International franchising advice from HSBC
Cathryn Hayes - HSBC Head of Franchising
A diverse range of sectors lend themselves to successful international franchising. A common example is retail, particularly the fast-food sub-sector.
In recent years there’s been a growth in service industry franchises such as in the cleaning and maintenance sectors, as well as management consultancy, and there’s been a big increase in home care. Numerous successful home care franchises are being operated all over the world, including in the UK.
Well-known British franchises
Several established UK brands – including Marks & Spencer – have sold international franchises for years. Providing jobs for more than 75,000 people worldwide, there are currently more than 300 M&S stores in 40 territories, many of which are successful franchises. Other well-known examples include Costa Coffee, Clarks and Toni & Guy.
Some UK businesses sell franchises in the UK and beyond, while some only sell overseas. To increase their chances of success, some UK businesses set up overseas subsidiaries or joint ventures first to establish their brand and then, armed with greater local market awareness, they begin selling franchises. Importantly, the business model must translate and provide returns for both parties.
Franchise agreements
Buying a ‘master franchise’ can give rights to an entire country. Other options include a regional/area franchise, down to a single-unit agreement. Bigger geographical exclusivity comes at a price.
The franchisee usually pays the franchisor an initial sum upfront. Then they pay a monthly fee – normally a percentage of turnover. The franchisor provides training and ongoing support. Some agreements simply involve the franchisee buying products from the franchisor, rather than paying a monthly fee.
Welcome cash injection
International franchising can provide brand owners with a welcome cash injection and a regular, predictable income stream, without the risks, investment and resource commitment of establishing their own presence overseas. Franchisees are no less motivated to run the business successfully, and it is firmly in their interest to do so.
As well as enhancing a brand – providing its reputation stays intact – franchising can be a way to spread development costs across a wider set of markets. The overseas franchise must be properly resourced and operated if standards are to be maintained. Potential partners must also be carefully selected and should understand and respect the brand.
UK business models may need some tweaking, if they are to work in overseas markets. There are questions of language and culture that need to be considered, too. The cost structure in another country could be very different, which could have implications for your franchise.
Key recommendations for UK businesses considering becoming international franchises
Early on, it’s a good idea to speak to a specialist international franchise consultant affiliated to the British Franchise Association (bfa). You should also make sure your intellectual property is safeguarded, and seek tailored legal and tax advice. Agreements should be drawn up by a qualified professional – preferably an experienced franchise lawyer affiliated to the bfa.
Someone within the organisation needs to take charge of managing and developing franchising activity. This must also be properly resourced and can mean significant people, time and money.
Research is crucial, too. You must consider which franchising model is best for your business and identify territories in which your franchise is most likely to succeed – it might not work in some places. Carry out thorough due diligence on all prospective partners. Pilot your franchise before making it generally available. This enables you to iron out any minor problems before committing major resources.
- Visit the website of the bfa. See the organisation’s international page for links to international franchise organisations.
- Visit the International Franchising Association website.
- For information about overseas markets, visit the UK Trade & Investment website.
- Find out about how HSBC can support your efforts to become an international franchisor. You can email us or call 0800 234 6224.
Trends in multi-unit franchising
Iain Martin - Director, The International Franchising Centre
It seems to be a truism in franchising, that what the US industry is doing today, we’ll be doing in a year or so’s time. One trend which is accelerating there, is multi-unit single brand franchise owners, taking on additional brands. In this blog, I’m going to touch on a number of reasons for why its happening, and why franchisees in a similar situation in the UK, should consider going down the same route. Whilst I am focussing primarily on QSR operators, the principles are applicable across a range of sectors.
The first major benefit is diversification – I remember a year or so back when we had a health scare relating to beef (mad cow disease), burger sales dropped dramatically – if the owners of those restaurants had had, say a chicken concept to sit alongside their burger operation, the effects on their bottom lines would have been reduced considerably.
Its often possible to ‘leverage’ an existing management/support team – so that not only can a new brand be supported effectively from day one, but also the values and culture of the existing business transferred rapidly to the new venture.
Having demonstrated an ability to spot good premises, recruit, train and manage good staff, and follow the operational procedures of the business, training for the new brand becomes a relatively simple task. In addition, acquisition of a new brand will create new career opportunities for existing staff members – and new challenges.
A portfolio approach to business development (as opposed to just expanding in terms of unit numbers under one brand), will make the business more attractive to high calibre prospective employees – you become an employer of choice.
A multi-brand approach not only leverages overhead costs, but also creates a range of cross-marketing possibilities – if an operator is able to run complementary brands in adjacent locations, particularly in a food-court context, the ability to attract say families whose food preferences are different, becomes a reality.
The International Franchising Centre and Lloyds Bank are hosting an invitation-only lunchtime seminar which explores this area in greater detail – click here for more information.
Iain Martin is a Director of the International Franchising Centre and specialises in helping international franchisors secure UK partners, and UK franchisors to develop successful franchise networks, through several brokerage businesses.
What is a Master Franchise Opportunity?
Nick Strong, MD - Select Your Franchise
The term ‘Master Franchise’ is commonly used in the franchise industry and is generally used to describe a franchise business that is responsible for recruiting, and managing, a group of franchisees within a specified area. Probably the easiest way to understand the concept is to think of it in a business management 3 tiered concept:
- Franchisor = The Boss, MD or CEO
- Master Franchisees = Department Managers
- Franchisees = Project Managers
The two most common types of Master Franchises are:-
National Master Franchise
The reason a franchisor might look to set up a National Master Franchise is where they take their franchise opportunity into a country where they currently have no presence. The National Master Franchisee will be responsible for recruiting franchisees to run the franchise businesses in their localities across the country. The franchisor is responsible for training the master franchisee in how to replicate the proven system and work with them on any adjustments required.
Regional Master Franchise
A Regional Master franchisee will normally be responsible for recruiting and managing franchisees within a specific region that falls within a country. This could be where the country is very large or where there are a large number of potential franchisee outlets available within a country. Having a number of regional master franchisees can help to accelerate the development of the brand in a new market against a single master franchisee. This is because there will be a number of operatives advancing in recruitment and development simultaneously. It can therefore make sense to have multiple regional master franchisees who are responsible to recruit, and look after, their franchisees in their region.
Is a Master Franchise for me?
Master Franchises are most suited to successful business people, who have experience in management, have significant capital to invest (£100,000+) and would enjoy bringing a new venture or concept to market in a country or region where it hasn’t previously existed. This can obviously be a challenge and requires determination as well as great networking and sales skills.
Many successful brands entered the UK via the franchise route including:
- McDonalds
- Subway
- Franchise Source
- Drain Doctor
- ActionCoach
- 1st Choice Business Brokers
- Kall Kwik and Prontaprint
If you think a Master Franchise might be right for you then you can begin by researching some of the master franchise opportunities that are available online.
Tags: franchise development, franchise investment, franchise opportunities, franchises, master franchise, nick strong
