Why International Franchises are Coming to America
26 Jul 2019 - Brands can find a foothold in the U.S. with the right domestic partners.
For more than 35 years, umami fans have been able to dive into Yoshinoya’s signature beef bowls whether they were in the U.S., Japan, or Hong Kong. The Tokyo-based fast casual’s longstanding presence demonstrates success in one of the most challenging areas of limited-service growth: bringing a beloved foreign brand into the U.S. It can be tricky but rewarding terrain.
“We’re being careful, even though we’re in expansion mode,” says Bobby Williams, vice president of marketing at Yoshinoya.
Foreign brands are increasingly reaching a stage where they are considering international expansion, says Rick Bisio, a franchise coach who previously directed international development for Popeyes, Cinnabon, and more.
Flynn Dekker, CEO of Bonchon, a Korean fried chicken brand that has successfully scaled in the U.S., says the digital world has broken down barriers that might have existed 10–15 years ago. “There’s a lot more interest in foreign brands and flavors, things that are not what you grew up with necessarily,” he says. This means that international companies and cuisines can be a benefit, if managed correctly.
There are three strategies for bringing foreign concepts into new countries, Bisio says. Company-owned development is an expensive, powerful strategy. Under this approach, franchises in new countries are not open to locals until the brand is well-established. If and when the brand begins franchising, potential operators will reap the benefits of the first wave of corporate stores.
National or regional development programs involve a company granting an organization in the new market the rights to open several stores. Representatives from the brand’s native country are usually brought in to help run things. Again, individual local franchisees have no point of entry until much later on.
The third and most common form of international development is a master license. The brand sells rights within another country, and the purchasing organization may either open stores or sell franchises to locals. This method is easy and makes money for the franchisor but can be hard on franchisees because support is lacking.
“Especially if the brand is from a non-English-speaking country, there are going to be a lot of bumps when it comes to marketing, communications, and operational manuals, which may be translated but not legible,” Bisio says. “Vendor contracts, relationships, and building an infrastructure in a new country take a lot of time and effort.” Bisio recommends that only extremely experienced franchisees with their own systems in place consider taking on a master license.
Yoshinoya opted for the company-owned development approach. Japanese CEOs came to the U.S. to establish the brand. “The folks in Yoshinoya home office, they kept the brand going and were, as they still are, very supportive,” Williams says. To this day, 76 of the 110 American locations are company-owned.
“Six years ago, a new leadership team was put in place,” Williams says. “An American and Japanese management team was established on a firm foundation laid over the past 30 years.” This allowed them to focus on making improvements and changes to best serve American customers. It was, in short, a carefully calibrated process.
Bonchon’s growth and success in the U.S. has been organic and almost entirely based around individual franchisees. The founder’s signature sauces—soy-garlic and a spicy version with fiery Korean red peppers, still made in Busan, South Korea—had been inspiring Koreans to open franchisees for years. In 2006, an American decided he wanted to bring it to New Jersey. From there, more franchisees opened stores in New York, California, and other coastal areas. Then, about a decade ago, corporate headquarters were established in New York, along with two company-owned stores. Recently, Dekker took the reins as CEO when a majority interest was purchased from the founder.
“The really interesting thing about Bonchon is that I don’t know that there was a grand plan going in,” Dekker says. “It grew because there was so much demand for sauce and flavor and the chicken.”
Dekker acknowledges this is an unconventional strategy, and one that, without the right support and product, could be uniquely difficult. One of Bonchon’s advantages is that in many ways, its product is already popular with Americans, who love fried chicken. A common problem for foreign brands coming to the U.S. is that the food is too unfamiliar.
Yoshinoya has dealt with this by slowly adding menu items like habanero sauce and tilapia with garlic butter that cater to the American palate. “We’re still Yoshinoya, we still have our people, our teriyaki chicken, but we’ve changed the menu up a bit,” Williams says. Rather than static offerings, customers can now choose their own base, protein, vegetable, and sauce.
In addition to product tweaks, brands commonly mitigate the risk of opening in a new country by initially tackling diverse regions like New York or areas with large populations from the restaurant’s home country. Bonchon adopted this strategy; now that it has penetrated the East and West Coasts, the brand is moving into the center with designs on the Midwest.
Nevertheless, conventional wisdom doesn’t always bear out. While Los Angeles has a significant East Asian population, Yoshinoya has found that it is most popular with Latinos and Caucasians.
These nuances and surprises make it essential for potential franchisees to carefully vet foreign brands. “Interview [existing] franchisees in the U.S.,” Bisio says. “Don’t get enamored with a bright, shiny idea. Franchising is about reducing risk. Ask if the brand reduces your risk systematically in this country.”