Importing a foreign franchise concept into your country

French and international franchisors seek partners to export their concept

When franchisors have almost complete coverage of their territory and want to consolidate their brand and increase their market share, they look to international markets. They seek investors and entrepreneurs like you to become their international partner in a direct or master franchise.



Below are three experiences of launching a franchise abroad:

In 2001, two years after opening their first outlet in France and bolstered by demand from Asia, accessory specialists Lollipops started expanding internationally. At the time, the network was confined to two branches in Paris and a franchise in Martinique. “The concept was well standardised and ready to be exported, even though we hadn’t really thought about doing so,” admits Yann Ducarouge, the brand’s co-founder. While international development can sometimes result from opportunity, it is usually part of a well-planned growth strategy. Before embarking on such a venture, brands must have reached a critical size. In other words, they must already have a strong presence in their own country before they can look elsewhere.

The real estate network Solvimo waited until it had 160 branches, eight years after starting up, before establishing its first franchise in Miami. “It was crucial to prove our concept in France before we could consider exporting it. Not only that, but the people purchasing your brand have other opportunities and expect genuine know-how. With 160 outlets and strong brand awareness in France, our network had what it took to attract a foreign partner,” says Olivier Alonso, Solvimo CEO.

For Gilbert Mellinger, CEO of management consulting firm Epac International and a member of the French Franchise Federation’s College of Experts: “International expansion takes preparation and planning. The franchisor should never have to give up an opportunity because he is not prepared.” But what does “being prepared” mean? According to Gilbert Mellinger, it means “having the human resources to focus on the project full time and being able to speak several languages,” adding that “it is difficult to plan for international expansion if you haven’t already developed a strong network in your own country with at least a hundred outlets.” Being well prepared also means being ready to invest.

Gilbert Mellinger adds: “It is essential to keep in mind that you can’t expand in another country for less expense than in your own country.” While international expansion may represent an opportunity to broaden a network, it is not without risk. “Exporting a concept requires set-up costs, travel costs and travel time, and there is always the risk that you will not be successful in developing your business in the destination country and therefore will not get any return on your investment,” says Olivier Alonso.



Studying local specifics

To successfully export your concept to another country, it is important to undertake a careful study of your industry’s competitive environment in the region where you want to establish yourself. And after performing an in-depth and precise analysis of your market in that country, you should also visit local franchise associations.

“You have to have a perfect understanding of current legislation in the countries concerned, know the specifics of each country and feel at ease there,” says Gilbert Mellinger. When Bertrand Arbogast’s Italian fast-food network Francesca Francesca first put a toe in the international market, nothing had been planned, he told us (see box below).

Although the opportunity to set up in Switzerland proved successful, the brand encountered problems in the Middle East. It had made a poor assessment of the country’s legislation and customs constraints.

While the knowledge acquired at home makes it quicker to set up abroad, establishing a concept in another country can sometimes require major adjustments that affect the very essence of the concept. “This is the basic task of the franchisor, not the master franchisee.

That is why it is absolutely vital to open a pilot outlet first, before rolling out the franchise in another country,” advises Gilbert Mellinger. Aware of the specificities of the local real estate market in the United States, Olivier Alonso spent a long time adapting his concept. “In Miami, real estate agencies are not located on a building’s ground floor but on an upper floor. Agencies don’t have their own employees but expand via a multitude of sales agents.

Autant d’éléments qu’il a fallu prendre en compte pour s’assurer que notre enseigne puisse croître correctement outre-Atlantique », raconte-t-il. Réalisant 50% de son chiffre d’affaires avec des partenaires multimarques, en France mais aussi à l’étranger, Lollipops connaissait déjà les marchés et les habitudes de consommation des différents pays visés avant son déploiement international. L’enseigne a tout de même du s’adapter aux mœurs locales, notamment au niveau des contrats.

All these things had to be taken into consideration to ensure that our brand could grow successfully across the Atlantic,” he says. With 50% of its revenues generated in conjunction with multi-brand partners in France and abroad, Lollipops already knew the markets and consumer habits of the countries it targeted for its international expansion.

But the brand still had to adapt to local practices, particularly when it came to franchise agreements. “In Italy, for example, there’s no set-up fee but there’s a store fitting charge. Then you have to think about tailoring your product range to consumer regions rather than the country as a whole. For instance, Spain, southern Italy and the South of France have the same product sensibility, whereas in northern Italy and the South of France, consumer habits are different.

We therefore adapt our product selection to the different consumer regions,” explains Yann Ducarouge.



Choosing the right franchise agreement

Direct franchise, master franchise or joint venture? Franchisors expanding internationally have several options. In the case of a direct franchise, the franchisor manages his foreign franchisees directly, in the same way that he manages his network in France.

With a master franchise, he grants a company manager the right to franchise the brand in a specified territory. A joint venture, on the other hand, develops the brand by teaming up with a foreign partner to create a local company.

It took Yann Ducarouge no time to decide. “We quickly understood that we had to operate as a master franchise in distant countries and as a direct franchise in countries closer to home,” he says. After creating a subsidiary in China to develop the brand, Lollipops naturally chose the straightforward franchise formula to expand into Italy, Spain, Belgium, Luxembourg and the UK.

The brand also immediately established rules to make its task easier. “As soon as we reach four sales outlets in a country, we create a structure to run and oversee the network.

Relying on a local player is essential.” The group has also taken on more staff at its main office in Paris. “As soon as you start operating internationally, your sales administration must include a native of the country in which you are setting up business.”

“The direct franchise obviously works best for small or geographically close countries,” says Gilbert Mellinger of Epac International. “For far-off countries or places that are culturally very different, you have to figure out how you are going to expand. You also have to be careful when it comes to master franchises: there is a risk the master franchisee will be tempted to sell the franchise excessively in order to recoup his investment very quickly.”

All depends on the business sector, counters Olivier Alonso who, after opting for a direct franchise in the United States, thinks master franchises would be better for Solvimo’s expansion into some of the countries bordering France. “In our service industry, which requires a considerable investment of time, a franchisor cannot be effective if he operates direct franchises in several countries.”

Although exporting a franchise concept can be daunting, for Yann Ducarouge “you have to think of it as a natural extension of your domestic sales.” The entrepreneur spends an average of 90 days a year outside France overseeing his company’s expansion. His brand Lollipops has a total of 27 outlets in Russia, Thailand, Greece and Portugal through master franchises, and also operates direct franchises in Span and Italy. Its Chinese subsidiary, meanwhile, manages eight stores. The next target is London. Eventually Lollipops wants to exceed 200 stores in the international arena, which currently generates 55% of the brand’s revenues. An exemplary model.

Francesca and its two export experiences

Founded in 1997, the Italian fast-food brand Francesca began establishing franchises in France in 2005. The network was not really prepared for international expansion when in 2006, during its first participation in Franchise Expo Paris, a Swiss entrepreneur showed great interest in the concept. “At the time we only had four self-owned outlets and were just getting into franchising; in other words, we hadn’t yet envisaged international growth. However, this contact seemed very interesting so we decided to give it a go,” says Bertrand Arbogast, Francesca’s co-founder. The venture turned out to be very successful: one year after the initial contact with the master franchisee, i.e. in 2007, Francesca opened its first foreign outlet, followed by five more. And Francesca does not intend to stop there. “We are planning to open five new sales outlets a year to reach around 40 outlets in Switzerland.” When a further opportunity arose in Qatar, the brand once again launched itself onto the international stage. “Our local partner was reliable and our first restaurant in the country got off to a promising start.” However, supply and logistics problems soon derailed everything. “We had made a poor study of the country’s customs constraints and our fresh sauce supply became very complicated. The master franchisee took advantage of this to make his own sauces. Back in France I noticed that we were no longer receiving orders for this type of product, so I decided to go to Qatar to see what was happening. Meanwhile, because the quality and flavour were no longer there, the restaurant’s revenues plummeted. We lost confidence and therefore decided to close the outlet.” This failed experience has not, however, deterred the brand, which is currently planning to open master franchises in countries bordering France.

“Finsbury will soon be international”

Antoine Guillorit, Franchise Director at Finsbury

Launched as a franchise just four months ago, men’s shoe brand Finsbury spent more than a year planning and setting up solutions that would allow it to expand internationally. “We had our eye on international expansion as soon as we started designing our franchise model, with warehousing and transport solutions dedicated to our development. We calibrated these resources for our franchises in France but made sure they could be used for our foreign development,” says Antoine Guillorit, Finsbury’s Franchise Director. From the outset, therefore, the brand incorporated into its strategy requirements related to international expansion. That way, it would be able to respond to requests the moment they were received. “Exporting a franchise concept requires a great deal of preparation because you have to anticipate the constraints and challenges of different international markets. We have now finished all the preparatory work and know exactly where we want to establish our brand and where we don’t want to take it.” As a result, Finsbury is not planning to break into foreign markets at the first opportunity. Rather, for its expansion outside France, the brand is targeting specific regions, such as North America, an untapped market in its sector; Asia, an emerging market with strong potential; and North Africa and the Middle East, countries where the brand already has a customer base. Every month the brand receives requests from investors wanting exclusivity in one or several countries. For now, Antoine Guillorit does not follow up on these types of request since he wants to develop his network at his own pace. “We have neither the goal, the need nor the desire to suddenly open some twenty shops in the Middle East. On the other hand, we are in a position to consider intelligent, comprehensive investments for the opening of one or two outlets in our target countries.” And although the brand wants to expand abroad, it does not want to hinder growth in France. “Our network is not seeking to become a simple distributor in France or in other countries. We want to maintain complete control over the sale of our products.” This resolve means expanding through direct franchises rather than master franchises. In the next five to ten years, Finsbury would like to establish a presence in the main European capitals and have one or two stores in Asia, the Middle East and North America.

French and international networks

According to the latest survey conducted by the French Franchise Federation and Banque Populaire, one third of French franchise networks expand internationally, mostly in Europe. Moves towards export are seen most frequently in networks that have been around for more than 15 years (47%), in commerce (37%) and brands with revenues of more than €10 million.
In 2010 just 22% of networks said they had their sights set on other countries. To expand outside France, networks favour master franchises (42%) and direct franchises (37%). Only 9% establish themselves abroad through chains.
Factors that make some franchisors nervous about expanding outside their country include the quality of local partners, challenges in adapting to the destination market, cumbersome administrative formalities and regulatory issues.