The Great White North can seem like a natural next step for entrepreneurs – particularly those from the States. But it’s important to look before you leap.
As the second-largest franchise market in the world, it would be easy to assume that Canada can be approached similarly to its pioneering neighbor, America.
The thing is, if entrepreneurs do adopt the same approach that has worked for them in the States, the Canadian franchise market could prove an inhospitable, convoluted beast.
Taking a step back
Like with any market, perhaps the most important stage in the international franchising process is background research. This is especially true for Canada, where disparate provincial laws and ununified regulations can prove tricky for investors who haven’t done their homework.
Let’s look at the big picture: according to the Canadian Franchise Association (CFA), Canada has approximately 1,300 franchise brands, with over 76,000 individual units peppered across its lush, frosty landscape. The province with the largest franchise market is Ontario ($49bn), followed by Quebec ($15bn), and then British Columbia ($13bn).
The more things change…
Of the country’s 34.6 million population, 90 per cent live within 100 miles of the U.S. border. This has proven beneficial to large American franchise brands, as Canadians can be approached with a pre-existing familiarity in mind.
“Canada has been a great stepping stone for American franchisors expanding internationally, since the Canadian market is so close,” says Wayne Maillet, president of Franchise Specialists and author of Franchising Demystified: The Definitive Franchise Handbook. “For American franchisors, there’s often a brand presence and knowledge in the market already, where we’re so close in the media and TV. Overall, consumers are familiar with American brands.”
“Canada has been a great stepping stone for American franchisors expanding internationally”
This has certainly been the case for the giants of the American franchising world – the likes of Subway, McDonald’s, KFC, or Dairy Queen – which have all found great success within the country. McDonald’s, specifically, benefitted from Canadian expansion as it was a Canuck franchisee who introduced the now-iconic McFlurry to the brand’s renowned menu in 1995.
But you don’t necessarily have to be a huge, established brand to make it big in Canada. Burger Village, a modest, eco-friendly U.S. burger franchise announced its first Edmonton location late last year: “Burger Village was looking to expand internationally and opportunity knocked from Edmonton in the form of a franchise inquiry,” said Nick Yadav, CEO of Burger Village. “Things worked out and here we are with our very first opening in Canada.”
However, as with any story of a brand venturing into Canada, Burger Village faced some initial teething pains. As Yadav explained: “We had to face a challenge related to cooking temperatures as per Board of Health, Edmonton. We had to serve burgers cooked well done only, whereas, in all of our locations in the U.S.A., we can serve anywhere from rare to well done as per the customer’s choice.”
Unlike the U.S., there are no federal laws governing franchise businesses in Canada; the responsibility lies within the provincial government. And as of writing, the only Canadian provinces that legislate franchise laws or agreements are Alberta, Ontario, Manitoba, Prince Edward Island, New Brunswick, and British Columbia. Furthermore, these agreements don’t necessarily correlate across provincial borders.
“A lot of brands come to Canada and what they don’t realize is that the country is quite fragmented, in terms of franchise development,” says Lori Karpman, CEO of Lori Karpman & Company, a franchise management consultancy. “Typically, the brands that do come either start in Western Canada, Ontario, or Quebec.”
Quebec is perhaps the epitome of Canadian individuality, as the province could almost be a sub- market within Canada itself.
“A lot of European brands will come and start in Quebec,” says Lori Karpman, “because they already have all of their documentation in French so there’s no language barrier. It’s the closest market [in Canada] to a European-style market.”
However, even for a European franchisor, Quebec isn’t a surefire ticket to success. Protective language laws require that all signage for a brand is predominantly in French, and cultural preferences could prove jarring for concepts that have otherwise worked perfectly elsewhere.
“Here’s a perfect example: Pizza Hut came into Quebec many years ago,” explains Karpman. “There’s a big difference in Quebec with how we make our pizza. The rest of the world puts their cheese and then toppings on, but in Quebec, we put the toppings on first, then the cheese. Sounds like a minor distinction, right? But it’s not. When Pizza Hut came to Quebec for that first time, it didn’t do too well and ended up leaving. It didn’t offer French fries, which we eat with pizza, and it didn’t butter the crust like we prefer here.”
But Pizza Hut’s story didn’t end there: “It subsequently came back and became very successful,” says Karpman, “because they partnered with a Quebec development group – a group of people who understood the needs of the market.”
It would be remiss to discuss the Canadian franchise landscape and not at least touch on the recently introduced market of recreational cannabis: “This is an entirely new business sector that didn’t even exist two years ago,” says Wayne Maillet. “Any American brand that’s in the recreational cannabis retail industry would be wise to look into the Canadian market.”
Legalized nationwide in October 2018, the recreational cannabis industry has been tumultuous, to say the least. It’s currently valued at around $6.5bn, but it’s not always easy for businesses to achieve high profits.
“Any American brand that’s in the recreational cannabis retail industry would be wise to look into the Canadian market”
This has been in part due to those pesky provincial laws making it difficult for consumers to even get access to cannabis; in Ontario, Canada’s most populous province, retail licenses were initially awarded as part of a lottery. 24 were distributed in total, which were meant to service a population of 14.5 million. That’s 604,166 visitors per location.
The market could soon be set to change, however, as in December 2019, Ontario announced it would lift the cap on the number of private stores that could operate. For pioneering U.S. marijuana retail franchises like Unity Rd., 2020 could be the year to cash in on Canadian cannabis.
INTERVIEW: Wayne Maillet’s five mistakes to avoid when franchising in Canada
Wayne Maillet, president of Franchise Specialists, a Canadian franchise consultancy, notes five pitfalls that incoming franchisors would do well to avoid:
1: Go in blind
“Ideally, strong franchisors will open up a corporate location in Canada and make modifications before starting to franchise. The alternative is finding a master franchisee that will do the franchising in Canada.”
“The franchise needs to be perfected. Ideally, you want to validate the business model by opening a corporate-owned pilot location. Fully document the system through operation manuals, create support systems, and structure everything to add value to the franchisee.”
3: Ignore financials
“Businesses come into franchising undercapitalized. That’s often why they’re not providing a support system, and they underestimate cost.”
“Sometimes, a common mistake franchisors make is to offset costs by charging additional fees which are too much for franchisees. They take away from profitability. There needs to be a balance, and that’s defined through financial modeling.”
5: Sell franchises
“Another common mistake is that franchisors are not selective about who they partner with. Often I see them selling franchises, instead of awarding franchises. The successful franchisor is selective as to who they grant a franchise to; they evaluate a particular franchisee, to make sure they have the appropriate skillsets and attitude.”