Asia-Pacific Franchising Trends in a Disruptive Time
As this article is being written in late March, the coronavirus pandemic is disrupting life and business worldwide. For the past few years, the Asia-Pacific region has been a hotbed of new franchise development for both indigenous and international brands. My first experience in franchising was as a master franchisee in China for a U.S. quick print franchise in 1990. Over the years, I have helped U.S. franchisors enter 10 Asia-Pacific countries.
Never have we seen a disruption like today. As of this writing, "OpenTable bookings at restaurants worldwide are down over 80% from a month ago. Retail footfall is down 50% to 80% depending on the country," (Financial Times, March 22, 2020). Other franchises where customers gather, like gyms, are down 60% to 100%.
All air travel has been suspended between regions and countries to minimize exposure to the virus. Large franchisors have put into place "no over water" travel policies. Franchise expos across the Asia-Pacific region have been postponed until at least Q3 or Q4 2020 or until next year. Restaurant, retail, and fitness franchisors have seen their units in this region shut down, which means drastically lower sales and resulting royalties. There will be bankruptcies for licensees that do not survive this disruption. Some franchised units will never open back up. Force majeure clauses in agreements can be invoked. Franchisors must decide whether to suspend set royalty payments and new unit development schedules.
During the height of the Mainland China coronavirus, major U.S. food and beverage (F&B) brands shut down more than 7,500 units. These are now reopened. A senior Chinese franchise executive based in Beijing says that as of late March, "retail, malls, gyms, and restaurants are opening back up in major mainland Chinese cities, but consumers experienced an almost two- month layoff and have little money to spend."
A senior U.S. F&B executive who oversees a 30-plus country network, says that the most important things international franchisors can do now are:
- communicate constantly with your international licensees
- focus on operations support and cleanliness standards
- maintain the supply chain, and
- put development obligations on hold.
The senior international executive of another large U.S. F&B franchisor says that restaurant closures will show which licensees are solvent for the long term. Many international franchisors say they are taking this time to fine-tune their menus, store designs, and operations to prepare for better bottom lines once this crisis passes. Communication with franchisees and licensees has moved to online through Zoom as support staff are unable to travel to other countries.
• Sean Ngo, CEO and Co-Founder of VF Franchise Consulting in Ho Chi Minh City
"There have been quite a bit of disruptions, but if it is a wake-up call perhaps it may a good thing in the long run. Southeast Asia has been spared for the most part when compared to China and Korea, but weaker and less financially stable businesses will fail.
"People in Asia took the coronavirus issue much more seriously earlier than people in the West, and the region is expected to gradually recover in the next 3 to 6 months. Many countries in Southeast Asia closed all international flights while allowing only for domestic travel. The main concern in countries like Vietnam, Singapore, Thailand, and the Philippines is the virus sneaking back into these countries from international visitors.
"Franchisors are adapting and focusing their efforts online to a significantly greater extent. They are focusing and adapting to more rigorous digital marketing programs, which now include constant client-specific franchise webinars, as well as increased efforts in SEO, social media, and targeted email campaigns.
"As for new franchise development, we continue to travel when we can for our business matching events throughout the region. We plan to have business matching events in Indonesia, Philippines, and Vietnam soon. We will reschedule them when necessary. We recently visited Thailand, Cambodia, and Myanmar, and the excitement for new franchise and business opportunities remain as many of these groups are focused on investments for the long term, and that ultimately means they will consider these opportunities now rather than later."
• Ichiro (Roy) Fujita, President of I. Fujita International, based in Tokyo and Los Angeles
"With a relatively low number of coronavirus patients, the Japanese government first closed schools, businesses, and restaurants. These businesses are gradually reopening as of the time of this article. However, restaurants have been severely affected and sales are down between 30% and 50%. Gyms were also closed, but also are gradually reopening. The coronavirus situation in Japan should continue to be under control compared with other countries, and most franchise businesses are expected to be operated gradually by the end of May."
• Rod Young, Global Chairman of Cartridge World and Chairman of the Sydney-Based DC Strategy Group
"The wild card in looking forward for the Asia-Pacific region is the coronavirus pandemic. This is written in the expectation that the response by China and the rest of the world will see the community and the economy recover some normality after a significant impact on global growth and consumer habits.
"Economies were growing throughout the region and prospects for franchising were very good as labor issues and costs drive more businesses to adopt the franchise model, and more workers want to own their own businesses as they see they cannot achieve their ambitions on a salary.
"The Internet will be a bigger factor influencing consumer behavior, and every franchisor needs to develop strategies to embrace this rising consumer sales channel. Out-of-home food consumption means many food operators are seeing continued sales growth. However, strong competition and new entrants demand differentiation, and innovation will be rewarded for both incumbents and new entrants. Retailing will need the support of a strong Internet offering to support sales growth as more consumers educate themselves before heading out to shop.
"Service franchises are continuing to grow in the home services, education, and health and wellness area as increasing wealth increases the spending of time-poor consumers. Governments will continue to monitor franchisor behavior and regulation will be a feature of franchising in most markets.
"Franchisors need to invest more in lead generation and ensure their franchise recruitment teams are responsive and knowledgeable so they can sell the differentiation a franchisor's brand offers the market. Local market knowledge will be critical as prospective franchisees do more online research well before inquiring online, which is the biggest method of reaching out to inquire about franchise opportunities by a prospective franchisee.
"Of the countries in the region most open to franchising, Australia and New Zealand rank high. In summary, most counties in the Australasian region are franchise-friendly, and the economic growth in the region points to a positive outcome for franchisors."
The bottom line
This immense disruption has slowed down new franchise development in the Asia-Pacific region. But it is also causing franchisors and licensees evaluating their businesses to fine-tune operations and systems and to prepare for a brighter and stronger future.
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