Common Errors in International Expansion Singapore November 5, 2019 Who is the audience for this session? Franchisors, Franchisees, Investors, Suppliers, Marketers, Financial Managers, Operators, and others: • Planning their first international venture • Recently opened their first international location(s) • Need to re-assess an existing business • Successfully operating internationally Why talk about errors in international expansion? • They all seem to be common sense • But at some point, almost every franchisor or franchisee has committed one or more of these • Today’s objective is simply to provide an opportunity to learn from some common pitfalls “Those who cannot remember the past are condemned to repeat it” -George Santayana The Life of Reason: Reason in Common Sense. Scribner’s, 1905 Today’s panel Jim Hartenstein jim @ hartensteinglobal.com • International franchise consulting • GRLC Advisory Council • SVP-International at Little Caesars • SVP-International at Wendy’s • Also Regional VP-Latin America/Caribbean • Previous international General Management and Marketing experience at Goodyear, American Express, and TNT Express Nicolas Boudet NBoudet @ Wingstop.com • President-International at Wingstop, Inc. • Group President-International at Focus Brands • Chief Development Officer/Head of US Franchising at Taco Bell Corp. • Chief Development Officer- Latin America/Caribbean at Yum! Brands • SVP-Real Estate at Club Med, Inc. • VP Joint Venture Real Estate at Starwood Walid Hajj w @ kairos.cc • Founder at Cravia • >100 locations with over 3000 people • UAE, Saudi Arabia, Bahrain, Qatar • Brands include Cinnabon, Seattle’s Best Coffee, Zataar w Zeit, The Steak Bar, Carvel Ice Cream, and Five Guys Burgers and Fries • Sold to PE firm • Kairos investment/consultancy entity • Seeking new investment opportunities • Consultancy to organizations in this field • Several Board positions in region and Europe Fyodor Ovchinnikov f @ dodopizza.com • Founder and CEO of Dodo Pizza, a digital-first pizza franchise • Launched in 2011, now #1 pizza chain in Russia • Larger in Russia than Domino’s and Papa John’s combined • 520+ units in 12 countries; developing UK and China, coming to Nigeria this year • One of the world’s fastest-growing QSR chains (100% growth in 2018 YoY) Today’s panel collectively has: ~90 years of international market experience ~70 years of restaurant experience ~70 years of general management experience … and we’ve all seen people commit these errors multiple times… Common Errors in International Expansion Lack of genuine senior management commitment • Is there real CEO commitment? Senior management? • Is commitment communicated and “signaled” consistently? • Is international investment approved / in process? • The CEO’s “vibe” is critical, both internally and externally Selling franchises without a complete support plan • Is the focus on that tempting immediate fee, or on a long-term strategy? • “Sign the deal now and figure out how to support it later” • Will international franchisees receive the same level of support that home-market franchisees enjoy? • Have all support elements and costs been considered? • “There’s never enough time to do it right, but there’s always enough time to do it over” -Lt Gen (Ret) Jack Bergman, USMC Not considering franchisee viewpoint • Is the proposed arrangement being evaluated from the franchisee’s perspective? • How can the franchisor ensure that the unit economics work to allow the franchisee to continue to want to invest and expand? • The franchisor should be the Brand expert; the franchisee should be the local market expert – listen to him • If using a broker, are the initial offer and ongoing support being accurately described? • Flexibility in execution is critical. Take-it-or-leave-it doesn’t work. Unwilling to adapt to local market • It is a certainty that adaptation will be required • Is the franchisor prepared to support such adaptation? • Internationally-experienced teams must lead an international strategy • Do home-market staff recognize the importance of personal relationships in International? • It’s not about flexibility at any cost – maintain your core standards Opportunistic rather than proactive development • “I just had a call from Country X offering US$500,000 for rights to his country…” • Do you have a process to target and prioritize potential regions and countries? • Are you prepared to do the necessary “homework” prior to seeking franchisees? • Are you willing to say “no” if an inquiry or offer doesn’t fit your plan? • Are your Development goals realistic? • And, when addiction to accelerating development causes you to think you can shortcut the plan and the process, try to avoid the temptation… Supply Chain not developed prior to entry • Supply Chain is often the most critical element in international expansion • “Just assume we’ll export everything and sort it out later” • A longer-term plan must be developed prior to entry • Export strategy • GMO, Halal, import quotas, freight, shelf-life, currency risk, cost • Local sourcing strategy • Spec adaptation, volume expectations, quality, cost Not having a long-term perspective • Agile approach and step-by-step strategy • Don’t give up too soon • International markets seem to have more obstacles • It will take longer and cost more than you had expected • Believe in your Brand • Stay the course Franchisor vs Franchisee • Limited testing in Franchisor-owned locations before mandating to Franchisees • Franchisees required to comply with programs with little explanation of rationale or solicitation of input • Franchisor “hidden fees” such as ingredient/equipment mark-ups • Concerns about financial disclosure vs financial transparency • Finding strong motivated entrepreneurs as franchisees Other common errors Lack of disciplined profile/review/selection process for franchisees Insufficient local consultation for legal/tax/trademark considerations Underestimating the required level of local market support Believing all home-market practices are valid internationally Inadequate advance consideration of possible termination options The errors we talked about are all very obvious – right? You’d never do such things – right? Let’s all take Mr. Santayana’s advice: … learn from what the others did! Conclusions • International expansion can set the course for long-term growth • Ensure CEO and Senior Management commitment • Use internationally experienced people • You manage Development; it doesn’t manage you • Local adaptation will be required; be ready for it • Evaluate from the franchisee perspective • It will take longer and cost more than hoped • Make a plan – and stick to it Common Errors in International Expansion Singapore November 5, 2019 .