Now more than ever, quick-service executives are opening their eyes to the wealth of opportunity that lies beyond U.S. borders, realizing that abroad is where the growth is—and for good reason.
“Domestic is one country; international is every other country,” says Bob Kaufman, vice president of business development for Southern California–based The Coffee Bean & Tea Leaf (CBTL).
“Of course international is huge, because of the sheer number of people and markets and opportunities.”
With overseas operations presenting such a vast array of markets and possibilities, this year’s Global 30 study not only breaks down the top brands in international franchising, but also the most notable trends, movements, and regions on the market.
The international environment
It’s not just the sheer size of the international playing field that has brands focusing on foreign markets. Though many operators insist the U.S. is still a major focal point for brand growth, some brands are reaching their saturation point domestically. This is especially true for big-time players like McDonald’s and Subway, which have more than 14,000 and 25,000 units, respectively, in the U.S. alone.
In addition, a tough economic climate at home has placed increasing pressure on brands to look elsewhere for revenue and avenues of growth.
“When the credit kind of crunched in the United States and franchisees weren’t able to get bank loans like they were years ago, brands were really saying to themselves, ‘We’re forced now to go international because we can’t sell franchises here,’” says Karen Spencer, partner at franchise consultant Fran-Systems.
Of course, the global economy is under some pressure, too, but a growing number of countries and consumers around the world are enchanted by the opportunity that franchising American brands presents. “Capitalism is spreading around the world, and a close cousin to capitalism is consumerism,” says Bob Wright, president and COO of Charley’s Grilled Subs. “There’s a growing middle class, growing disposable income, and a growing desire for Western brands and some of the Western culture that we take for granted here.”
Research shows many companies are taking advantage of this consumer desire. By 2020, the global franchise industry will be worth $5 trillion, and 50 percent of the top 200 franchised brands’ units will be overseas within a decade, says Beth Solomon, president and CEO of the National Association of Development Companies and former vice president of strategic initiatives and industry relations for the International Franchise Association.
At Domino’s Pizza, international operations already account for more than half of the brand’s global store count, as well as a significant portion of its royalty stream, writes Ritch Allison, executive vice president of international, in an e-mail to QSR.
But the abundance of opportunities doesn’t come without challenges. Unlike in the U.S., where expanding chains can take advantage of their established distribution channels, brands entering a new international market must often start from scratch.
“We go into a new market like Bahrain in the Middle East or Poland or Eastern Europe, and those are very difficult hurdles,” says Wright from Charley’s, which operates in more than 16 countries around the world. “You can spend upward of a year getting the supply chain up and running.”
Cracking foreign markets can also be expensive, time consuming, and risky, especially for young brands that have neither the capital nor the experience to survive in the international space, Spencer says.
The local flavor
Adapting to regional tastes can present a challenge when operating internationally, but brands can also use culture—both their own and their international market’s—to their advantage. Solomon says many foreign consumers are eager to embrace American brands and customs, making international markets fertile ground for U.S. concepts.
“These quick-service American brands give people in these countries a chance to taste it, feel it, see it, walk into the store,” she says. “They can experience American culture in a very direct way.” American brands are also highly esteemed in the minds of many cultures and represent superior, safe, and healthy food, Solomon says.
Wright says Charley’s capitalizes on this high-quality reputation by emphasizing its USDA Choice steak offerings internationally. But while the cheesesteak chain is known for its Choice products, it was forced to substantially alter its menu when entering the Middle East’s Islamic nations, switching to Halal-certified beef and eliminating bacon from many of its limited-time offerings.
Unfortunately, sacrifices like this can only go so far, and one country the brand hasn’t been able to tackle due to menu challenges is India.
“A lot of Indian culture is vegetarian. When you’re in the Philly Cheesesteaks business and your core menu is made up of cheese-steak sandwiches, … you’re no longer tweaking flavors. You’re changing the core of the menu,” Wright says. “It’s much more difficult to see a path to expanding in an area like that and yet still staying true to who we are and who the brand is.”
Jeremy Vitaro, vice president of international development for Dunkin’ Brands, writes in an e-mail to QSR that the company takes a country-to-country approach to menu localization. To speak to the Chinese customer, for example, Dunkin’ Donuts has added regional items like Mochi Ring Donuts—made with a glutinous rice—and bubble tea. At Baskin-Robbins, ice cream flavors such as Green Tea and Mango Mania resonate with the local palate.
Vitaro says adapting to some cultural differences can be more challenging than others, but the company relies on its international partners to tap into consumer tastes and trends. “We are able to leverage their knowledge of the local consumer to provide our guests with the right product mix and, in turn, position our brand for greater success in the market,” he writes.
Domino’s Allison says thriving international operations come down to these effective partnerships with strong local operators. “Growth in any market revolves around finding the right local partners,” he says. “We believe finding the right partners, teaching them the business, maintaining strong relationships, and providing them value for their investment is what works, no matter what market you’re talking about.”
While Charley’s has 210 franchisees in its system, it remains hypercritical when selecting its international affiliates.
“We want to go in knowing we’re signing a multiunit agreement with a partner that can help us develop in that region, somebody who knows how business works in that part of the world,” Wright says. “Somebody who has the experience with people, with the supply-chain needs, … and the ability to do business in the construction and real-estate environment.”