Updated: May 4
In the world of restaurants, the United States have long ruled at internationalisation. Many wrongly think McDonald’s was the first international franchising player in the world of restaurants, but from my (limited) research, I discovered “Wimpy Bar” was probably the first to make its way across the Atlantic in 1954, with the first site in Coventry Street, London. KFC was before McDonald’s too, launching in Preston in 1965. In fact, McDonald’s first international store wasn’t until more than 20 years later in 1967 when it opened in Canada and it wasn’t until 1974 that it would first be welcomed to our shores with a location in Woolwich, south east London – where a Big Mac sold for 45p.
US dominance in restaurant franchising
Since then, we’ve seen many big brand exports from the USA dominate the global market, mostly in the quick service restaurant space, and with a few casual dining players. UK operators venturing overseas has been much later and slower in comparison, but we are starting to see a growing footprint with some star players and emerging heroes.
One of the key challenges to UK brands going international has been the predominant focus on managed operations among UK players, which is very different from the US, where franchise is often the preferred method of growth, even from a small managed footprint. There are several factors behind this difference of strategies, foremost that the large distances and sheer scale of opportunity in the USA make it difficult to maximise a brand’s potential through an owned-and-operated model. There’s also a mature, decades old franchise infrastructure, network and experience that means there are hundreds, if not thousands, of experienced multi-site franchise operators ready and looking for new brands and opportunities. For anyone that knows the market well or has seen the movie The Founder, you’ll know there’s also a significant real estate play around franchising in the United States, where commercial real estate is often cheaper and opportunities for drive-thru and out-of-town locations easier to come by.
Successfully franchising a restaurant brand
Back here in the UK and, more broadly, Europe, there has been a reluctance among private equity backers of the big brands to consider franchising, partially through the concern of losing control of brand standards, but also quite simply because their business model is earning a return on the deployment of large amounts of cash, which is what’s required to build a managed group. Chairing panels at the Global Restaurant Investment Forum, we heard this message time and time again. Coming out of the pandemic, we’ve noticed a “pivot” among some of these investors: seeing that borrowing is expensive, willingness to invest in the sector less appealing and with a tougher home market, they realise that franchising, and especially international franchising, could be the way to go. We’ve had many briefs over the past two years at THINK Hospitality, where people who admit themselves never to have considered the international opportunity are now proactively analysing the potential and even getting going with building out this side of their business.
If considering this channel, it’s worth noting that it’s not necessarily the easy golden goose that a casual analysis might suggest. Like any growth strategy it has its pros and cons. In the long term it can be a highly effective, investment-light approach to growing a brand with highly profitable cash rewards. However, for the successful franchisor there is a considerable upfront investment in legals, brokerage, building relationships, creating documentation and building a support team. For most brands this means you need to get to a significant scale of franchised stores before it becomes profitable. There is also the risk of the brand not delivering to your standards, franchisees not fulfilling their development agreement to build stores and reputational damage if things go wrong. Even some of the most successful franchisor brands we’ve worked with struggle with having got into bed with the wrong franchise partners, no matter how much due diligence they have done, with significant amounts of time, money and management resources subsequently being spent on damage control, corrective action and chasing royalty payments.
Our learnings in this space is that it really is about doing your homework upfront, analysing the markets that best suit your brand with a professionalised base of franchisees that could take your brand and handle it well. Then really ensuring you build a strong relationship, realising that it takes more than contracts and manuals to build a fantastic franchise relationship. It takes a willingness to negotiate and listen, understanding where your brand can flex and where it cannot. It is also a numbers game in more than one way, as you need scale to generate a decent return, but also to ensure that you have enough high performing sites and great franchise relationships to outweigh the poor performers, non-payers, and bad relationships you will inevitably encounter.
Restaurant globalisation success stories
Let’s look at some of the success stories of UK brands going international. The first that comes to mind is Wagamama, the lovechild of the UK casual dining industry for many years, whose crown may seemingly be slipping, but is still performing and growing internationally. Ask anyone who was involved in the very early days, and they’ll tell you it was probably too quick to franchise internationally and was very opportunistic to take up offers that came in from around the world, with sites as far afield as New Zealand (where I first experienced the brand in 2009), which is a long trip to audit a few sites. It subsequently brought in an international director who looked to take a more structured approach to international growth and to clean up the existing relationships.
The two big names in British coffee, Costa and Caffe Nero, have both done well overseas, through both franchising and joint ventures. Costa Coffee is now the second-largest coffeehouse chain in the world, with well over 1,000 units overseas, including nearly 500 in China. Since being acquired by Coca-Cola in 2019, it has continued its international expansion across Europe, Asia-Pacific, the Middle East and Africa; and in summer last year launched its first bricks and mortar store in the US, in Atlanta, Georgia, with a second location launching shortly after at a university in the city. Caffe Nero has grown internationally to Ireland, Sweden, Poland, Cyprus, Croatia, Turkey, the UAE, Oman and a larger footprint than Costa in the USA, with 36 stores, mostly centred around Boston. Meanwhile quick-growing challenger brand, Black Sheep Coffee, has US ambitions with one store already open in Dallas.
Jamie Oliver Restaurants is an interesting case, as to many in the UK, it no longer exists due to the closure of the UK operating business, but this celebrity chef-led brand has continued to grow at pace internationally with a multi-brand portfolio of concepts, beyond the Jamie’s Italian brand, including Jamie Oliver Kitchen, Jamie Oliver’s Pizzeria, Jamie Oliver’s Diner, Jamie’s Deli and The Jamie Oliver Cookery School. The brand will boast more than 90 sites across 24 countries by the end of this year, with recent announcement of a new franchise partnership in Germany and its Indian master franchisee, Dolomite Restaurants, announcing its intention to triple the estate and expand the footprint across the country.
Disruptor craft beer brand BrewDog have an extensive and growing global hospitality business, with 126 sites globally, across bars, pubs, outposts, breweries & hotels, across 20 countries, 17 of which are currently franchised.
A rather different UK-headquartered business is SSP Group, the FTSE 250 listed travel food caterer and concessions operator. The business operates in 35 countries all over the world, with Asia-Pacific being among its quickest growing markets. The business is focused on travel hubs, principally in airports and railway stations, with several owned brands as well as hundreds of franchised, both global and local heroes. To add local flavour to international line-ups, it has become champions at giving smaller, more independent brands an opportunity into airports – sometimes offering these local start-ups their first franchise opportunity.
At the premium-end of the market, there are many British celebrity and Michelin-starred chefs doing things on the international stage through franchise and license agreements, including Simon Rimmer, Jason Atherton and Tom Aitkens. In recent months, we’ve seen the launch of Atlantis The Royal Dubai, a huge statement hotel opening in a city that is already world leading for dining. Central to the restaurant line-up, two powerhouse names from the UK; Gordon Ramsay and Heston Blumenthal, who both have overseas presence. Ramsay also has a considerable footprint in the USA, with sites in Las Vegas doing numbers that would make any British operators eyes water.
One area that our American counterparts seem not to have been ahead of the game on was experiential leisure, with several British brands taking the lead in the market, including Swingers, which launched into New York City last year; Red Engine concept Flight Club launching in Perth, Australia; and State of Play Hospitality operating the Ace Bounce and Flight Club brands in the North American market.
It's not all plain sailing of course and there have been a fair number of failures on the international front, including many big brands you would assume would have the firepower to ensure success. You can point to Carluccio’s, which launched two restaurants in the US before closing them in 2017. Having been successful in launching into New York City, Pret struggled to get a foothold in other US cities, permanently closing 17 locations in Boston and Chicago pre-pandemic, although it is back on the international expansion trail in a big way now, with a newfound strategy of franchising.
Growing restaurant managed operations internationally
While I’ve focused on licensing, franchising and joint ventures here, there is always the route of building directly managed operations overseas, which we’ve seen many restaurant groups succeed at too. In September 2021, Hawksmoor audaciously finally opened its doors in New York City to great acclaim, having had to push back opening several times during the pandemic. It’s recently announced its impending launch in Chicago, the home of the steakhouse, which I’m sure it will succeed equally well in. Pre Tao-Group acquisition, Hakassan was another fantastic example of a British brand making it big around the world, with nightclub and restaurant concepts.
In the coming months we’ll see The Alchemist open its first international location, in Berlin, with Kerb’s food hall following next year, and we’ve had announcements that celebrity cakemaker Peggy Porschen and affordable fine dining concept Six by Nico will soon enter the Middle East. In the press around the recent acquisition of Fulham Shore, internationalisation was also called out as a growth opportunity with a recent announcement of an upcoming Spanish site. It’s clear to see this is a growth strategy that is gaining in appeal. We are excited to see the continuation of British brands making it abroad and continue to help many of them in understanding the opportunity and making the move.
First published in Propel Quarterly