Franchising in Canada

The New Land of Opportunity?

by AMY COVINGTON

Franchises are a way of life in the United States. Drive down any street in almost any town, large or small, and you'll find a franchise - clear evidence of our convenience-driven culture. Granted, some franchise concepts don't fare as well as others in the US but, overall, owning a franchise is a fast-track to success. In recent years franchising has become the fastest growing method of business expansion in Canada, with 63,642 franchisees under 1,327 franchisors currently doing business there. According to the Greater Kitchner Waterloo Chamber of Commerce, franchising represents 45 percent of retail sales and 35 percent of all restaurant sales in Canada, raking in an impressive $100 billion in yearly revenues.

Even with these estimates, franchising in Canada has not moved as swiftly as in the US. "I see franchises slowly evolving," said Gary Salomon, co-founder, president and CEO of FastSigns®. "Food franchises do well. You don't have to go far to see a Tim Horton's donut shop but non-restaurant B2B and B2C franchises have not evolved as quickly or robustly as in the US. This is true internationally as well as in Canada."

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Tim Hortons, the popular donut and coffee quick-service chain in Canada, which happens to be part of the Wendy's International Inc. portfolio and have stores in the US, announced in a June 2002 press release that they would add about 170-180 new units in Canada per year, reaching 3,000 units by 2005. While success abounds for Tim Hortons in Canada, their sales have historically been lackluster in the US, although a recent resuscitation in the US is attributable to their diversification of their product offerings. Why is Tim Hortons more popular in Canada than in the US? Why do some concepts flourish in the US and flounder in Canada?

Approximately 15-16 percent of franchises in Canada are owned by Americans operating businesses concepted and headquartered in the US. Many of these concepts are, in fact, restaurants, many of which have proven profitable in the US and abroad. Like their Southern neighbors, restaurant franchises are popular in Canada, however, just because a particular restaurant is successful in the US does not mean it will do well in Canada and vice versa. "People have a tendency to think that because a concept works in the US it will word in other countries," said Salomon. "Companies often don't do their homework."

Industry experts and analysts agree than the most prevalent reason for franchise concepts failing in Canada is that owners do not always do their research before opening their doors to the public. The DBIC (Doing Business in Canada) report that some franchisees lack an understanding of Canadian culture and fail to adapt to it. While change is a constant in the US, such rapid change and failure to conform to specific Canadian market conditions, culture and environment are sure-fire recipes for disaster.

There are other variables governing the growth rate of franchises in Canada. In the US, our population is an astounding 294,506,593, with a net gain of a person every 10 seconds, according to the U.S. Census Bureau's PopClock. What this means is that there are a lot more people to serve. Canada's population stands at around 31,000,000, a measurably smaller number of potential customers. Despite statistical disadvantages, franchises are steadily growing in Canada, even though the pace may seem un-American.

Fewer franchisees currently operating in Canada than in the US provides a competitive advantage to opening a franchise there-basically, you will have less competition. Have you ever encountered a franchise concept that perfectly matched your skills and interests, only to realize that your market was already saturated with similar concepts? With fewer franchises, especially non-restaurant concepts, the opportunity to be the first one to the finish line dramatically increases.

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