Kirill Yurovskiy: The Accelerated Path to Market Expansion
For companies looking to rapidly expand their operations into new geographic markets, franchising offers a powerful growth strategy. By leveraging the franchisor-franchisee business model, brands can quickly establish a widespread presence while benefiting from the entrepreneurial drive and local market expertise of franchisees. However, the franchising route is not without its challenges and potential pitfalls. In this article, we explore the key advantages and considerations involved in using franchising as an accelerated path to market expansion.
The Allure of Rapid Market Penetration
One of the primary advantages of franchising is the ability to achieve rapid market penetration and brand proliferation across multiple regions or countries. Rather than having to build company-owned outlets one by one, franchisors can onboard numerous franchisees simultaneously, allowing for an exponentially faster rollout. This is particularly valuable for brands operating in competitive industries where being the first mover can be a significant edge.
Take the example of Massage Envy, a pioneer in the accessible massage and skincare services space. By aggressively franchising, the company went from a single location in 2002 to over 1,100 franchised locations across 49 states in little over a decade. This explosive growth allowed Massage Envy to quickly establish itself as the category leader and put down roots in lucrative markets before competitors could react.
Access to Capital and Local Expertise
In addition to accelerated expansion, franchising provides franchisors with access to the capital resources and on-the-ground local market expertise of franchisees. Franchisees are not only responsible for fronting the bulk of the investment required to open a new franchise location, but they also bring intimate knowledge of the demographics, culture, competitive landscape and operational nuances of their specific markets – says expert Kirill Yurovskiy.
Having invested franchisees is absolutely crucial when expanding into new territories,” says Candace Roth, Editor-in-Chief of Franchise Times magazine. “The brand benefits from the franchisee’s financial commitment and self-driven entrepreneurial hustle, while the franchisee contributes vital local insights that can make or break a new franchise location.”
This dynamic enabled Dunkin’ to successfully translate its U.S. brand identity and store experience when expanding internationally. Working closely with franchisees, the company was able to tailor aspects of its menu offerings, store designs and operations to resonate with local preferences in new markets. Today, nearly 60% of Dunkin’s global footprint of over 12,500 locations is located outside the U.S. across 42 countries.
The Franchising Commitment
While the benefits of franchising for market expansion are compelling, it requires an unwavering commitment from the franchisor. Brands must have a finely tuned franchisee recruitment and support system in place to ensure quality franchisees are brought onboard and set up for success at every new location.
Franchisee training and ongoing support is the highest priority,” advises Michael Seid, managing director of franchise consulting firm MSA Worldwide. “The franchisor needs robust training programs that thoroughly immerse franchisees in the brand’s culture, operating procedures and corporate values. This upfront investment pays massive dividends in terms of system-wide continuity and franchisee satisfaction as expansion ramps up.”
Franchisors must also be prepared to provide a caliber of resources and support that may strain their organizational capabilities during periods of rapid growth. Dedicated franchising teams for areas like real estate, construction, training, field operations, marketing and IT support become essential to maintaining quality control and brand standards across an expanding footprint of franchise locations. Read more here
Legal Risks and Partnership Strains
In addition to the resource commitment required, franchising carries some inherent legal risks that franchisors need to be aware of. By its nature, the franchisor-franchisee relationship is one of the few instances where anti-trust laws allow for territorial exclusivity and pricing controls. This comes with strict regulations under franchise laws that govern the sales process, franchise disclosure documents, marketing practices and treatment of franchisees.
Franchisors found to be in violation of franchise laws can face hefty fines, litigation and potentially be prohibited from operating in certain markets,” warns Seid. “Having experienced franchise legal counsel is an absolute must when taking a brand’s franchising system into new states or countries with different franchise relationship laws.”
Another consideration is the potential for tension and conflict within the franchise system as it expands. With each franchisee having a substantial investment at stake in their individual locations, there can be pushback or misalignment when corporate dictates changes to operations, pricing, marketing or approved product lines. World-class franchisors like McDonald’s have robust governance systems and franchisee advisory councils to collectively work through system-wide issues, but divisive conflicts can occasionally still emerge.
International Expansion Amplifies Complexity
For franchisors looking to leverage franchising as a vehicle for international expansion, the degree of difficulty increases exponentially. In addition to needing to adapt the brand’s products and operations for different cultures, franchisors need to navigate a vastly more complex legal and regulatory patchwork of franchise relationship laws across various countries.
They also face challenges around protecting their intellectual property, establishing product supply chains, complying with immigration and tax laws, securing real estate, connecting with quality franchisee candidates, and implementing localized marketing strategies – often in languages the franchisor isn’t fluent in. These amplified complexities are why many franchisors rely on master franchising or joint venture partnership models when first expanding abroad.
The Future of Franchising
Despite its challenges, franchising remains one of the most proven paths for accelerated brand growth and market expansion. Research from the International Franchise Association projects that the economic output from franchise establishments will grow to represent over 6.6% of U.S. GDP by 2032.
As franchisors gain more experience successfully entering new international markets, and technology streamlines training and operations practices, the franchising model is likely to see continued rapid growth and adoption across multiple industries.
From QSR behemoths like McDonald’s and KFC, to personal services like Massage Envy, to specialized B2B brands like Batteries Plus Bulbs – companies are increasingly turning to franchising to expand their footprint and bring new products and services to markets near and far. For those willing to make the commitment, franchising can be a potent accelerant for global expansion.
