Franchisors adapt real estate to fit markets around the globe
In Tanzania, the U.K. and Croatia, l to r, Signarama adapts to local requirements.
A hub-and-spoke model is one solution to the real estate challenge when expanding abroad. All players say flexibility is key. “You have to sometimes break from the norm and come up with new ideas,” says one.
Franchisors are finding there is no one-size-fits-all approach when it comes to international expansion. Each country, each culture and each opportunity is different.
And, the real estate footprint and store prototype that works at home does not always translate to other countries. Denny’s is one group that is tweaking its standard format as it continues to add restaurants in countries such as Mexico, Honduras and Chile.
Although Denny’s is known for its freestanding restaurants in the U.S., the company has a more flexible footprint for international locations and has opened in malls, casinos, hotels and airports.
“There is no cookie cutter. I can’t emphasize that enough,” says Stephen Dunn, senior vice president of global development at Denny’s in Spartanburg, South Carolina. For example, Denny’s is building restaurants in Central America that are 5,000 square feet, 1,000 square feet larger than in the United States, since the restaurants in that region often cater to larger families and groups.
Also, lower price points mean franchisees need to serve more people for higher top-line sales. “It is not always possible to go and build a 4,500- to 5,000-square-foot prototypical building,” notes Dunn. “We have to be able to adapt existing space.”
The key to making global expansion work is flexibility. “You have to sometimes break from the norm and come up with new ideas when expanding internationally, otherwise it will be a big challenge—especially in areas where real estate is both expensive and difficult to find,” says Tony Foley, international director for United Franchise Group in West Palm Beach, Florida. The company has 1,400 franchise locations in 65 countries and is expanding its three retail brands—Signarama, EmbroidMe and SuperGreen Solutions.
Two of the biggest hurdles are the cost and availability of real estate. Both factors can influence the size and logistics of the store design. United Franchise learned real estate is extremely expensive in markets such as Singapore, Moscow and even Lagos, Nigeria. In response, the company has adopted a hub-and-spoke real estate model to help lower costs for its international franchisees.
United Franchise starts out with a 1,200- to 1,400-square-foot flagship location. Then the master licensee expands by adding smaller stores of about 500 square feet. Those satellite stores often serve as a showroom for the flagship store. That business strategy is proving to be a cost-effective way for the master franchisee to build the brand.
PostNet also utilizes a smaller footprint outside of the U.S. to help reduce real estate costs for its franchisees. The franchisor has more than 350 locations in 10 countries in Africa, South America, Central America and Canada. International locations average 600 to 800 square feet compared to 1,200- to 1,400-square-foot stores in the U.S., notes Steve Greenbaum, CEO of Denver-based PostNet.
The neighborhood business centers provide design, printing and shipping services. In some cases, PostNet is able to downsize the real estate footprint by moving some of the print production to a different location where real estate is less costly, or by contracting with a low-cost vendor to outsource those printing services.
Often the type of real estate franchisors are used to finding in the U.S., such as neighborhood strip shopping centers, simply don’t exist around the world. “It is a whole different animal that you are looking for. So, you are forced to be creative,” says Foley.
International expansion has been a big step for Glen Allen, Virginia-based Rainbow Station. Rainbow Station opened its first international location in Shenzhen, China, last January with a Chinese business partner. Rainbow Station hopes to open 10 schools with its business partner, and another 100 franchise locations for 110 schools total in China within the next 3 to 5 years.
Yet in order to make that work, Rainbow Station has had to make dramatic changes to both its real estate model and its business model. “I think flexibility is really important. I think that cultural relevance is really important. I also think that trying to understand what the country wants and needs is important,” says Rainbow Station CEO Gail Johnson.
In the U.S., for example, Rainbow Station typically operates a two-building campus that spans about 20,000 square feet and serves children from infants up to 14 years old. Rainbow Station is a provider of early education, school age recreation and emergency backup child care. In China, the partner wanted to launch the brand with only enrichment classes in order to fly under the regulatory radar of the Chinese government.
Rainbow Station has taken its curriculum for all-day preschool and divided the day into several enrichment classes, such as art and music that are taught in 60- to 75-minute blocks. In addition, rather than locating in a stand-alone building, the facility leases space within a shopping center and has shrunk its footprint considerably to about 5,000 square feet.
Still, the architectural look of the interior of the school is very similar to the U.S. model. “So, the brand carries,” says Johnson.