WHY FRANCHISING? THE PERSPECTIVE OF ONE FRANCHISEE

SUBWAY’S APPROACH TO FOREIGN MARKET ENTRY

For the US-based international franchising chain, Subway, reliance on foreign franchisee interest as a basis for international expansion is virtually enshrined in company policy. According to the company website (accessed 13/5/06):‘How does the SUBWAY chain select new countries to expand into? [answer]

The SUBWAY chain does not select new countries to expand into. In a way, they choose us. . . . If an individual approaches the chain from a country where there are no SUBWAY restaurants, the development team will work with that person to provide assistance in opening their first SUBWAY restaurant.’ Its initial foreign entry in 1986 was typical of this pattern, and contrary to the more normal foreign market expansion pattern it was in Bahrain! But that was not by design. The initial interest came from an Italian who wanted to open a Subway outlet there.

Don Fertman, the director of franchise sales, commented: ‘We had no idea what we were going to do because we had never done any international franchising before. So we said, well, let’s bring him to headquarters and have him stay here a really long time and learn everything he possibly can about Subway and send him over there and let him get that first store open. And he did. International investors tend to come to Subway as a result of hearing about the company.

We advertise in a number of international publications like the international edition of the Wall Street Journal, the International Herald Tribune, airline publications and in-flight programs. People hear about us that way or when they visit the United States or one of the other 75 countries we are in. We give them all of the information we can about Subway and say, “Look, you are from this country. We don’t know a whole lot about your country, but you do. Here’s our concept. What do you think? Do you think it will work?” And if they think it will we say, “Go ahead and do it” ’ (Larson, 2004, 5). In an overall sense, though, over 70 per cent of new franchises are purchased by existing franchisees.

WHY FRANCHISING? THE PERSPECTIVE OF ONE FRANCHISEE

Individuals from diverse backgrounds are attracted to the idea of taking up a franchised business. Their interest continues to sustain the growth of franchising. What sparks that interest?

An indication is given by the experience of one franchisee of the Australian chain Wendys Supa Sundaes (soft serve ice cream and other fast food items). It is instructive that the person concerned, Ken Love, before taking up the franchise, had been the manager of the Franchise Services section of Westpac, one of the four large banks that dominate the banking sector in Australia. In that position he had an ideal opportunity to observe the performance of various franchising operations in Australia. He was ‘responsible for deciding whether the bank would provide finance for franchised businesses’ (Stirling, 1991, 70).

On the basis of that experience, he concluded: ‘in general, franchise loans are far less risky than independent ones, citing as evidence the fact that not one bad debt [related to franchising loans] had been written off in the past five years at Westpac’ (ibid.).

Perhaps even more telling was the fact that, after 23 years in the banking business, he was prepared to resign and strike out on his own as a franchisee, and was followed soon afterwards by his deputy in the bank, who also joined Wendys as a franchisee. Love commented that ‘franchising was appealing because of the reduced element of risk’ (ibid.).

Date: 2016-01-05; view: 816