The U.S. franchise market is significantly different from that of the U.K. Several differences are standing in the way of U.K. franchisors looking to expand their brand into the U.S. Among these differences is the large size of the U.S. franchise sector and the regulations existing at state and federal levels. The U.S. franchise market is far different from the British version, and each U.K. franchisor should seek U.S. legal assistance before entering into0 a contract with a U.S.-based franchisee.
Regulation Must be Considered
The move from the U.S. to the U.K. is eased by the lack of regulation imposed by the British Government on franchisors. In the U.S., the franchise market was worth more than $890 billion in 2016, with regulators at the state and federal levels protecting franchisors and franchisees. For British brands to leap the U.S. franchise market, several problems need to be overcome to improve their chances of success. The U.S. regulators require each franchisee to declare certain information, including:
- Identities of the officers of the franchisor
- Current and prior lawsuits
- Payable fees and potential investment value
- Financial statements of the franchisor
Compared to the unregulated franchise market in the U.K., brands moving into the U.S. need to be aware of the issues they face.
Creating a U.S. Office
The U.S. franchise sector is a conundrum for U.K. franchisors, who will be shocked at the local markets they will enter. The majority of franchisees own one or two local locations rather than several locations across different states. Staying in contact with franchisees at a local level can be a problem if the U.K. business does not have a U.S. subsidiary office. By opening a U.S. subsidiary, the contact between the U.K. business, their franchisees, and the U.S regulators will become simpler. The ability to remain within the U.S. regulations, led by the FTC Franchise Rule and the requirements of individual state regulators.
Choosing the Correct Franchise Model
There are several franchise models that a U.K. business can use when entering the U.S. franchise market. The first franchise model is direct franchising, which allows U.K. franchisors to keep close control of their growing network. The drawbacks of direct franchising include the high level of investment needed to keep close control of the development of the franchise network.
The second option is to use the area developer option that is less intrusive than direct franchising. The area developer option remains an expensive one for the U.K. business leaders because they need to make sure the franchise schedule they have established stays on course. The main issue with this is developing a plan that targets growth in specific areas of the U.S. without a clear understanding of the overall market.
The third option is master licensing, which allows a master licensee to control the development of the brand in the U.S. The lack of control for the U.K. brand is the main concern with this form of franchising.
A U.K. franchise can find success in the U.S. if the company is willing to work within the framework of the U.S. regulators. The large market can be difficult to break into, but thousands of potential franchisees are looking for an entry into the sector across the U.S., with the aid of an existing global brand.