There are only two real alternatives to consider when introducing a franchise into another country – opportunism and planning.
In international franchising, opportunism means reacting to inquiries from individuals or corporations in other countries without having properly considered the costs and other factors that could impact long-term success.
Planning, on the other hand, means developing the internal resources to support successful international expansion. Simply grafting the international franchise program onto existing operations or onto the domestic franchise sales program may not work. Like every other business endeavor, international franchising must be planned and supported with resources and a franchisor needs to seriously consider if there will be any collateral damage to the franchise system if the expansion into another country fails.
As the second-largest franchise industry in the world, led only by the United States, Canada presents many opportunities for international franchise brands to expand. There are around 1,300 franchise companies operating approximately 76,000 franchised outlets in Canada, in 50 different sectors of the economy, including retail, food service, hospitality, education, health care and automotive.
Around 45 per cent of all retail sales in Canada are generated by franchised businesses. This compares well against the United States, where approximately 50 per cent of retail and service revenue is generated by franchises.
However, any franchisor interested in entering the vibrant Canadian market is advised to consult with lawyers and other professionals conversant with the various franchise and trademark laws before embarking on an expansion program, as well as to check out some of the crucial points raised here.
Canadians are strung out
Any franchisor wishing to expand into Canada needs to understand that most Canadians live in the southern part of the country and are ‘strung out’, occupying in total only 160km of the United States border. Just over 60 per cent of Canadians live in only two provinces: Ontario and Quebec. This pattern leaves the northern areas either sparsely populated or uninhabited. This is different to the U.S. where the large urban centers are relatively close to each other.
Where to begin?
An important strategic decision is where to commence operations. It’s generally considered that it’s easier to build critical mass in Ontario before expanding into other provinces. Ontario leads the rest of the country in franchising, with 56 per cent of franchisors headquartered in Ontario (primarily in the Greater Toronto Area), and 65 per cent of all franchise outlets operating in Ontario.
If the initial launch takes place in Ontario, the next decision is whether to expand the franchise network to the east or west.
The logical choice for someone unfamiliar with Canada might be to head east into the province of Quebec – its border is contiguous with the province of Ontario, and it’s the second most populated province in Canada, with a population of around 8.5 million (which accounts for 22.55 per cent of the country’s total population). It’s also home to Montreal, which is the second most populated city in Canada. Quebec’s capital is Quebec City, which is also one of the top ten biggest cities in Canada.
However, there are obstacles to entering Quebec that are not present in other provinces. As French is the primary official language, all documents – including the franchise agreement, manuals, signage, marketing materials and other documents and agreements used during business – must be translated into French. Consequently, some franchisors either avoid Quebec entirely, delay entry into this province, or elect to find a qualified master franchisee who’s fluent in French, has local knowledge and understands its unique culture.
East or west – which is best?
Manitoba and Saskatchewan are the first two provinces you reach when traveling to the west of Ontario. However, they may offer limited opportunities for franchises, depending on the type of franchise, size of territory and the population count required to succeed.
Winnipeg is the largest city in Manitoba, with a population of around 750,000, followed by Brandon, which has around 51,000 inhabitants. After these two locations, there are no more towns or cities in Manitoba with populations of 20,000 or more.
In the province of Saskatchewan, the cities of Saskatoon and Regina each have populations of around 250,000, followed by smaller cities such as Prince Albert and Moose Jaw, with populations of around 40,000 each.
Consequently, franchisors expanding west from Ontario may focus their primary expansion efforts in the provinces of British Columbia and Alberta and delay entry into Manitoba and Saskatchewan until they have established critical mass in Western Canada.
If franchisors decide to expand to the east but give Quebec a pass, they can focus their efforts on the four Atlantic provinces – New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, which have a combined population of 2.4 million.
Shortage of workers
Following the Covid pandemic, the unemployment-to-job vacancy ratio is at a historical low in Canada. It has decreased in every province and currently at its lowest in British Columbia and Quebec. Employers are having difficulty filling vacant positions, especially in construction, manufacturing, accommodation and food services sectors.
Mismatches between the offered wage associated with vacancies, and what is referred to as the reservation wage (the minimum hourly wage at which job seekers are willing to accept a position), have not only caused a shortage of workers in food service, retail stores and hospitality businesses, but have also created a substantial increase in the price of leasehold improvements and equipment, as well as shortages of equipment due to the shortfall of manufacturing employees in Canada.
Hit the road, Jack!
Prior to the pandemic, we were seeing a shift from interest in ‘location-driven’ franchises, such as restaurants, retail stores and auto repairs, to ‘market-driven’ mobile and service franchises such as junk removal, mobile tire services, cleaning, pest control, home inspection, automotive detailing senior relocation, roof cleaning, and pressure washing. Interest in these market-driven franchises has increased significantly post-Covid.
The target prospect for these mobile franchises was typically Generation X males (between 40 to 55 years of age). Many prospects were corporate refugees – downsized, displaced, or severed from long-time corporate careers. This has become a common concern, as the concept of one job for life no longer exists. Since the pandemic, the Gen X candidates have been joined by Millennials (the age group ranging from 25 to 40 years old) as prime targets for marketing-driven franchises. Their employment may have been terminated or interrupted due to Covid, motivating or necessitating the desire to go into business for themselves.
The ability to control their own destiny is a prime motivator for these prospects, along with the ability to determine their own schedule. As in all business ventures, return on investment is important, but it may not be at the top of their list.
Typically, corporate refugees are highly-educated professionals and often have valuable sales, marketing and administrative experience. They’re generally capable of financing the business from their personal resources, such as lines of credit, savings, or a severance package from their previous employer, and don’t necessarily have to rely on financial institutions. If they have received a severance package, the decision to invest in a business may be easier as they have ‘earmarked’ those funds for future investment and haven’t mentally taken them into their possession.
The total initial investment in Canada for mobile/service franchises typically ranges from $50,000 to $100,000, including the initial franchise fee, opening promotion, legal & accounting, equipment, opening supplies, initial training program and working capital. This level of investment appeals to prospects, as they tend to be risk-averse and feel they have time to recover financially if the business is not successful.
That’s not to say that there isn’t any demand for location-driven businesses. However, there is currently concern about a possible recession, combined with an increase in online shopping and the aforementioned shortage of workers.
Franchise regulations you need to know:
- Franchising in Canada is regulated at a provincial level by six provinces: British Columbia, Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island (PEI). The province of Quebec does not have any franchise-specific legislation.
- This contrasts with the United States, where franchise law exists at a federal level and in around 16 states. The rights of franchisees and the obligations imposed on franchisors in these six provinces are very similar. Prior to awarding a franchise, a franchisor must provide a prospective franchisee with a disclosure document at least 14 days before the signing of the franchise agreement, or any agreement relating to the franchise and the payment by the prospect of any consideration.
- The provinces of British Columbia, Alberta, Ontario and Manitoba allow a franchisor to accept a fully refundable deposit, provided it does not exceed 20 per cent of the initial franchise fee and is given under an agreement that does not oblige the prospective franchisee to enter into a franchise agreement. There’s no requirement for the disclosure document to be approved by any regulator – however, the content and format must comply with the various provincial franchise regulations.
- There are remedies if the franchisor fails to provide a disclosure document or provides a deficient disclosure document: the franchisee has the right to rescind (terminate) the franchise agreement and any ancillary agreements. The franchisee also has the right to receive financial compensation.
- Around 45 per cent of all retail sales in Canada are generated by franchised businesses
- Most Canadians live in the southern part of the country and are strung out geographically
- 60 per cent of Canadians live in only two provinces: Ontario and French-speaking Quebec
- Ontario leads the rest of the country in franchising, with 56 per cent of franchisors headquartered here
- Unemployment-to-job vacancy ratio is at a historical low in Canada leading to a shortage of workers in key sectors
- Interest in location-driven franchises, such as retail stores and auto repairs, is shifting to market-driven mobile and service franchises
- Many ‘corporate refugees’ are entering the sector – downsized, displaced, or severed from long-time corporate careers
- Franchising in Canada is regulated at a provincial level by six provinces: Quebec does not have any franchise-specific legislation
Canadian franchising in numbers
Breakdown of where members of The Canadian Franchise Association operate:
- British Columbia 62.6%
- Alberta 62.6%
- Saskatchewan 46.5%
- Manitoba 39.4%
- Ontario 87.9%
- Quebec 32.3%
- New Brunswick 31.3%
- Nova Scotia 36.4%
- Prince Edward Island 21.2%
- Newfoundland 29.3%
- Northern Canada 14.1%
Franchise consultant, keynote speaker and author, Norman P. Friend, is the founder and president of Franchise 101 Inc. and is widely recognized as an expert in North American expansion strategies, franchise development and franchisee recruitment, with almost 40 years’ experience in all aspects of franchising.