Will they still call Australia home?
It won’t be long until you will be able to buy a bread roll in the shape of the Sydney Opera House in the United Arab Emirates (UAE) or in one of five other countries that make up the Gulf Co-Operation Council.
It’s just one of the ways Brumby’s Bakeries will retain its Australian identity when its stores begin to roll out in the oil and infrastructure rich Gulf States.
“Of all the markets we have researched the Middle East is one of the few where we will not have to change our offer as the breads they have there are exactly the same as ours,” says Michael Sherlock, Brumby’s managing director.
While bacon will be definitely off the menu and more date flavours will be added to the range, you will still be able to buy a vegemite and cheese scroll. And Australia’s other most recognizable icon – the kangaroo – will hop into the Brumby’s logo in overseas markets.
Brumby’s decision to expand in the region follows extensive research on international markets including China and India.
According to Sherlock, factors driving the decision included population, wealth and the growth in the region. He cites examples of infrastructure developments taking place in Dubai, such as The Palm Islands, three of the largest man-made islands in the world being built in the shape of a date palm tree, and The World Island, a collection of man-made islands shaped into the continents of the world. And then there is the Dubai Marina, the world's largest man-made marina. The waterfront development will include 200 high rise buildings. Many of these buildings will contain supermarkets and food courts, a perfect place for a Brumby’s Bakery.
“Australian companies are really well placed to go into this market. We are so multi-cultured here. We sell bread from all the different cultures and provide a lot of variety. If you look at Europe, you find different bread in France to Italy, not like the variety we have here. Because we are Australian, we are also used to operating in a desert and in extreme climates. There is a lot of synergy.”
Sherlock says the Middle East will present sufficient challenges to launch Brumby’s in the international marketplace.
“We have been around for 30 years and have 320 stores. We open 35 per year. At the same time we close down stores, or relocate them. We have to keep moving ahead. In Australia we will continue to keep on opening 10 and relocating 5 each year.
“So this is the next frontier. If we want to expand we can buy another company, get involved in the supply chain, or expand internationally. The Brumby’s Board is looking ahead to the next 30 years, examining our opportunities while we keep our core business operating.”
Sherlock says that because of the structure of ownership in the Gulf States, Brumby’s will be franchising under master franchise agreements to different groups in different regions, depending on the political structure.
Brumby’s is also looking at South East Asia, China, India, the United States, England, Ireland and South Africa.
“We have negotiations under way in South Africa, a country with very similar conditions to Australia and New Zealand. It is becoming more politically stable and with 44 million people in a region half the size of Queensland we believe it is a good market. Sherlock says Brumby’s has done pre entry studies on China and India and is aware of what they will have to do in each case.
“China and India are the big ones, but we are keen to look at them after we have developed a successful formula outside of Australia and New Zealand.”
SumoSalad moves into the UAE
SumoSalad, the fresh salad bar concept that opened in Sydney in 2002, has signed a master franchise agreement to expand into the seven emirates of the UAE. Its first two stores will open in the emirate of Dubai, the business capital, which has a population of 1.2 million people including one million foreigners. Dubai’s aim is to attract 15 million visitors per annum by 2010. In 1990 Dubai attracted 630,000 tourists and in 2004 that number had grown to 5.4 million.
“Our first store was due to open at the beginning of March, but a three-week mourning period for Sheik Maktoum bin Rashed al-Maktoum, the ruler of Dubai, forced a change of plans. It is just one of the cultural practices that you can’t forecast,” says Luke Baylis.
Although SumoSalad’s entry into Dubai was initially a reaction to an enquiry from an interested party, their approach to international franchising has been a thoughtful one.
“When we started getting interest from our website we approached Austrade to see what assistance they could give us and to find out how we could limit our mistakes. We also wanted to see how they could assist us with development costs. They had a fantastic package and helped us set up the right structure to open in that market.”
SumoSalad also employed an experienced food consultant to help them start the operation in the Middle East. The consultant had contacts with shopping centres and suppliers, was well versed in the retail food business and came to Australia for training in the SumoSalad systems.
Product modifications include substituting veal bacon for pork products and further localization of their menu based on their food consultant’s recommendations.
Baylis says the company is looking at a minimum of 10 outlets in Dubai in the next five years and 20 to 25 throughout the region in the longer term.
“We are also looking at India, New Zealand, the United Kingdom and the United States.”
To facilitate the company’s international expansion it will set up an international division to focus on the development of the business.
The current focus in on India as the product suits the culture, is appealing to that market, and is not readily available. Baylis says they will divide the country into four master franchise regions and he would expect to open a minimum of 40 outlets.
“We could have done things quicker but we are trying to ensure that when we make a move it is the right move.”
Troubleshooting the world
Computer Troubleshooters has 460 franchises in 22 countries around the world. Five are in the Gulf State of Kuwait.
“Kuwait was the first Arab country that took it further than an initial enquiry,” says Wilson McOrist, the company’s founder and CEO.
“I really wondered what we had to offer them,” he said.
“When we met I discovered a wealthy company that was looking to start franchised businesses. They had enough money to invest in whatever they wanted to. As oil is only going to last another 80 years or so, they were trying to build a business infrastructure there.
“We had travelled a lot, but when we arrived in Kuwait for their training, we were not sure how it would apply. But then we would walk into a business in Kuwait and find people running Windows just the same.”
McOrist says that one thing he has learned from his experience in international franchising is that you can’t be too rigid.
“Franchising is built on being a standard system, but you can’t be that rigid overseas. There are some parts of the franchise we have told people they have to follow, but when it comes to currency and pricing if we tried to impose equivalent rates we would get nowhere.”
McOrist cites the case of an American competitor who sold a franchise in Mexico for a lot of money. It failed because the cost was far too high for the Mexican owner to ever be able to recover his money.
McOrist has sold franchises in Romania, for a lesser price than in other parts of Europe, and in India. He says his approach is to look at the bare minimum they can start a franchise for in order to get it up and started.
“The big difference between countries like Romania and India is that India has a huge middle and upper class of people. Of its population of 1.2 billion, 250 million are middle to upper class. So in the case of India they have a huge poor population but also a huge number of wealthy people.”
McOrist says that Britain and the United States are the biggest growth markets for Computer Troubleshooters, and that it would be possible to expand to 2,000 franchisees in the United States alone.
After New Zealand, the United States was Computer Troubleshooters first step into the international arena.
“We had been running in Australia for about two to three years and had around 20 franchisees. Our son built a website for us and a guy from the States sent us an email. He ran a computer business and was interested in starting Computer Troubleshooters in the United States. After emails back and forth we reached an impasse and I said ‘why don’t you come and see us’. So he did. We got on well and still do and he is a huge asset.”
McOrist says he has found it time effective to handle enquiries via email and the internet.
“I can communicate very quickly and within a week know whether this person is worth pursuing, and vise versa.”
McOrist has always used the approach of asking the person to come to him. He claims he may have lost some sales, but he prefers not to make a commitment until the prospective master franchisee comes to see him.
“We have been very lucky with our master franchisees. They are very entrepreneurial – not just crazy thinkers but logical thinkers as well. This has been a big aspect of our growth.”
While Asia is close proximity is appealing, McOrist sees it as a real challenge and a difficult model.
“I’m not particularly optimistic about China. In Thailand and Indonesia you can get to know an individual and business can be done. In my mind China is an exception; it is a different arrangement.”
Video Ezy success in South East Asia
Video Ezy, one of Australia’s best know brands, is one company that has found success in South East Asia. It opened its first store in Bangkok in 1999. That store’s success led to further expansion throughout Asia. The company now has 560 stores in Australia, 156 in New Zealand, 128 in Thailand, 135 in Indonesia, 19 in Singapore, 9 in Malaysia, 1 in Fiji and 1 in the UAE.
Paul Uniacke bought his first store in Shepparton, Victoria in 1995 and quickly amassed 24 Video Ezy stores. Ten years later, he and franchisee and business partner Eddie Nedelko purchased the shares held in Video Ezy Australasia Pty Ltd by Perpetual Trustees and Ivany Investments, and became the major shareholders in Video Ezy.
Uniacke says that right now he is happy with the size of the business and believes there is scope to grow the business internally.
“On average we have one store opening every week in Australia. Our core focus is to make the existing stores stronger and I would prefer to have stronger existing stores.”
However, Uniacke sees Malaysia as a huge opportunity to expand, and he is looking at China and India.
“We recently met with our master franchisee in Thailand who wanted to re-sign until 2020 as a sign of goodwill on both parties. They are opening so many stores there that they wanted to increase their contract by 10 years.
“In Indonesia we are opening rental, retail and internet cafes under the Video Ezy brand.
“We are not focusing so much on the United States, Europe or the United Kingdom as we feel Asia is where our name is accepted and Video Ezy is identified as a quality brand.”
Where to now?
Rod Young, managing director of Deacons Consulting, says that Australian franchises have developed highly refined systems in one of the most competitive environments in the world.
“Our real estate, particularly in Sydney and Melbourne is expensive. Our salary levels are substantially greater than say the United States. Australian franchises have really cut their teeth well in a very competitive market.
“These maturing franchise systems are starting to say to themselves: where to now?”
Young believes that the top 20 percent of Australian franchisors will grow their businesses in Australia and subject to their relevance in international markets will go on and grow.
“What we are seeing is the business format franchises that started during the 80s and 90s and now have 15-25 years in the marketplace are reaching a point where they have opened more stores than they will open in the future. They are in a finite marketplace of 20 million people.”
Young says that for franchisors that have 180 stores or more, there are not a substantial number of potential high volume sites left in Australia. He sees a number of Australian franchise systems reaching a maximum of 250 stores. He cites companies such as Baker’s Delight, Boost Juice and Howards Storage World who are pursuing an international growth strategy.
Young believes there is around 50 Australian franchisors currently who have proactive programs in place to develop targeted plans for international franchising.
Don’t rush in
Cheryl Scott, industry specialist, franchising, tourism and service exports, Austrade, says there are ‘push’ and ‘pull’ factors driving international franchise expansion.
“The obvious push factors are the desire for further growth in what is a relatively small domestic market and increasing competition from both foreign and local systems for both sales and franchisees.
“An important ‘pull’ factor is globalization, both in terms of achieving best practice by playing on the world stage and also in building a global brand.”
Scott says that the franchisors that have succeeded overseas have done so because they have adopted a strategic approach and have not rushed in before the time was right.
“They have suitable products or services, or ones that can be adapted to be so, and they have a solid track record in Australia. They have the resources (including management commitment) to support an international effort, they have done the market research, they have sought help from relevant people on the ground, they have done the numbers and they have selected the right partners. They have also taken steps to protect their intellectual property and they are in there for the long haul.”
Strategic steps to international expansion
Cheryl Scott says there are some key steps a franchise should take before embarking on international expansion.
“Franchisors need to assess their export readiness. This means conducting an internal capability audit which includes their reasons for going offshore. They also need to develop a well researched expansion plan, including market analysis and a financial plan.”
Scott says that it is important to be flexible as it may be necessary to adapt products for local cultures and to negotiate on price.
“I also advise franchisors to protect their core intellectual property, choose their partners or franchisees carefully, test the market and be patient,” she says.
“The biggest mistakes I see happening is when franchisors rush in too soon and/or for the wrong reasons. They don’t do their homework with respect to the overseas market or markets and their own capabilities. Often, they select the wrong business partners.
“Sometimes people respond to a direct approach from overseas and go too early or without undertaking the necessary research.
“You also have to be careful that the decision is not based on ego alone, but is backed up by a solid business case, and that you are not expanding to fix domestic performance problems,” Scott says.
Rod Young, Deacons Consulting, says that any franchisor that is at the 75 percentile level of market growth in Australia should seriously consider the international market.
“If they don’t their business will mature and reach its peak. I have a saying: when you’re green you grow, when you’re ripe you rot. When you reach maturity you start to stagnate. When all of those issues come together you often see a decline in the business. Having a growth plan in the international market reinvigorates your franchise,” he says.
According to Young there are some important factors to consider when expanding internationally.
“Allocate sufficient resources. By that I mean select particular people and give them the job of commencing the development planning and eventual growth of the business. Don’t give it as a one off task. Allocate sufficient personnel and time.
“Don’t underestimate the costs. Allocate a serious budget because it is a serious opportunity. If you are not prepared to commit $250,000 in your first year to approach the international franchise issue you are under resourced.”
Young says that a critical element is to get trade marks registered in international markets. All too often, companies have not thought ahead.
“Understand that international strategy is not granting one franchise in one country. It is developing a strategy to be in 15-20 countries. Each country will dictate a different entry strategy model. You need to consider for each country: will it be a master franchise permitting sub franchising; will it be an area development agreement (opening stores but no rights to sub franchise); will it be granting single unit franchises; will it be a direct entry strategy; or might it be a joint venture. You need to consider each of those issues.
“Allow sufficient time frames to have your international franchising program unfold. It should be a two to five year strategy. You need to have your people committed for that medium to long term journey.”
Young advises franchisors to be extremely discriminating about the individual to whom they grant a franchise or master franchise.
“Regardless of what up front fee you get, the value of your business in the future will depend on the caliber of the person who operates your business,” he says.
Rod Young’s Decision Tree to International Expansion
1. Is it an English speaking country?
2. Is there an established rule of law – preferably the Westminster system?
3. How will the time zones affect you?
4. Are there cultural similarities? The logical choice might be New Zealand.
5. Move from similar communities to less similar communities.
Young doesn’t suggest franchisors ignore opportunities like China, where very few people speak English and the way of doing business is different.
“The upside of that is if you have a juice bar and a fantastic lychee juice, 1.3 billion people might be interested in consuming it,” he says.
“What I do recommend is that people go to a more structured environment and cut their teeth there.
“I would not discount the United States. It is franchise friendly and has a well developed franchise regime. They also like Australians because we have supported them.
“The United States has five regions that are almost foreign to each other, so your entry strategy needs to be tailored.”
According to Young part of the international strategy should be to grant the rights to groups or individuals that are capable of putting multiple franchises on the ground, through whatever structure you choose.
“A profitable business here with 150 outlets could be a 1,000 unit business or more on the world stage,” he says.
“Our economy is 1.8 percent of the world’s economy and therefore we have 98 percent of the economic might of the world available to us and that is an exciting prospect.
“It is critical for organizations to think in those terms so they can understand were the value prize might be.” •