Pip Wilkins, CEO of the British Franchise Association (bfa), offers tips and tricks for US brands to successfully enter the UK market.
Franchising in the UK is continuing to show exceptional growth, with the industry generating a turnover of £17.2 billion in 2018, up 2.1 billion since 2015. American brands continue to thrive in a UK environment, and while franchising in the UK is not yet as prominent as the US, the industry continues to grow. Some of the bfa’s founding members were US franchise brands, bringing the concept over and looking to promote a brand of ethical franchising that has seen the sector grow to where it is today.
Suzie McCafferty, Managing Director of Platinum Wave Franchising, has over 18 years of first-hand international franchising experience. She agrees that America doesn’t face some of the same barriers that other international markets face when looking to start a presence in the UK.
She states: “The UK is a great market for American brands. We speak the same language and on the whole Brits are very receptive to US initiatives, whether it’s a new product, service or brand. What’s more, going into 2019, franchising has a greater profile in the UK than ever before – American franchisors (who know where to look) will find no shortage of highly experienced, multi-unit franchisees willing to make major investments to secure master franchise or area developer licences to launch a new brand in the UK.”
While we may both speak the English language, culturally, we are very different and this needs to be taken into account when attempting to bring the product or service over. And not only are the two countries very different, but so are the regions and states, too. McCafferty reiterates this: “There are as many regional variations in culture, taste and wealth across the UK as there are in the 50 united, but contrasting, States of America.”
Euan Fraser, a franchise specialist with AMO Consulting, also understands that brands need to be tweaked in order to fit other markets, whether that be in taste or in operations: “A number of US franchise systems have certainly been successful in the UK but by no means all.
Dunkin Donuts, Arby’s and Wendy’s are all food brands that have been in and out of the market. In a food unit, success doesn’t come without adaption of the menu to suit local tastes, but often the operational side needs to change, too. In the UK, property costs and staffing are both comparatively expensive and the average unit size is smaller, which will impact your operating model.
“In other sectors, the target audience is different. For example, in domiciliary care you may need funding from a local authority or supply contracts with the NHS – your business proposition needs to understand and reflect this. Of course, it doesn’t help that the source of funding varies across the countries of the UK.”
The 2018 bfa NatWest Franchise Survey has shown that country-specific legislation is an increasing barrier in international franchising, taking over language differences as the main issue since 2015.
Jane Masih, Director at Owen White Solicitors, explains what legal due diligence American franchisors need to do when looking at expanding and starting operations in the UK: “Protecting the brand in the UK is the first step. A trademark registered at the Intellectual Property office will protect the brand in specific categories or classes for the goods or services to be distributed by the franchise network.
“Any company considering acquiring the UK master licence rights will expect the US owner to have checked that the brand name can be used in the UK and at the very least that applications have been submitted to secure registration. Commercial property operates in a very different way than in the US and it will be difficult to set realistic and achievable franchise recruitment targets without an appreciation of what is involved to identify and secure appropriate sites.”
The bfa NatWest stats also show that international brands not being able to find suitable franchisees is becoming an increasing factor in not being able to grow internationally. Masih explains what work should be done between the master licensee and licensor to achieve a good working relationship. “A master licensee will expect the master licensor to have carried out the groundwork to establish the logistics and supply chain needed to supply key products or equipment to the franchise network in a timely and cost-effective manner.
While it is tempting to appoint a master licensee and expect them to test the market and recruit franchisees as soon as possible, careful testing of the franchise system by the US master licensor in the UK will provide vital data to demonstrate the viability of the proposition in the UK market and justify the master licence fee and contractual obligations required of the master licensee.”
McCafferty knows that having an established name does not bring a guarantee of a good working relationship: “No matter how established and successful a brand may be in the States, any franchise agreement should be reviewed by an experienced UK lawyer for the benefit of both franchisor and franchisee. The principles of franchising may be the same, but unlike in the US, the industry is not regulated in the UK and there plenty of compliance issues to consider such as data protection, VAT, trading standards and competition law.”
While it may seem like an uphill battle to try and crack an international market, it really is as simple as finding the right help and expertise, with McCafferty reinforcing: “Expert help is essential when completing due diligence into the UK market. The bfa will be able to point you to the expertise you need to ensure a smooth entry – you’ll find experienced hands to hold in matters of consultancy, research, mapping, recruitment, marketing, supply chain, legal and financial.”
So there you have it. It’s not plain sailing, and even if an American company has a humongous presence in the US, it does not guarantee success in the UK. You must do your research, work with legal team, and truly understand the market and sector you are working in.
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