Canada has one of the most seasoned, vibrant and rapidly expanding franchise sectors in the world, one which is growing and changing every day
How does the world see Canada? A country with breathtaking scenery populated by extremely polite people? For sure. A tolerant country? Absolutely. An honest broker among other countries? Definitely. However, that’s just the start of what Canada has to offer. It is also an exciting franchise hub between the vast North American market and the rest of the world, full of ambitious and innovative franchisors and talented, eager franchise investors.
Canada’s proximity to the U.S. has made it the most common first destination for international expansion by U.S. franchisors, who find a lot that is familiar in Canada, but with sufficient challenges to allow them to build their international resources and expertise. Many other international franchises, especially from Europe, also find it a much more familiar and compatible place to enter the North American market and come to terms with its unique identity. Prospective investors and franchisees from the U.S. also respond especially well to franchises that have already succeeded in Canada. No wonder, then, that so many overseas investors are seeing it as the perfect proving ground for their franchises.
So, it is well worth taking your time to understand how the Canadian franchising market works, and how to get the most out of it. As with many large and complex markets, working with international consultants that have knowledge and expertise of the region can give you a huge advantage, and help you avoid many of the pitfalls of expanding into a new territory.
Geography
Even though Canada is vast geographically, its population is concentrated in and around just a few major cities, many of which are in close proximity to even larger U.S. population centers. So, while expanding throughout the entirety of Canada is challenging, a franchisor can more easily target just a handful of Canadian cities and then expand across the border into the rich and dense U.S. markets with relative ease.
Human resources
In Canada, we celebrate our diversity and tolerance and use them to great advantage in attracting and growing successful businesses. Our working population is highly educated, with rich backgrounds from around the world. Increasingly, potential investors are choosing Canada as their preferred place to invest, work and raise their families.
Financing
Canada is dominated by a few national banks, with offices throughout Canada. While these banks tend to be on the conservative side, each has national franchise departments and competes for franchise business in all of its forms. There are also a number of government programs to assist in the financing of small business start-ups, including the purchase of franchises. Regulation While franchise legislation can vary across Canada’s 10 provinces, their statutes and regulations are fairly similar, allowing for the creation and use of a single franchise disclosure document. Moreover, these statutes contain little in the way of the regulation of the franchisor/ franchisee relationship and there is no need to register the franchise, or its disclosure document, with any government body.
Structuring the franchise
How the franchisor holds its interests in Canada depends upon various factors and the use of a Canadian subsidiary, or a local branch or division can be very beneficial. It can establish a physical presence locally and it publicly indicates a commitment to the local market, as well as providing for segregation of liability and accounting. As for the contractual structure with the franchisee, direct franchising (including single and multi-unit), master franchising and joint ventures are commonly used by foreign franchisors in Canada.
Changing trends
In Canada, the franchisees are getting younger, while the consumer population is getting older. Franchisors will have to find a way to bridge this growing divide. In general, there is a widening age gap right across the population, so franchises that focus on either children or seniors are set to do particularly well in the future.
“In Canada, the franchisees are getting younger, while the consumer population is getting older”
Aging baby boomers are rapidly approaching their most medically challenging years and desperately want to avoid spending them in an institution. As a result, there is a huge and growing demand for high-quality homecare services. With budget cuts to school programs and an increasing desire from parents for their children to achieve their full potential through innovative learning and play methods, child-centered businesses have begun to sprout all over North America. Industries that focus on recreation, fitness and education are proving to be very sound financial investments.
As the cultural diversity of Canada’s population continues to increase, the market is also responding well to any company that can cater to a greater variety of ethnic tastes and preferences.
In recent years, there has also been a trend away from unit franchising to multi-unit, area development and master franchising. This is expected to accelerate in the future, as more and more franchisors realize that there are significant advantages in dealing with fewer, more sophisticated and better resourced franchisees. This is working the other way too, of course: investors are increasingly seeking franchisors that demonstrate a deeper commitment and knowledge of the local markets.
New industries are discovering just how effective franchising can be as a model for sustainable and profitable growth, and societal changes are challenging the traditional beliefs about how to expand a business. Canada, for so many reasons, is uniquely positioned to benefit from these changes. As more and more franchisors are coming to see Canada’s potential, the use of international consultants and local experts is becoming an increasingly effective way of making the most lucrative opportunities stand out from the crowd.
THE AUTHORS
Farrah Rose is head of international development at The Franchising Centre, and is a long-term member of the British Franchise Association.
Edward (Ned) Levitt is a Certified Franchise Executive (CFE), a partner at Dickinson Wright LLP, in Toronto, Canada, and provides legal services to Canadian and international clients on all aspects of Canadian franchise law.
