When expanding a franchise concept into new international markets, it’s important to identify which model will best support the brand’s growth. Three different routes are:
Direct franchising – The brand awards franchise rights in specific regions of a country, or sometimes an entire country, and the franchisee signs a development agreement to develop a block of stores – usually 10 or more – to own and operate directly.
Joint venture – The brand identifies a strong local operating partner, the brand makes a capital investment, and the parties commensurately share in the profits. The local JV partner is responsible for all day-to-day management and leadership, and the JV partner usually earns a larger share of the profit since it is doing the heavy lifting. Master franchising – The brand identifies a local food and beverage company, most often with extensive experience operating multiple QSR concepts in its home country. The brand awards the franchise rights to the master franchisee. In very large countries, the master franchisee may take on only one or a few provinces or states. The master franchisee operates stores of its own, while also sub-franchising stores to others, who are called sub-franchisees.
Whether you’re a major U.S. brand looking to expand internationally, or a foreign franchise trying to break into the U.S. market, the master franchising model can prove to be extremely effective.
During my more than 25 years at Dunkin’ Brands, I had the opportunity to help grow the brand from approximately 5,000 stores to more than 13,000 stores in 41 countries. In the U.S., Dunkin’ chose direct franchising to expand. Internationally, the master franchising model was the primary growth vehicle.
In 2020, I became chief development officer for Gong cha, one of the world’s leading bubble tea franchises. Gong cha has been steadily carving out a sizable stronghold in the Asia/Pacific region since its founding in 2006. The brand’s international popularity means it is often spoken about in the same breath as other big names in the region such as Starbucks and Baskin-Robbins.
To grow the brand, Gong cha uses the common direct franchising model in our native fortress markets of Taiwan, South Korea, and Japan. Outside of our Asian-nation strongholds, Gong cha has found success employing a master franchising model, growing to nearly 1,700 locations worldwide including in Australia, New Zealand, England, Mexico, Canada, and the U.S.
Just as Dunkin’ did not have the organizational infrastructure in countries outside the U.S., similarly, Gong cha does not have the infrastructure in the U.S. to drive the rate of growth the brand is aiming to achieve. By using a master franchising model, global brands with strong reputations can expand more quickly and in more places, without having to make substantial investments in human capital and other infrastructure in all of these regions.
When executed successfully, this model creates a win-win-win business proposition for all constituents within the three-layered system: franchisor, master franchisee, and sub-franchisee. To create a successful master franchising model, it is essential to select high-quality, experienced partners, with proven, successful track records developing top-tier F&B brands. To evaluate potential partners, visit their existing portfolio of stores to ensure three key metrics are present:
Physical plant – a clean, well-maintained physical store appearance Service philosophy – evidence of a comprehensive guest service model demonstrated by employees in-store Product quality – a standard of excellence serving only high-quality products If your answers to these questions are generally favorable, your target prospect may very well be the competent master franchisee you’ve been looking for. When a franchisor essentially relinquishes its rights to franchise its own brand in a distant part of the world, it’s critical to select a master franchisee who will be an exemplary brand steward. They must have the strengths, skill sets, capabilities, and competencies to successfully build and grow the brand in a strategic and thoughtful way. All parties involved must seek to build a robustly profitable business while maintaining the integrity of the global brand reputation.
Andrew Sternburg is Chief Development Officer, Gong cha Americas. In his more than 25 years at Dunkin’, he held nine different positions across a variety of disciplines including finance, business development, real estate, and franchise sales. At Gong cha, he is responsible for the recruitment and development of master franchisees for the U.S., and works closely with the CEO and executive team on all aspects of the business.