Franchise success in U.S. doesn't always translate in Canada
By Kirsten McMahon, Managing Editor
In part one of a three-part series on American chains entering the Canadian market, Toronto franchise lawyer Joseph Adler discusses the importance of due diligence and understanding cultural differences and consumer preferences.
Despite similarities in cultures, there are some striking differences between U.S. and Canadian markets which American systems should be aware of before expanding north of the border, Toronto franchise lawyer Joseph Adler tells AdvocateDaily.com.
“There are at least two or three U.S federal disclosure documents sitting on my desk at any given time,” says Adler, partner with Hoffer Adler LLP. “I'm helping U.S. franchisors to expand their franchise systems into Canada, and the first thing I recommend is that they do their homework.”
He says there is a tendency for U.S. companies to view Canada as their 51st state, mainly due to its size and proximity.
“We are a large country, obviously, but the population is similar to that of California. We talk the same way, wear similar clothes and watch the same T.V. shows and movies, so it’s easy to see Canada as an extension of themselves,” Adler says.
U.S. franchisors need to get out of the mindset that whatever financial considerations they may have made in expanding throughout the U.S. may not necessarily apply when opening up shop north of the border, he says.
“Some franchisors haven't done their due diligence and frequently forget that expanding into Canada is going international. What they need is to contact the right professionals – franchise lawyers, accountants, franchise consultants etc.,” Adler says. “Furthermore, if it's a product-based franchise, they need to make sure the goods are available in Canada at a competitive price and that they are taking consumer preferences into account.”
Canadians don't speak as one unified group either, and there are many differences within the country, but he says U.S. franchisors have to think more broadly about how their product or service will translate once they cross the border.
“I often tell U.S. franchisors that they have to look at not only the successful franchise expansions but also the failures,” Adler adds.
One of the largest coffee and baked goods chains in the world, closed its remaining locations in Canada last year perhaps due, in part, to underestimating homegrown rival outlets.
“I always tell U.S. franchisors that they have to be careful because their success in the U.S. doesn't necessarily mean that if they do the same thing in Canada that it'll automatically be successful,” Adler says. "The whole idea of franchising is that if you're successful in one location and then another and another, you're likely to be successful in the fourth, fifth, or sixth location. You systematize your success and take all of the system elements and apply them elsewhere.
"In theory, it makes sense that if something works well in the U.S., it would work here, but that doesn't necessarily translate into automatic success," he adds.
Stay tuned for part two where Adler will discuss franchise disclosure documents.