadian homeowners face similar challenges as those in the U.S., he pointed out, meaning there’s a market for the home buying brand’s “solutions for ugly situations” concept. “Wanting to improve your local real estate market isn’t limited by borders,” Hicks said.
The competitive nature, though, of the international franchising landscape is escalating. Hicks warned that franchise brands expanding internationally must place special emphasis on training, mentoring and providing best in class franchise support. Particularly in the age of online platforms, social media and the 24-hour news cycle, consumers wield significant power in shaping the perception and reputation of a brand. For this, and other reasons, it is critical that brands closely manage the expansion process bolstered with “best standards business practices that have been developed with your successful franchise system,” said Hicks.
Mix it up
International franchisees will continue seeking opportunities to diversify their portfolios and leverage their existing infrastructure by means of traditional diversification strategies (adding a chicken concept to burger, pizza or coffee concepts) as well as alternative strategies (multi-brand franchisees may look to combat labor pressures by investing in labor-light concepts like gyms or suite-rental concepts).
The corollary will be an increased demand for tailored and bespoke international events that facilitate networking (and connecting) between sophisticated multi-unit/brand franchisees and franchise brands. The key for such events will be to identify the appropriate suitors and to create an environment where they are able to meaningfully connect, efficiently learn about each other’s business and explore potential franchise arrangements.
Morven Groves, vice president of international growth at 10 Point Capital, said, “a couple of the 10 Point Capital franchise concepts—Slim Chickens and Phenix Salon Suites—recently participated in HSBC’s Meet the Brands event, a speed networking event for multi-unit franchisees to find their next investment opportunity. We found it was a very efficient way for both our team, and potential franchisees to connect and start discussions.”
Eye on fitness
Fitness continues to be a trending industry. Jamie Britt, franchise development director for F45 Training, said consumers are increasingly focused on health, and willing to pay a premium for quality. So much so that they are re-allocating funds from their entertainment budgets to their health budgets, a significant change from 10 years ago. Also trending is the consumer’s focus on experience over traditional pursuits. “With boutique and branded fitness trending upward”—driven by the meteoric rise in demand—“there are more offerings making greater headway into the international markets that not only provide enhanced customer experience but also focus on the social and community aspects of fitness,” said Britt.
Bernard Birnbaum, CEO of The Warrior Factory, said parents are seeking out physical and experiential activities for their children to combat sedentary technology-based activities, a trend that is set to continue in 2020. Birnbaum echoed the sentiment that creating memories is an increasingly important value for families in the U.S. and many international jurisdictions. Obstacle course races are becoming more popular among children and adults alike, in no small part due to various TV shows, and more concepts are poised to enter the industry. In addition, conventional trampoline parks (having the appropriate footprint) will look to incorporate obstacle elements to their existing facilities.
Rules and regulations
While some of the heat relating to joint employer liability in the U.S. appears to have dissipated from the recent National Labor Relations Board ruling, certain regions (particularly California) remain intent on increasing the level of regulation of the franchise relationship. Internationally, increased regulation is likely in certain parts of South America (particularly Argentina), Asia and even Europe.
According to Jason Gehrke, director of the Franchise Council of Australia, “with arguably the most stringent franchise regulation in the world, even Australia is likely to strengthen its franchise regulations in 2020, with a particular focus on transparency of marketing funds, and supplier rebates generated by franchisee purchases.”
Across the pond, with Brexit now a certainty, it is anticipated that there will be an increased emphasis on mitigating risk in the supply chain and protection of franchise brands. “The terms upon which products and services will be supplied both in and out of the U.K. will need to be carefully considered together with varied risks of inflation, exchange rate volatility and increased tariffs,” said Nicola Broadhurst, partner and head of franchise and retail at Stevens & Bolton. It is expected that the U.K. government will take appropriate measures (at least in the short term) to position the U.K. as an attractive place for international franchises to do business notwithstanding Brexit.
With the dawn of a new year, challenges notwithstanding, the trends and expectations point to another fruitful year for international franchising.
New to the Franchise Times columnist lineup, Andrae Marrocco is a partner and co-chair of the Franchise & Distribution Group in the Toronto office of McMillan LLP. His column World View covers international franchising in each issue. Reach him at firstname.lastname@example.org