Make Canada Your First Stop on the Road to International Franchising
International Franchising: With Canada’s stable economy, geographic proximity and many similarities to the United States, our neighbor to the north offers an enormous opportunity to franchisors looking to grow their company’s international footprint. And, while some U.S. brands have already staked a claim there, far fewer brands do business in Canada than in our country. So, not only will you likely encounter less competition, you might even have the chance to be a pioneer in your industry. For example, Zoup! Fresh Soup Company’s expansion north brought Canadians their first exposure to a restaurant concept centered around 12 always-rotating daily soups. In fact, the entire fast-casual restaurant category (fresh and healthy meals, served in a setting with upscale décor and a bill under $10) is new to Canada.
Expanding to Canada will help build your customer base and allow you to test how prepared your company is to handle the challenges and uniqueness of international markets. Before you make the leap, however, you must carefully plan for these legal, business and cultural aspects of your expansion.
Secure Trademark Rights to Your Brand:
- Start this process well ahead of the time you expect to begin your Canadian expansion, and expect challenges along the way.
- Hire a Canadian trademark attorney to conduct a complete search for previously registered marks and names that could be considered overlapping. For example, Zoup!’s trademark search found a Canadian trademark called Simply Zoup, Inc., which we were able to track down and purchase from the owner. Once we owned that mark, our attorney was able to secure rights for both the Zoup! and Simply Zoup, Inc. names and marks.
Prepare to Comply with All Legal Requirements:
- Hire a Canadian attorney to adapt your U.S. FDD to the format and stricter requirements of the CDN Disclosure Agreement. Your attorney also will counsel you on other related laws, which can differ from province to province.
- Work with a Canadian CA (Chartered Accountant) to help you set up the proper business entity and tax structure in the U.S.
- Seek out the advice of a Canadian expert in your industry to find out what licenses and permits you will need and what other barriers to entry you might encounter. For example, at Zoup! we had to become familiar with the country’s food safety and handling laws, and the government agencies that make and enforce them. Then, we had to plan how to adapt to those that differed from U.S. laws and practices.
Investigate Requirements for Importing Your Products
If you’re planning to import products from the U.S. or other countries, begin working with a customs broker. Although there is no law requiring it, a broker will help you comply with the guidelines and fees associated with each item, and will handle the related paperwork. Every industry can expect some unique hurdles; to give you an idea, here are a few we encountered:
- Because our soups are made in the U.S. – and we have hundreds of recipes, each with different ingredients – each item being imported had to be approved and/or registered by CFIA and NAFTA.
- Certain ingredients, such as the chicken and cheese we use in salads and sandwiches, could not be imported at all since the Canadian government controls the market for each of those items. In fact, Federal statutes restrict importation of a wide range of items, including meat, plants, seeds, fruits and vegetables, magazines and books, drugs and others.
Develop a Product Distribution Plan
All of the products you import in bulk will need to go to a central site where they will be portioned, packaged and sent out to your individual units. Research existing distributors and choose one that is well located and best suited to your businesses’ needs.
Research and Contract with Key Vendors and Service Providers
- You will need to find Canadian vendors for many of the routine and business-specific services you use. For example, Zoup! needed to contract with a Canadian payroll company, credit card processor and phone service provider, to name a few.
- Start by contacting your U.S. vendors to determine if they can service your Canadian operations. Contact the Canadian Franchise Association (CFA) for referrals.
Visit the Market and Develop a Growth Strategy
Canada is large country, almost twice the size of the U.S., but with only 10% of the population. Most of this population, however, is concentrated along the U.S./Canadian border, with almost 35% living in the southern most part of Ontario. How do you decide where to put your first location?
- If possible, start with a city close to your company’s home base. If you’re located on the West Coast, for example, consider the Vancouver area. On the East Coast, the fast-growing Toronto area is a solid choice.
- After you open your first unit, develop additional franchises nearby. Then, give yourself and your franchisees time to identify issues and problem-solve before growing into other areas.
Network with Franchise Referral Partners
Join the Canadian Franchise Association (CFA) and seek out referral partners, such as independent franchise brokers and commercial real estate brokers. For example, Zoup! works with FranNet, a franchise broker organization that evaluates prospective franchisees’ capabilities, needs and preferences, and matches them with a franchise program that is a good fit. Gary Prenevost, FranNet’s top-performing Toronto-based franchisee has numerous relationships with the franchisor and franchise supplier community; he will be able to provide key referrals to proven Canadian vendors mentioned above.
Visit Your Chosen Market to Research Locations and Prospective Franchisees
In selecting a location, it’s best to work with a local real estate broker who knows the area and can help you find the right geographic and demographic match for your concept. In choosing your first franchisee, here are a few things to keep in mind:
- You initial franchisee should be an early adopter, who understands the pros and cons of being first, and is patient and willing “to go the distance.” Zoup!’s first Canadian franchisee was unruffled throughout a lengthy site selection and approval process, but he has been well-rewarded in having one of the top-performing stores in our system.
- The first franchisee also has to be well-capitalized because obtaining financing can be challenging for a concept not yet proven in Canada.
What Else Should You Know About Expanding Your Franchise to Canada?
When expanding into any foreign country, you must be flexible and open to making changes to the way you do business. Some changes will be simple (like adding ketchup to serve with our Mac & Cheese soup), while others will be significant:
- Franchisees obtaining financing in Canada will be required to make a down payment near 40% versus the 20% to 30% that is typical in the U.S. And, because Canada has fewer banks (and your franchisees will have fewer options), it’s important for your company to develop and maintain strong relationships with all major institutions.
- Canada was mostly unaffected by the recent global economic downturn so real estate prices have remained high. Leasing space will cost your Canadian franchisees more, as will related costs, such as taxes, insurance and common-area expenses.
- Canada also has a higher minimum wage rate and higher tax rate than the U.S. At Zoup!, we found that we have to charge more for our menu items than in the U.S., but we also found that doing so put us solidly at market price and allowed us to still be competitive with similar restaurants.
- Fees and services in Canada are subject to Harmonized Sales Tax (HST), which is a combination of a provincial tax and a Goods and Services Tax (GST). You will need to work with your Canadian accountant to set up a system for tracking your HST and getting reimbursed for it.
- Marketing and advertising materials will need to be modified to comply with Canada’s cultural, language and spelling preferences. For example, Canada uses the metric system for measurements and nearly 80% of Quebec’s population speaks French only. Even in English-speaking Ontario, common words are spelled differently, such as “cheque” instead of the U.S. version “check.”
While making a foray into Canada might seem as daunting as it is exciting, keep in mind that there is something unique about Canadians and the loyalty they have for the brands they trust. As a Canadian- born American citizen I know from experience that we Canadians love our brands (like Tim Hortons, Boston Pizza and Harvey’s). I also know that for those U.S. brands that can successfully capture the minds and hearts of Canadians, you can count on their loyalty to help drive your international growth.
Richard Simtob is a Canadian-born American citizen with 28 years of experience as a small business owner, and as a franchisee and franchisor of multiple brands. Currently, he is President of Michigan-based Zoup! Fresh Soup Company, where he is responsible for the strategic direction and management of the organization’s franchise growth.
Since joining Zoup! in 2003 Simtob has helped grow the company’s franchise system from 5 stores to 50 today. He also led Zoup!’s expansion into Canada in 2011, where today the company operates two units, with 5 additional franchise agreements signed or in various phases of development.
Prior to his role at Zoup!, he was a principal and Senior Vice President of Wireless Toyz, where he expanded the company’s franchise network through the opening of 66 new stores in 2006. Simtob also has provided business-consulting services in the areas of strategic planning, management, franchising and sales for a variety of successful brands.
Founded in 1998, Zoup! is the leading fast-casual soup concept restaurant that is defining the category with its premium and proprietary soups and other recipes. A dining experience that features 12 always-rotating soup varieties each day in an environment that focuses on comfort, satisfaction and convenience, Zoup! has grown its network of franchises to nearly 50 restaurants throughout the District of Columbia, Colorado, Michigan, Indiana, Ohio, Missouri, Connecticut, Massachusetts, Illinois, Kentucky and Canada.
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