ACCELERATING FRANCHISE DEVELOPMENT IN INTERNATIONAL MARKETS by ucj78271

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									ACCELERATING FRANCHISE
    DEVELOPMENT IN
    INTERNATIONAL
       MARKETS

          Ned Lyerly, CKE Restaurants, Inc.
          Mike Shattuck, Focus Brands, Inc.
          Tony Foley, World Franchisors
          February 26, 2006
Global Franchise Facts and Figures*

 •   15,000 Franchisors
 •   12 Million Franchisees
 •   1.5 Trillion US $ in Sales
 •   12 Million Jobs Created
     * World Franchise Council Survey 2004
Global Franchise Facts and Figures**
• 500 IFA Member Companies Operating
  Internationally
• Operating in over 100 countries
• 1st Region of Interest - North America (Canada
  and Mexico)
• 2nd region of interest - Western Europe
• 3rd Region of interest - Asia & Latin America
   ** International Franchise Association Survey 2002
        Our Topics For Today

• Targeting Growth Markets
• Accelerating Development In Existing
  Markets
• Systems, Tools and Processes For
  Successful New Unit Development
Sustained, Focused Development Is Vital
  To The Health Of A Franchise System



          Market         Economies of
        Penetration         Scale
                 Accelerated
                Development




                 Improved
                   ROI
1. Market Penetration             Sales
    Convenience of Location
    Share of Penetration/Voice
    Top of Mind Awareness
    Market Position

2. Economies Of Scale             Profit
    Procurement / Distribution
    Covering Overhead
    Utilization Of Existing
    Resources

3. Improved ROI                  Accelerated
                                 Development
ACCELERATING FRANCHISE
    DEVELOPMENT IN
    INTERNATIONAL
       MARKETS
           Tony Foley, President
              World Franchisors
         “Burn The Bridge”
  Expansion Method:
• Corporate Direct (Unit Franchising) vs. Master
  Licensing, Area Development Franchising
   – Establish a Strategic Game Plan
      • Number of countries, don’t develop beyond your means;
        stick to the plan
      • Who’s on the team; what are their positions?
          – International Director
          – Technical Support
          – Marketing Support
        “Burn The Bridge”
                                  continued

• Identify Existing Resources
  – Present staff for the team may be in
    house
  – Budget required; allocate properly
  – Marketing pieces and collateral
    materials
  – Sourcing of products, suppliers and
    equipment
            “Burn The Bridge”
                                      continued
• Target Markets
  – Define Growth Markets
  – Substantiate with research
     •   Scale of economies
     •   Language
     •   Currency
     •   Political Environment
     •   Existing Franchise Climate
     •   Franchise laws
     •   Royalty remittances
     •   Cultural nuances
         “Burn The Bridge”
                                  continued
• Adapt or Fail
  – Adapt product or service to suit local tastes
    and habits
Use a Structured Selection Process
  (Structure shows strength and character)

• Clear profile of attributes a franchisee should
  ideally possess
• An application form that gathers as much
  relevant information as possible
• Discovery Day visit to corporate office that
  clearly defines goals and purpose
• Method to verify key information that has been
  disclosed by franchisee candidate
• Timeline/Checklist that guides both parties
  through the process so important steps are not
  missed.
                    Timeline for Opening
                        New Master
WHEN                 DURATION   STEP                 WHERE     WHO
After Contract is    3 days     Industry Discovery   HO        Master
signed & Master
Development
deposit received
After Industry       1 day      Scheduled Master     HO        Master
discovery                       Development
                                Payment Wired
3 weeks after        5 days     Recon Mission        Country   Corp w/Master
Industry Discovery


After Recon          3 weeks    Sign Lease           Country   Master
                                Get build-out        Country   Master
                                completion Date
                                Schedule school      HO        Corp
                                date
                 Timeline for Opening
                   New Master continued
WHEN              DURATION STEP                  WHERE     WHO

After Lease is    4 weeks   Hire Staff           Country   Master
Signed            1 day     Equipment            Country   Master
                            Payment Wired
                  2 weeks   School               HO        Master
Begins After      6 weeks   Release              HO        Corp
Build-out                   equipment (upon
                            receipt of payment
                            ONLY)
After Lease is    4 weeks   Schedule setups      HO        Corp/Master
Signed            6 weeks   Convert Software


After School      2 weeks   Setup visits         Country   Corp w/Master
                            3 weeks – 1 Tech;
                            1 marketing,
                            1 overlap
                Timeline for Opening
                  New Master continued
WHEN                    DURATION   STEP                    WHERE     WHO

After School                       Congratulations         HO        Corp
                                   letter / call
                                   Press Release           HO        Corp
After Opening
30 days of operation    1 day      Marketing call          Country   Corp
60 days of operation    2 days     Report Card visit
90 days of operation    3 days     Financial Report call
270 days of operation   4 days     Report card &
                                   Financial Review
Year 2                             3 visits                Country   Corp


Year 3                             3 visits                Country   Corp
     Fuel The Growth with
 SUPPORT, SUPPORT, SUPPORT
Start by clarifying roles and obligations
  The franchisee’s role is to:
• Run a profitable business
• Grow a satisfied customer base
• Support the brand values and system
• Hold you accountable in delivering on
  your obligations
      Fuel The Growth with
SUPPORT, SUPPORT, SUPPORT         continued

The franchisors role is to:
• Provide clear, positive leadership
• Assist franchisees to achieve their
  goals
• Protect position of the brand
• Monitor and maintain standards
Satisfied Franchisees Are Your Best
 “Fuel” to Accelerate Your Growth
To this end, regular “on the ground” visits are
critical. It is very difficult to monitor international
franchisees’ growth strictly through email and
telephone.
• 3 visits from corporate per year, minimum
• Exceed expectations, over deliver on
   commitments
    – Additional training
    – Suppliers
    – Technical Support
    – Software enhancements
Monitor Their Mood With the
“Franchisee Mood Monitor”




                         * Franchise
                         Relationships
                         Institute
   Monitor Their Mood With the
  “Franchisee Mood Monitor”
                 continued

Franchisors who do not keep their finger on
the pulse of franchise satisfaction and
motivation are causing trouble. The survey
measures “positive or negative affect” in a
number of specific areas by asking
franchisees to make a decision on whether
they more agree or disagree with a number of
statements measuring where the company
stands.
    Monitor Their Mood With the
    “Franchisee Mood Monitor”
                  continued
In these areas, allows for the proper
adjustments and allocating the necessary
resources to bolster the weak points.
Don’t be afraid to ask your franchisees
how you are performing on a regular basis.
       Internationally speaking,
           THIS IS A MUST!
ACCELERATING FRANCHISE
    DEVELOPMENT IN
    INTERNATIONAL
       MARKETS
  Mike Shattuck, Vice President - International
   Operations & Development - Focus Brands
Reasons To Take Your Business
           Global
• Increase your franchise’s equity and brand value

• Leverage your existing intellectual property, training,
  marketing and support resources

• Exploit new markets for long-term business growth

• Spread risk by diversifying your revenue source

• Generate incremental fees and royalty revenues
           Are You Ready?
–   Legal Systems & Processes
    •   Disclosure documents filed
    •   Trademarks registered
–   Franchise Administration
–   Finance and Accounting Systems
–   Logistics Support
–   Training Systems & Materials
–   Marketing Information & Systems
–   Operating Systems & Support Processes
–   Corporate Culture, Priorities & Structure
Define a Development Strategy
•   Utilize a refined franchisee targeting, recruitment and selection process that
    will bring well funded, properly organized, properly informed, and quality
    candidates into your system.

•   Ongoing development and expansion of your brand(s) by determining which
    core strategy: presence, focused or dominate best suits your goals.

•   Business format/structure defined.

•   Integrated market assessment leveraging real estate, marketing and operations
    knowledge.

•   Revisit your existing franchisee base with opportunities.
    Market Desirability Matrix
•   Demographic Factors           •   Cultural Acceptance
    •   Age Distribution              •   Appeal of Western Products &
    •   Income Distribution               Services
    •   Total Population              •   Lifestyle Trends
    •   Population Growth Rates       •   Leisure Activities
    •   Under 30 Population           •   Disposal Spending in Segment
    •   Urbanization                  •   Religious / Cultural Norms
    •   Education / Literacy          •   Language
    •   Lifestyle Trends
•   Economic Factors
    •   Gross Domestic Product
    •   Purchasing Power Parity
    •   GDP Growth Rates
    •   CPI / WPI
    Market Desirability Matrix
•   Infrastructure               •   Unit Economics
     • Import Barriers               •   Labor Cost
     • Local / Regional Supply       •   Real Estate Cost
       Options                       •   Cost of Goods Sold
     • Distribution Issues           •   Taxes
     • Quality of                    •   Construction Cost
       Telecommunications
     • Quality of Road System
                                 •   Risk Factors
     • Probability of Natural
       Disasters                     • Stability of Government
                                     • Relations With US /
                                       International Community
                                     • Economic Stability
Identifying and Quantifying
     Market Potential
  Identifying and Considering Risk
Your Reputation                      Types of Agreements,
Future Master Agreement Sales       (Service VS. Franchise)
Vicarious Liability                  Tax Treatment on Income and Royalties
Trade Mark Rights                    Currency Repatriation – Non Convert
Foreign Corrupt Practices Act        Country and Market Prohibitions
Patriot Act                          Fixed and Market Currency Rates
Master/Franchisee – Our Liability    General Restrictions
National or Political Boycotts       Business Activity Regulation
Health and Labor Laws                Language Laws
Religious Law                        Immigration Laws
Contract Restrictions                Intellectual Property
     International Information Sources
•   www.franchise.org
•   www.franchise.com
•   www.entrepreneur.com
•   www.franchisedirect.com
•   www.ita.doc.gov
•   www.state.gov/business
•   www.worldatlas.com
•   www.fraserinstitute.ca - Economic Freedom
•   www.transparency.org - Corruption Index
•   www.economist.com/countries
•   www.cia.gov/cia/publications/factbook
•   www.edwardsglobal.com
Establish Priority Based On
Key Considerations
•   Operational Ability – Can we support the country
•   Serviceability – Supply and Equipment logistics
•   Brand Development – Per Capita Consumption
•   Size, Demographics – Serviceable population
•   Political, Security, Human Rights issues
•   Labor supply, Labor Wages, Labor Differentials
•   Franchising regulation in host country
•   “Who’s” there (Brand wise)
•   Attitude towards U.S. institutions and Companies
Establish Priorities Based On
Key Considerations
•   Legal protection and enforceability, Trade Mark Registration,
    Intellectual property laws and rights
•   Is the customer willing to pay, able to pay? Are the products
    acceptable?
•   Foreign Exchange Controls – Are they capped - Restricted?
•   Pool of quality – qualified candidates
•   Pro-Forma projections and business plans of Candidates
•   Candidates overview and rationale for number of locations
•   Your Brand Equity
EXTERNAL RESOURCES
 • FedEx   Shipping Assessment

 • Kreller Background Investigations

 • Ongoing Market Research (Some Extensive)

 • Market Research Subscriptions

 • Hanscomb Means – Construction Cost Index

 • Real Estate Research Firms
CRITICAL EARLY ACTIVITIES

• Sales and Development processes, thresholds, fulfillment
• Deal types and agreements defined and established
• Past learning from successes & failures are documented
    and internalized.
•   General successful site profiles established for the brand.
•   Development strategy including market profiles, research,
    rankings and prioritization.
•   Ideal franchise development and operating costs quantified
•   Organization modeling for franchise partners
•   Supply Chain Management processes defined
•   Market site development critical elements defined
•   Brand marketing needs determined
•   Market launch work flow defined.
SET CLEAR GOALS

• Leverage your International Asset expanding
  your concept(s) internationally.
• Become the pre-eminent brand(s) of choice in
  the categories in which you compete.
• Target, recruit and assist highly successful
  franchisees and provide consumers with “best
  in class” concept experiences
• Build a robust world class international
  division focused on making your partners
  successful.
          LEAD GENERATION
•   Word of mouth or partner referral
•   US Department of Commerce Gold Key Program
•   IFA Sponsored Events and Trade Shows
•   Broker Network
•   Internal Networks
    –   Counsel
    –   Auditors
    –   Suppliers
•   EGS Consultants
•   Existing Franchise Base
Common Threads of Failure
 – Poor Communication
 – Lack of strategic commitment
 – Fragmented ownership structure
 – Under capitalized
 – Operating capability
 – Failure to enforce site selection criteria
 – Failure to modify menu/product offering to
   meet local consumption habits or needs
 – Excessive G&A
 – Brand positioning
Common Threads of Success
 –   Good communication & relationship
 –   Firm strategic commitment
 –   Appropriate capitalization
 –   Disciplined site selection criteria
 –   Natural product fit
 –   Operating capability
 –   Brand positioning (consumer validated)
 –   Sound financial decisions
General Support Strategy:
•   Provide support through a multi-faceted, operations grounded,
    field team that is supported by dedicated functional experts at
    the brand support center.
•   Leverage core brand team in start-up phase and ongoing for
    select disciplines.
•   Develop an international platform for licensing and new
    revenue channels

Marketing Strategy:

•   Leverage brand identity and strength across all markets to
    extract the full value of each brand
•   Develop regional and local marketing action plans that are
    consumer relevant in the markets you serve.
Marketing Support Requirements
•   Develop a level of understanding that allows for proper
    positioning, menu offering and pricing in a market

•   Leverage US brand equity while adapting to local
    consumer needs

•   Utilize US new product, promotions and local marketing
    initiatives whenever applicable

•   Provide ongoing support in the form of sales analysis,
    menu management, and regional calendars that are
    customized for local markets
Operational Support Requirements
• Build the team based on targeted growth and business
needs using functional resources to support regional teams

• Focused field based operations support team at regional level

• Fully staffed regional offices that deliver critical support
functions in key disciplines

• Utilize outside service providers for market launch research and
supply audit

• Ensure all ULE targets are met
Market Launch Sequence

•   Screening – determine if import restrictions or costs prevent
    supply
•   Pre MOU – complete development market study & detail logistic
    review
•   Market Launch – Opening support training & implement the
    marketing plan
•   Ongoing – support visits based on partner needs
•   Complete market site development study
     – Menu/product modification if dictated
     – Define trade areas and core activity points
     – Identify first “top 10” locations
     – Enforce site selection criteria
3 Key Factors to Maintain a Healthy Network
  Success factors                            Rationale

   World-class      • Strong support system attracts high-quality franchisees
    support         • Allows franchisee to focus on operations
    system          • Franchisees are willing to give up some level of control
                      when they receive a high level of support

                    • Maintain brand equity
     Quality
                    • Ensure consistency of customer experience
    assurance
                    • High quality operations increases customer satisfaction
                    • Act quickly to resolve key issues

                    • Must evolve offerings to meet changing customer needs
    Innovation      • Drives store traffic and grows same store sales
                    • Improved store economics makes franchise more
                      attractive
                    • Maintain credibility with franchisees by improving their
                      bottom line
ACCELERATING FRANCHISE
    DEVELOPMENT IN
    INTERNATIONAL
       MARKETS

          Ned Lyerly, CKE Restaurants, Inc.
          Mike Shattuck, Focus Brands, Inc.
          Tony Foley, World Franchisors
          February 26, 2006

								
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