With the effect of COVID-19 disrupting markets across Greater Asia, we turn to region specialist Bill Edwards and his network of experts for a run-down on how franchising is faring in key territories.
Greater Asia is a favorite region of mine as I lived in mainland China, Hong Kong and Indonesia, and was the master franchisee for a U.S. service brand in China. The information in this report is from a variety of sources and is current as of late July 2020. The Greater Asia region covers India through Japan and China though New Zealand. This has been a very active region for new franchise development for more than 20 years. While most new franchise and licensee developments initially dropped sharply after the start of the COVID-19 crisis, by late May 2020 franchisors were again in touch with new and existing international candidates with a somewhat different approach:
• Confirming candidates are still interested in making investments in new businesses
• Increased due diligence on candidates to ensure they still have the funds to acquire a franchise license post COVID-19
• Increased international candidate video and email communications due to the inability to travel to other countries
• Video franchise expos are introducing investors across the region to new brands
• Video discovery days to initiate candidates to the brand before a face-to-face meeting in the franchisor’s home country
Southeast Asia overview
We continue to see ongoing discussions between specific countries in Asia regarding the re-opening of borders, albeit in a limited fashion and which may require some form of quarantining upon arrival – for some countries, quarantining may not be required. Countries involved in these active discussions include China, Korea, Japan, Taiwan, Vietnam, Thailand, Myanmar, and Cambodia – all of which have handled the current pandemic relatively well and have flattened the curve in their respective countries.
“Since late May, our company has observed renewed interest in master franchises in mainland China in the auto service, fitness, and F&B sectors as China came out of the COVID-19 crisis first”
In mid-June this year, we held our first in-person VF International Franchise Business Matching event in Ho Chi Minh City, Vietnam, and received very good interest from prospective franchisees and investors, with particularly strong investor interest in F&B, education, and retail franchises. While both Indonesia and the Philippines’ borders are currently closed, we are pushing forward with Virtual Franchise Business Matching events in Jakarta, Indonesia, and Manila, Philippines, both events happening in August 2020. Our local partners in both countries believe there is pent-up demand for new franchise business opportunities, and these business matching events will draw solid interest from investors and entrepreneurs.
While some franchisors stopped their international franchising efforts, many have chosen to plow forward with the help of government and franchise consultants who are based in the region like ourselves. Recent deals in Vietnam and Indonesia point to continued interest for proven franchise systems, including Russian pizza franchise Dodo Pizza and fitness chain 9Round.
“While some franchisors stopped their international franchising efforts, many have chosen to plow forward with the help of government and franchise consultants”
Even the Taiwan External Trade Development Council has organized franchise webinars for Taiwanese franchises seeking area and master franchisees in Thailand and Vietnam. The Korean Trade-Investment Promotion Agency is also active in assisting Korean franchises expanding into neighboring countries. This section was provided by Sean Ngo from VF Franchise Consulting, one of Asia’s leading franchise consultancy with offices in Vietnam and Singapore.
Here are comments from our sources about what has been happening in specific countries around this region related to franchising:
“Franchise activity has started recovering from the March and April lows where COVID-19 stopped the Australian economy and its franchising activity in its tracks. As the economy opened in June, leads generated from our DC Strategy franchise lead generation division has grown by almost 100 per cent coming off its April floor as franchise activity has been growing over the last three months.
“As unemployment is at record highs here, we are seeing more people who are making franchise enquires to buy themselves a job and take responsibility for their future and we see an excellent future in franchise sales.”
Rod Young, global chairman of Cartridge World and chairman of DC Strategy, Sydney and Melbourne
Even during the shutdown, Dairy Queen, which has about 1,100 units in China, saw new store openings. Since late May, our company has observed renewed interest in master franchises in mainland China in the auto service, fitness, and F&B sectors as China came out of the COVID-19 crisis first. Some international F&B brands are seeing record-high weekly sales despite the lack of foreign tourists.
“Domino’s is making a bet on China. The pizza chain is investing at least $40m into its master franchisee there and has big hopes for its development in the fast-growing economy. The Ann Arbor, Mich.-based pizza chain on Thursday said it has invested $40m for a minority stake in Dash Brands, which owns and operates Domino’s locations in China,” Restaurant Business reported on July 17, 2020.
Although Indonesia went through a shutdown period and a major decline in its economy, its gross domestic product is still expected to grow at a three per cent rate in 2020. New franchise openings have continued including the latest Wingstop location in July. Malls were shut down for several months, closing most of the international F&B brands as most middle-class Indonesians shop in large mega-malls where the international brand restaurants are primarily located.
“India went into a complete lockdown on March 25. Things remained under control until the third week of May, when the country first started easing lockdown restrictions in a bid to help the economy recover. While rules differ in each state, guidelines released by the Ministry of Health and Family Welfare on June 4 directed restaurants to run at 50 per cent of their capacity. Social distancing, sanitization at the time of opening and closing of the restaurant and evening curfews have affected businesses.
“Restricted use of air- conditioning to maintain temperature and average temperature of 24°C to 30°C with a humidity level between 40 per cent to 70 per cent in many states is also impacting dine-in business, with many restaurants trying to keep open with delivery and takeout orders.
“As malls reopened, retailers are negotiating rent with the mall owners in a bid to make their operations viable. There is renewed interest in acquiring unit franchises and large private equity groups are once again interested in acquiring international brand master franchises.” Rajeev Manchanda, managing director, Inventure India, New Delhi
Government statistics indicate 85 per cent of companies in the Japanese retail industry stated that they experienced some level of setback from COVID-19 in regards to their activities. All areas of Japan have reopened but business visitors will be asked to undergo temperature checks and disinfect their hands with sanitizers. Visitors without masks will be refused entry. Tokyo Disneyland reopened with social distancing. While the majority of restaurants have reopened, it may take six months for business to return to normal.
Japan will be re-opening with some of the major trade shows from September 29 when Japan Franchise Show will be held in Tokyo on a smaller scale. This should launch the revival of franchise development in Japan.
“There are lots of good things happening with business – new franchisors are preparing to break forth and existing franchise systems are appointing new franchisees as many people are keen to own their own business and help shape their destiny.” Stewart Germann, Germann Law Office, Auckland
“Taco Bell opened their second New Zealand restaurant in the heart of the Auckland CBD. The Shortland Street restaurant will be the second on New Zealand shores and forms part of a wider roll-out plan of approximately 60 restaurants across Australia and New Zealand over the next five years.” Simon Lord, Franchise New Zealand, Auckland
Despite a relatively low number of COVID-19 cases, the government of the Philippines shut down business of all types for several months. Major international F&B brands such as Chili’s, Denny’s, Kentucky Fried Chicken and McDonald’s reopened for takeaway and delivery in late May.
“After confronting the COVID-19 situation, most Thai households have boosted awareness of the importance of savings and income diversification. They are also considering becoming their own boss. We are getting increased requests for advice on which are the best franchises to acquire. The franchisor market leaders say they expect to sell more franchises than ever coming out of COVID-19.” “Seth” Sethaphong Phadungpisuth, CFE, managing director, Gnosis Company Limited, Bangkok
William ‘Bill’ Edwards, CFE, is CEO and a global advisor to chief executives, of Edwards Global Services (EGS).