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Franchisors look north

Written by : Derek Sankey
2010-02-15
"You know it's on their list somewhere after Wyoming, Alaska ... Canada," says Larry Weinberg, a Toronto franchise lawyer who recently co-chaired the American Bar Association's Annual Forum on Franchising in Toronto.

A trend appears to be emerging among U.S.-based franchisors to target the Canadian market first for international expansion. A slow-to-recover U.S. economy, combined with Canada's relative strength during the recession, seems to be luring franchise operators to Canada.

"Now they're thinking differently," Mr. Weinberg says. "I think the word is getting out that Canada is a good place to do business."

Several U.S. franchise companies have either begun testing the Canadian market or rolled out aggressive expansion plans in recent weeks and months.

The Melting Pot, a Tampa-based fondue-restaurant franchisor, has eyed Canada for international expansion for years, making Canada one on a list that includes Mexico, Brazil, the Middle East, Japan, India, South Korea and some European countries -- but not until recently did Canada jump to the top of the list.

"We felt it was a logical starting point and perhaps a safer starting point for international expansion," says Dan Stone, director of franchise development for The Melting Pot.

Instead of going the traditional route of targeting the population-dense greater Toronto area, the company sold its first four franchise locations in Edmonton, Calgary and Vancouver.

It was an opportunity Edmonton entrepreneurs Cory and Heidi Wagner were eager to buy into.

"We thought it was a great time to sign and be able to solidify several locations," says Mr. Wagner, who started an investing website he sold to Forbes magazine three years ago.

He bought the rights to all four Canadian franchise locations in the West last February, optimistic Canada would come out of the recession and he would be well positioned for future growth.

"Some people would say that's the worst time to be doing something like that," he says, "but my background was in the financial world and I saw the world wasn't going to end."

Mr. Stone says The Melting Pot, which caters to group celebrations such as anniversaries, birthdays and other special or corporate occasions, has plans for about 15 of its fondue restaurants including a roll-out to Eastern Canada.

"There have been several success stories with companies that have entered in Western Canada," he says, pointing to Starbucks, which launched in Vancouver.

The Melting Pot is one of several U.S. franchise brands with aggressive expansion plans for Canada. Dairy Queen and Little Caesars already have expansion plans underway in Canada, while Buffalo Wild Wings "is looking forward to extending its reach outside of the United States and Canada is a very attractive market for us to do so," says Matt Brokl, associate general counsel for the company.

Puroclean, a U.S. property disaster restoration firm, is already experiencing rapid growth as it expands into the Canadian market. "Canada is absolutely the place we need to focus our growth and efforts," says Keith Gerson, chief executive of Puroclean, which recently hired a Canadian expert to oversee its expansion plans in the country.

Within a few months of launching, the Canadian franchises have been performing twice as well as those in the United States. "Even though it's a fairly new relationship ... the Canadian businesses are outperforming the Americans in the startup phase by two to one," Mr. Gerson says.

Like the banking industry, differences in the insurance industry are among the reasons a Canadian expansion is suddenly more favourable than expanding in the U.S. market or some other countries.

The recent bankruptcy of CIT Group, which provided interim financing to many small and medium-sized businesses, could deal another blow to struggling entrepreneurs in the United States.

Mr. Weinberg says after attending franchise conferences all over the United States, "the impression I'm left with ... is that things are doomier and gloomier there than here."

Canada used to be viewed as last on the list of domestic expansion, but is now widely seen as first in a broader international expansion plan.

It's a trend he expects to continue in the foreseeable future. "Many of these franchise chains are looking beyond the U.S., some for the very first time, because there ain't nothing going on at home," Mr. Weinberg says.

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