Going to America's Not Every Canadian Franchisors' Dream
We hear a lot about U.S. companies going into Canada as their first international destination, but not as much about Canadian companies crossing the border to set up development schedules in the U.S.
“Canadians do very well anywhere outside the U.S.,” John Sotos of Sotos LLP, a law firm based in Toronto, said, adding, “I don’t know why that is.”
On the surface, Americans and Canadians seem to have more in common than the other way around. “Superficially we are the same—except for Quebec,” he said, “(but) we don’t assume we’re the same.” In the past, some U.S. franchisors have been guilty of the assumption that what works in the U.S. will work north of the border. “In my experience, Canadians (heading south) tend to do more homework than U.S. (companies) going to Canada,” Sotos said about his fellow countrymen.
While international conventional wisdom in the U.S. has always been, go to Canada first, Canadian franchises tend to debut in locales farther south, such as Chile or Brazil; plus the Middle East, and its abundance of malls, is a hot market for Canadian brands right now, Sotos says.
Entering the U.S. requires hefty capitalization and expansive name recognition, not to mention dealing with a less favorable monetary exchange rate, he added. In addition, the U.S. is much more difficult to penetrate than other international territories, because of its more complex franchise regulations. The U.S. is also considered more litigious than other countries, according to international sources at legal symposiums in the past.
One Canadian franchisor who has been able to successfully amass stores in the U.S. is 33-year-old David Goldman who has 150 Gateway newstands in the U.S., out of around 500 stores. New York City and Chicago are the prime locations for the typically nontraditional retail stores that fit nicely into transit centers, hospitals and office building lobbies.
But getting there hasn’t been easy.
“It’s expensive,” Goldman said about expanding to the U.S., “especially coming from a country where you pay almost nothing for legal fees (in comparison).”
The concept hasn’t had to be tweaked much, he said, because they’re providing top-selling, nationally branded merchandise such as Pepsi and Coca-Cola and popular snack items, like chips and gum. “People magazine is People magazine,” he says, no matter where you sell it. The popular ketchup potato chips made famous by Canadian comic Mike Meyers, however, do better in Canada than the U.S.
Another successful transplant has been Tim Hortons, a doughnut chain that was bought by Burger King.
For U.S. companies, Sotos says, Canada is an attractive place to invest in companies or make acquisitions. Corporate taxes are lower, although not quite as attractive as Ireland.