Japan: your next franchise location?

Japan: your next franchise location?

The third-largest economy in the world should be a natural choice for entrepreneurs looking east.

Japan is an economic powerhouse. With a GDP of around $4.73tn, the country is no stranger to the franchising business model. In fact, according to the Japan Franchise Association (JFA), around 1,339 franchises exist within Japan, comprising of 263,490 individual locations.

Not only do these businesses provide jobs to Japan’s population of 127 million, they are also frequented by the country’s modestly wealthy consumers, with the per capita income for Japan sitting at around $43,118 (according to export.gov).

Evidently, Japan’s collection of islands are primed for a business to dive in and reap enormous success. So where’s the catch?

Entering the market

Japan’s population is aging and diminishing at an unprecedented rate, and the share of individuals over the age of 65 is expected to rise to 40 per cent by 2060. The country’s population could drop by as much as one-third in that same timeline: from 127 million to 87 million.

The Japanese approach to business could also come across as prolonged, when viewed from a western perspective: “Japanese companies are extremely conservative and not willing to take a lot of risk,” says Joel Silverstein, CEO of East West Hospitality Group, a collection of experts in the international food and beverage industry. “From when you sign a non-disclosure agreement to when you sign a deal, it can take a long time, due to the slow Japanese decision making.”

But this shouldn’t dissuade an international-reaching business from launching into the market. As with any country, trends can change depending who you speak to.

“Unlike some initiatives proposed by other experts, Japanese millennials are still trendsetters,” says Ken Ishiyama, VP of I. Fujita International Inc., which offers two-way support for brands entering or exporting from the Japanese market. “Those brands that tend to appeal to younger generations may have a better chance of success. At the same time, female consumers in their 30s, 40s, and 50s are more influential with their buying power.”

“The golden age of accepting American brands has, without a doubt, ended”

And regardless of age, Japanese employees are appealing in their own right. “A good benefit for owning a franchise in Japan is certainly the workforce,” says Brian McDermott, CEO of Global Training Partners, a cultural integration organization. “[The] Japanese work 48 hours a week without overtime pay and are very qualified, responsible, and committed to their jobs.”

Japan's population is densely concentrated in its sprawling cities
Japan’s population is densely concentrated in its sprawling cities

Enlist local talent

In light of all this potential confusion and contradiction, the most common way for a franchisor to currently penetrate the market is through a local master franchisee: somebody who knows the societal demands of their area and can adapt a business accordingly.

This is something that worldwide gym franchisor, Orangetheory Fitness, chose to do in 2016 when it signed a master franchisee agreement to bring the concept to Japan. As part of the agreement, Orangetheory would open 70 locations by 2026, across Honshu, Japan’s main island.

“If the customer is king in America, then the customer is God in Japan”

“When we were looking for a master franchisee in a complex market like Japan, with a lot of potential,” said Dave Long, co-founder of Orangetheory, “we knew we required a partner with local market knowledge, diverse and proven business expertise, and a professional who shared our corporate values and mission.”

Japan’s fitness industry is reportedly the fourth largest in the world, and as of 2017, the country’s fitness industry revenue sat at around $5bn. There’s big money to be made, but consideration of Japan’s elderly population is a must: Central Sports, a Tokyo-based sport and fitness organization, reported that over 60s make up nearly 40 per cent of its membership.

Keeping cash alive

Unlike some of the world’s other leading economies, Japan still favors physical currency over entirely digital banking. In fact, physical cash transactions account for nearly 20 per cent of the country’s overall GDP – Sweden being at the opposite end of the spectrum, with just two per cent.

This could be due to the high prevalence of ATMs (as of 2016, there were nearly 200,000 throughout the country), the Japanese idea of ‘Tansu Yokin’ (keeping money under a mattress/dresser for safekeeping), or the fact that many of the country’s small businesses refuse to pay heavy credit card charges, and thus operate purely in cold, hard cash.

Bringing back burgers

A master franchisee isn’t the only way to enter the Japanese franchise market, and fitness isn’t the only sector in demand. Wendy’s, the American burger favorite with an equally adored Twitter account, chose a different route. The brand originally entered Japan in 1980, but departed in 2009 due to middling success and the desire to prioritize its domestic U.S. market.

But Wendy’s eponymous mascot and its iconic square burgers returned to the East in 2016, when the franchise purchased First Kitchen, a popular local brand that already operated 136 restaurants throughout the country. These were soon rebranded as Wendy’s First Kitchen, and now sell both restaurants’ menus to appeal to a broader market.

Wendy’s isn’t the only American brand looking to re-attempt the Japanese market. Carl’s Jr. Restaurants (CKE) first gave it a shot in 1989, but withdrew soon after in 1997. Now, as part of a master franchisee partnership with Mitsuuroko Group Holdings Co., Ltd., Carl’s Jr. has brought its popular burgers back east. The brand’s reasoning? A national demand for superior fast food. Ned Lyerly, president of CKE Restaurant Holdings international, spoke to the Japan Times at the 2016 relaunch, and said: “The better burger business has really expanded, and people’s demand for better, higher-quality burgers has grown both in Tokyo, and globally.”

Wendy's found success with a unique partnership (CREDIT: TY Lim/Shutterstock.com)
Wendy’s found success with a unique partnership (CREDIT: TY Lim/Shutterstock.com)

It would be a mistake to simply assume that just because a brand can throw its weight around in the U.S., it can do so in Japan. Ken Ishiyama explains: “The Japanese market has traditionally looked up to and aggressively imported American franchises. However, the golden age of accepting American brands has, without any doubt, ended. We need to be a lot more selective about each concept in terms of business type, scale, popularity, flexibility, and other variables that may attract consumers.”

Stringent selection won’t be the only issue international brands will have to adapt to. “Real estate is probably the number one concern,” says Joel Silverstein. “Restaurants, in particular, are not used to having second and third floor locations. It’s not uncommon to walk into a McDonald’s in Japan and see three levels. You have to have small kitchens, and generally speaking, Japanese restaurant chains rely on central kitchens and outsource more preparation than American companies traditionally would.”

Home-grown favorites

It isn’t just international brands making huge waves in the Japanese franchising landscape. In fact, some of the most wildly popular restaurants, cafes, and retail locations are distinctly local.

MOS BURGER is one such name, which has positioned itself as the second-largest fast-casual restaurant in Japan (just behind international titan, McDonald’s). Prioritizing empathy over a profit-driven approach – the brand’s corporate goal is to “make people happy through food” – MOS has successfully grown into a beloved international restaurant of choice, with over 1,700 locations spread throughout Japan, Asia, The Pacific, and Oceania.

“I think the aging population actually creates opportunities”

MOS is joined on the international stage by another national favorite: Curry House CoCo Ichibanya. As the largest curry rice restaurant in Japan, CoCo Ichibanya has 1,304 restaurants in its home market alone, and franchises in 12 countries. In 2018, it opened its inaugural London restaurant – marking the first time the brand entered Europe.

A franchise with a smaller footprint but by no means less impact is RAKKAN Ramen, which entered the U.S. from Tokyo in 2017, and only recently began offering its healthy ramen dishes to the franchising market. Why tackle the States first? “America is the home country of franchising,” says Manabu Kamatani, COO of RAKKAN. “We thought that if we succeeded with franchising in the U.S., it would be easier to expand throughout the world.”

Customer care

It’s a commonly held mentality in the West that the customer is always right, no matter what.

This is even more significant in Japan, where customer service is at the forefront of every business imaginable. “If the customer is king in America,” says Brian McDermott, “then the customer is God in Japan.”

Putting people first

To truly succeed among the Japanese, a business person doesn’t just need to have commercial nous and an awareness of trends. They need to value a more innate skill: humility.

The Japanese are often associated with etiquette, politeness, and saving face – this remains true when it comes to growing a business. Gift giving, for example, is ingrained in Japanese professional culture. But it’s not enough to present prospective business partners with any old thing; a brand should come equipped with useful, high-quality momentos that represent its values and cement its concept in the mind of the decision-makers. Yes, gift-giving in this context is a universal fact, but the Japanese see it as a necessity rather than a perk.

Gifts aren’t the only area that franchisors need to familiarize themselves with. The fundamental way in which an entrepreneur brokers a deal should also be analyzed, as the Japanese are often recognized as being more patient, when compared to their western counterparts – a trait cemented perfectly by the Japanese proverb: the duck that quacks is the first to get shot.

Ramen concepts are universally popular, but saturated
Ramen concepts are universally popular, but saturated

The humble business card (‘Meishi’) also carries a lot more weight in the East. For Japanese professionals, a business card is an extension of their identity. As such, handling it with respect is just as important as respecting the individual. Accept it with both hands, read it as a sign of courtesy, and place it in a business card holder for reviewing after the meeting or interaction.

Find yourself stumbling through business dealings in Japan, forgetting the above pointers? All is not lost: “If foreign businessmen or women display humility, flexibility, and an understanding of Japanese art and culture,” says Ken Ishiyama, “Japanese business people will be impressed. These traits may be more important than just following Japanese etiquette and customs.”

This sentiment is echoed by Joel Silverstein: “The Japanese expect you, if you’re a foreigner, to act like a foreigner. That doesn’t mean rude, but it does mean that they won’t be insulted if somebody does something they shouldn’t do, just because they didn’t know – like taking shoes off in somebody’s home, for example.”

KEY EVENT: Japan International Franchise Show

When: March 4-6, 2020

Where: Makuhari Messe, International Exhibition Hall 1-8, Chiba, Japan

Why: It’s one of Japan’s longest-running and largest franchising exhibitions, with an estimated attendee count for 2020 of 30,000. The upcoming event will be the 36th iteration, and 210 companies will be present, focusing on food, retail, and the service industry. It offers the opportunity for entrepreneurs to meet with their potential future business partners in the East.

ABOUT THE AUTHOR

Kieran McLoone is the deputy editor for Global Franchise magazine.

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