Franchising’s 007s: Launching a Global Century
In the movie Casino Royale (2006), James Bond fights world terrorism by taking on one of its financiers, “Le Chiffre,” using cutting-edge technology, specialized MI6 gadgetry, death-defying escapes and the international savoir faire for which the legendary crime fighter is known.
U.S. franchise international development leaders may not use drones or moon rockets, but they have to be almost as savvy as James Bond when it comes to operating in the fast-changing, high-speed race for global business development.
Some have called this era of franchising’s “global century” given the unprecedented and massive growth opportunity presented by a globalized economy, accessible transportation and communication, surging economies, and increasing disposable income around the world, combined with a strong hunger for American brands.
But the road warriors who do this work need a specialized set of skills, experience and temperament to negotiate deals overseas–facing language barriers, uneven legal landscapes, and specific customs–not to mention time differences and the jet lag that are inevitably involved.
Jeff Sinelli, founder, CEO and CVO (“Chief Vibe Officer”) of Which Wich, a high-end sandwich concept based in Dallas, is buying a cup of coffee in Singapore. He’s not a big coffee drinker, but in this case he is fascinated by the plastic “sling” that holds the cup, kind of like a bridle cut out of a plastic bag. Sinelli barely stops for a sip, but takes several photos on his iPhone.
Part of a trade mission co-sponsored by the International Franchise Association, Franchise Times, and the U.S. Commercial Service, Sinelli spent 10 days zooming around Vietnam and Indonesia.
Which Wich is planning to expand into these markets. Sinelli wasn’t there just interviewing potential business partners, he’s examining everything he could touch, see and smell. In a mall in Jakarta, he stopped in his tracks to stare at a dining table shaped like a half moon. “I’ve never seen a half circle of a table like that,” he said. “It’s kind of genius.”
Sinelli continues in a speed walk to a restaurant in a luxurious Jakarta mall called “Manhattan Seafood,” an Indonesian franchise concept. He talked with the owner and ordered several items. “I’m an explorer looking for ideas. The ideas can come from how they plant a garden to how they put a screw in the wall. How they bring food here. Are they bringing it from Japan? Ultimately we’re importers or exporters or both, and we have to figure it out. If we figure it out, it can be profitable,” Sinelli said.
The founder of Genghis Grill, a concept he sold in 2003, Sinelli likens his mission to making a soup. “To be successful, we’re going to put all the ingredients in, adjust it, filter it, and use our five senses. You have to see things and hear things,” he said, munching on a peppered shrimp. Sinelli scans the nearly empty restaurant. It’s 11:30 a.m. “What time do people eat here? Maybe we have to adjust our schedule for lunchtime later in the day,” he pondered, snapping more photos.
International expansion is “a complex equation,” Sinelli said, “but if you solve it, there’s a pot of gold waiting.”
Walking into a restaurant, he said, “Should be like a roller coaster ride. You want your customers to go high and low, up and down, walk around and experience it. It’s a theme park. Otherwise you just sit down, eat some food and give them some cash. That’s not an experience.”
Some compare international development to a roller coaster ride itself. The estimated failure rate is higher by multiples than that of domestic development.
The complexity of the equation starts with geography. “You’ve got to have the right location,” says John Peddar, executive director, international business development for Applebee’s. “If you think, ‘I’m going into Dubai and it will be easy,’ you need to know, it can take years.”
It is said that McDonald’s spent 10 years establishing supply chains and other infrastructure before opening its first restaurant in China in 1990. Similarly, franchise lore holds that Dunkin’ Brands spent 10 years preparing to open its first unit in Russia.
Thanks to the earlier labor of the big franchise brands, development is now easier, but certainly not simple, say the experts.
One challenge is adapting the menu and the service style. In China, Dunkin’ Donuts not only retails chocolate donuts, but also rice-based versions called Mochi rings and milk tea. In Singapore, the brand offers Kaya, a coconut-based pastry. Visitors won’t find a hamburger at McDonald’s in India, due to the nation’s worship of cows, which are considered deities. The bun and fries, however, look similar in Delhi, India and Delhi, Iowa.
Menu adaptations and complex supply chains built from scratch have led to mammoth success for U.S. franchise brands abroad, fueled in part by frothy economies and plentiful investors. With rivers of cash and limited investment options, many indigenous business developers in emerging economies seek to buy franchises as long-term investments and job training for their children.
However, “a lot of money doesn’t guarantee success, and you can lose a lot,” says Phil Crimmins, president of Applebee’s International Division and a veteran of YUM! Brands, Inc., he is most aggressive of U.S. brands globally. Crimmins, who started in the industry bagging French fries at a hamburger chain in Stoneham, Mass. called “Carol’s,” has since gone on to build a national operation of 1,800 U.S. Applebee’s and IHOP stores.
DineEquity has 150 units globally, in Canada, Honduras, Guatemala, Mexico and Brazil, among others, says Crimmins. The company is investing in several Middle East markets, including Saudi Arabia, Qatar, UAE, Kuwait and Egypt.
Crimmins, commenting on the Vietnam and Indonesia trade mission, said patience is required for success. “I’m looking at this trip as planting a seed that may sprout in three to four years. Six to nine months after signing an agreement is the minimum it takes to open,” he says.
“You’ve got to have people in your company who understand the challenge. It takes a lot of time and support. There’s a lot of opportunity for failure. One in three fails,” he said.
But Crimmins and the other 007s of international development know that the pay-off of successful international development is significant.
Of YUM’s 2011 profit, almost $1 billion, will come from its international businesses. Hitting that target was not expected until 2015. Meanwhile, in YUM!’s top 10 emerging markets there are 1.7 YUM! Brand restaurants per million people, with expectations to reach four units per million by 2020, compared with the 60 units per million in the United States.
For its part, McDonald’s stock just hit a new all-time high, based on surging growth abroad.
“Overseas, our customers are younger and more educated,” Crimmins continued. So-called “first jobbers,” young professionals anxious to use fat paychecks for dining and entertainment, find Applebee’s “cool,” Crimmins said.
Scott Chorna’s entrance into franchising was accidental. Having studied Chinese at U.C. Santa Barbara, he couldn’t wait to throw on a backpack and head to Asia. Landing in Taiwan, he became the first manager of the first Subway restaurant in that country, then helped open many Dunkin’ Donuts and Baskin Robbins stores, and now leads FOCUS Brands’ new international development. Chorna, who lives in Los Angeles, said part of the rewards of his job come from the friends he makes along the way. “People who know the brand get really excited, and people who do not know the brand are very interested to learn and try,” he said. “It is fun to be a part of. It is very challenging, yet very rewarding.”
But not everyone at the forefront of U.S. franchising overseas comes from a background in the restaurant industry. Dan Benton was a three-star U.S. Army General serving as Chief of Staff of the U.S. European Command after living in Germany, France, Greece, Panama and Kuwait.
“Being comfortable in the unknown is key,” he said as director of international development for Global Franchise Group. “I speak German and French. A few polished phrases in Mandarin help. Whatever the language, I’m not afraid to try.”
He noted that international developers shouldn’t have a fear of traveling and some gray hair may be a benefit: experience matters.
Back in Jakarta, Sinelli, traveling with his brother Todd, is sampling an exotic coffee made from beans collected from the excrement of a rainforest animal called the paradoxurus, which climbs among the coffee trees of this island nation. It’s pretty good, said the brothers, snapping up several bags at $75 per pound to give as gags for Christmas.
The Sinelli brothers, spearheading Which Wich’s international expansion, have been on the road together since they played NCAA lacrosse at Michigan State University. They once fell asleep in an airport for 10 hours after an international tournament, missing several flights before waking up and talking their way onto flights a day later.
Still dressed like athletes in signature black and yellow Which Wich track suits, they look ready to travel the miles it takes to successfully mount major international development.
“We travel well together,” said Todd.
“As long as he understands I’m still the big brother,” said Jeff.
Beth Solomon is vice president of strategic initiatives and industry relations for the International Franchise Association. She can be reached at 292-662-0789 or email@example.com.