International, continued
English-speaking middle and upper class,
the 60% of the total population aged 15
to 50, and the strong desire for brands,
quality, and service among the middle
class. Retail rental cost, however, is very
high. For F&B, expect labor costs of 10%
to 15% of gross unit sales, food costs of
30% to 40%, and rent costs of 20% to
25%. Papa John’s recently bought an
Indian pizza chain to convert and speed
their growth in a pizza-focused market.
• Indonesia (5.6%) – There are signs
of relaxation of the regulations placed on
franchises a couple of years ago. One of
these was to require 80% local content
in restaurants. The problem is that there
are not enough local suppliers of quality
food products.
• Japan (1.1%) – A few major U.S.
F&B franchise brands have entered Japan
in the past year with very large companies
as licensees. Note the announcement of
the Carl’s Jr. 150-restaurant license on
December 19.
• Malaysia (5.4%) – Malaysia continues to suffer from government regulations that give priority to indigenous
franchises.
• The Philippines (6.9%) – A few years
ago new, professionally managed companies began to appear that wanted
to acquire foreign franchises.
This new money and professional management
has attracted several
U.S. F&B brands.
• South Korea
(3.7%) – New government regulations designed to
right local franchise brand wrongs
have instead made it
very difficult for new
foreign brands to enter
the market.
• Thailand (4.5%) – The
coup in 2014 has had the effect of making businesses feel comfortable to invest.
Europe
• Germany (1.0%) – Low growth
and inward looking investors result in
few new foreign brands in 2015.
• Ireland (3.0%) – Once a roaring
franchise market for U.S. brands, this
country is slowly coming out of the European recession. 2016 should see new
investment into foreign franchise brands.
70
Education and
F&B brands are
most desired in the
emerging markets.
Established
markets such as
the U.K. desire
service and retail
franchises.
• Italy (1.0%) – Low or no growth,
high levels of regulation, and a major
black market make it difficult for foreign brands to enter Italy and operate in
a manner that can yield good margins.
• Nordic Countries – Denmark, Finland, Norway, Sweden (1.0–2.4%) – The
planned IFA/U.S. Commercial Service
Franchise Trade Mission will give U.S.
franchisors a good look at the potential
of these highly developed, high-income,
and high-cost markets.
• Poland (3.5%) – McDonald’s,
Pizza Hut, KFC, Burger King,
Starbucks, TGI Fridays,
Subway, Mail Boxes Etc.,
RE/MAX, Anytime
Fitness, and Crestcom are among the
almost 200 international franchise
brands operating in
Poland. There are
four middle-class
cities that are beginning to see franchises.
Poland alone in the European Union did not see
its GDP growth fall below 1%
during the recession.
• Russia (0%) – The political problems have now become major economic
problems for businesses. The government decided a large number of McDonald’s outlets were dirty and closed
them. Some foreign brands have their
rent paid in dollars, which is a disaster
when the local currency used at these
outlets lost 40% of its value against the
U.S. dollar.
• Spain (1.7%) – Despite the recession
and high unemployment rates, the number
of franchises, brands, and total franchise
outlet revenue has gone up since 2012.
As the Spanish economy begins to slowly
come back, the U.S. Commercial Service
indicates that each year more companies
in Spain are committed to franchising as
a model for expansion.
• Turkey (3.5%) – Government turmoil has caused GDP growth and the
currency to fluctuate widely in the past
two years. U.S. franchise brands continue
to enter this large middle-class market,
focused in three cities with populations
of 5 million or more.
• United Kingdom (2.6%) – Franchising in the U.K. appears to be growing for the first time since the recession
started in 2008. U.S. brands such as SuperCuts, Home Instead Senior Care, and
Mail Boxes Etc. are well established, and
Build-A-Bear Workshop has more than
50 locations.
Middle East & North Africa
• Egypt (3.1%) – Three years after
the Arab Spring and all that it did to
Egypt’s economy, there are signs of new
investment in international F&B brands
with new units to open in 2015 for the
first time since the political problems.
This is the largest Arab nation, and it
has a considerable middle class who value
foreign brands.
• Saudi Arabia (4.2%) – The primary
interest is in new F&B brands. Permitting challenges getting new restaurants
open are a major concern. Also, restaurants have to build in extra space to
separate customers because of religious
requirements.
• United Arab Emirates (5.6%) –
The desire for new F&B brands continues with new U.S. franchises opening almost monthly. The creation of
high-end neighborhood malls means it
is no longer necessary to start up in the
Dubai Mall or the Mall of the Emirates,
where space is hard to secure and rents
are very high. n
William G. Edwards, CEO of EGS LLC, has 40
years of international business experience.
He has lived in 7 countries, worked on projects in more than 60, and has advised more
than 50 U.S. companies on international development. Contact him at 949-375-1896,
[email protected], or read his blog
at edwardsglobal.com/blog.
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