This article was first published online by Franchise Times on February 19, 2020 and subsequently published in the March 2020 print edition.
Helen Keller penned the memorable quote, “life is either a daring adventure or nothing at all.” Taking a franchise system beyond its home front is an exciting and challenging proposition all at the same time. In the next few columns I’ll illustrate the experiences, challenges, predictions, advice and aspirations of brands that have embarked on the daring adventure of international franchising. The first brand in this two-part series is from the fitness industry. Fairly young, this brand experienced a high degree of international success during the past several years. Here are some of the insights gleaned from the discussion with who we’ll call “Fitness Brand X.”
When asked about emerging trends in international franchising, Fitness Brand X’s priority and focus is set on navigating the ongoing evolution of regulatory change around the globe. It stands to reason that as the franchise business model becomes more prolific in numerous jurisdictions, lawmakers will respond with regulation in one form or another. Fitness Brand X has a keen sense for anticipating regulatory change and adapting accordingly.
“Regulators across various jurisdictions are placing more and more emphasis on a franchisor’s responsibility to ensure that its franchisees comply with their legal obligations—whether it be in relation to laws around employment, intellectual property, or landlord relations. It is a tremendous challenge maintaining contractual relationships with franchisees which, at the same time, shield the franchisor (as far as possible) from the misdeeds of franchisees while effectively giving franchisors the right to scrutinize and monitor franchisees’ business activities,” notes the COO of Fitness Brand X.
The chief concern (all too palpably understood by many franchisors) being that the more control or supervision that franchisors exert, the more likely the possibility that franchisors may be found vicariously liable for the actions/omissions of their franchisees. Beyond the irony, it flies in the face of the franchise business model and has been strongly opposed in various contexts (particularly in the U.S.).
Undoubtedly, vicarious liability is a regulatory construct that franchisors need to understand and pay close attention to, whether it be franchisors embarking on the international franchising journey, seasoned international franchisors, or everything in between. That’s not enough though.
Fitness Brand X recommends that franchisors be proactive in learning the potential areas of vicarious liability that are likely to affect their system and analyze the impact of such potential liability in specific jurisdictions in which they operate. One strategy effectively used by Fitness Brand X to address the conundrum of control/liability is the use of outsourced service providers to ensure compliance (e.g. mandating that franchisees use approved outsourced human resources management firms).
Infrastructure and sophistication
The corollary to the above is that franchisors must develop the right infrastructure (i.e. team and advisers) to maneuver through the increased regulation and to implement and sustain effective strategies to address same. Fitness Brand X says franchisors are also bolstering their human capital and putting more resources toward attracting and qualifying the right franchisees. This has particularly been the case in searching for international franchisees.
Past the point of inking a deal, Fitness Brand X has stepped up its training, establishment and operations by introducing better processes, procedures and programs. This has involved dedicating additional resources to develop more sophisticated training programs, improved supervision of the buildout process, mandated third-party marketing initiatives and more.
“We are looking for more sophisticated franchisees in international jurisdictions, and with that comes the need to provide a more sophisticated offering. This has required a significant dedication of our resources to improve every process, from onboarding through to field support,” says Mr. COO.
“It takes a lot of work to build a global brand. In particular, the elements that: (a) form part of the multi-faceted franchise business model, and (b) are critical for the industry in which you operate. It also takes time to build brand identity,” says Mr. COO.
While selling franchises serves that purpose, a common challenge is breaking into new regions. Fitness Brand X found expansion by clustering is one useful strategy in that regard, and has assisted in its expansion into various regions it may not have otherwise had opportunity to venture into. Emphatically, there has not been (and will not be) a jurisdiction that Fitness Brand X won’t entertain and explore, but its due diligence for all opportunities is robust.
Another challenge is the increasing difficulty associated with locking down leases/locations, particularly in the larger city areas. According to Mr. COO, “it can take more than six months to secure premises, which impacts the momentum and anticipation of a deal. This is compounded by the fact that landlords are becoming more and more sophisticated in their approach to leasing premises (which can lead to delicate and protracted negotiations). All of this converges with the increasingly complex buildout process and rising costs, which can be crippling for franchisees that don’t have experience with these sorts of things.”
To mitigate the latter condition, Fitness Brand X devised a strategy for identifying franchisees that require assistance with the buildout process and ways they can assist (while managing the risk and potential liability associated with same).
What emerged from Fitness Brand X’s interview are lessons in adaptability, prudence and proactivity, and effective infrastructure building, which can benefit any franchise system. Stay tuned for Part 2 of Fitness Brand X’s world view to learn more about its success in international franchising.