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Understanding the Quebec Franchise Industry

Written by : Michel Gagnon
2008-04-15
In order to better understand the Quebec franchise industry, we must place the Province in the context of the Canadian demographics. With a population of 7.3Million people, Quebec is the second largest market in the Country, with 24% of the population. The most recent number of Canadian franchise systems is 1,300 systems in operation. Our estimate of franchise systems operating in Quebec is approximately 300 systems, or 23% of the franchise population. However, 45% of these franchises are indigenous to Quebec, the balance being systems with their headquarters elsewhere in Canada or the USA. Therefore, out of the 1,160 systems not from Quebec, the Province has less than 15% of the available Canadian systems operating within its borders. This is not a unique situation however, as both Western and Atlantic Canada have their own indigenous systems which are not available in other parts of the Country and to a lesser degree, so as Ontario. Quebec however has the highest level of indigenous franchises of any areas of the Country.

What about these Quebec based franchises? Out of these 135 Quebec based businesses, at this point, about 30% have more than 35 units each, leaving the majority of them still either emerging or growing systems. These tend of course to be limited to units in the Province only. Out of the remaining 40 systems, some have chosen to dominate their local markets, but more and more are venturing outside of Quebec and experiencing success and faster growth in the process.

Many of these more mature systems are the leaders in their industry and household names, covering a number of industries, from casual dinning, fast food, eye care, automotive, health care, pharmacy, rental, electronics to pet supplies and this list is non-exhaustive.

As in the rest of Canada, the emerging indigenous systems cover a wide range of the economy, including home based franchise and service industries.

Quebec is also home to a number of household names with head offices in Toronto, Vancouver, Calgary and in the USA, who have been in the Province for a long time under various forms, either through local representations, regional offices, master licensees, area developers or other means of development.

On the non franchise front, most of the well known names in the Canadian and American Retail industry are present in Quebec and are doing very well indeed. Every day, there are new chains opening up in the Province, certainly at a faster pace than the Canadian franchisors!

The perceived barriers in entering Quebec are numerous but often that, perceptions. Some cited are languages laws, different legal system, different consumer tastes, high translation costs, real estate, different consumer protection laws and barriers, high training costs because of the dominating French speaking employees etc. While some of these to varying degrees do exist, none are insurmountable to a Company who wants to expand.

There is a time line and an evolution for everything and that is true for corporations. It would not be wise for a new company with limited experience, people resources and financial limitations based in Toronto, let’s say, to expand after opening 2 stores in GTA to jump into BC and open a single store there, right? The same is true for any expansion outside of one’s well understood market. Canada is a large Country and people (franchisees and consumers) are somewhat different from one area to another. Of course Quebec is a little bit more different! However, we share the same legal system in most aspects, the same banking system, the same federal government, currency, etc. Those who think that the American market is the same as in Canada often have realized that sharing the same language does not translate into immediate or for that matter, any measure of success. There is no UFOC or State legislation in Quebec. The Greater Montreal area is very, much so, bilingual and there are ongoing relationships between Quebec based professionals and their Toronto or Vancouver based counterparts.

Why did some franchise systems have experienced some form of failure or disappointment in entering this market then?

Maybe they did not their homework well in selecting their first sites. Maybe they totally overlook the differences in consumer reaction to the product, in particular the French factor. Maybe the advertising program was not adapted to the market and was only an extension on the Home market. Maybe the first franchisees were left to themselves with no support locally. Whatever the reasons, should the Company abandon its objectives of becoming a national chain and having access to 24% of the Country?

Let’s talk about the financials. Some of the barriers mentioned are the high cost of translating and adapting the Franchise Agreement and all the franchise marketing material from the start, even before granting one franchise?

The answer: Yes you must ensure that the Franchise Agreement is adapted to Quebec laws, an exercise that most lawyers will tell you will be well under $2,000. You do not need if you want to translate immediately the modified Franchise Agreement and all the franchise marketing material. If you concentrate your initial efforts in the Greater Montreal, where most business type people are bilingual, they will understand that the Franchise is from English Canada or the USA and will be satisfied with your materials, documents, communications etc in English if they are convinced that your Strategy for the Brand will be adapted to the Quebec market, if they are convinced that you will provide the support needed to these new franchisees to penetrate this new market (for you and your Brand) and if they are convinced that they will be heard when it is time to point out recommendations on the strategy because of some differences in this market.

Appointing a bilingual or better still someone from Quebec to represent you at the initial stage will go a long way and will be cheaper probably than adapting all your franchise documents plus setting up a French training program upfront. The strategy here is to focus on finding initially bilingual franchisees and willing to recognize the basic strength of a new Brand entering Quebec from English Canada or the USA. Again appointing a bilingual franchise development person will be a good idea, not because of a language barrier, but out of respect for the cultural difference. These new and adventurous franchise candidates will accept documents in English and accept to be trained outside of Quebec.

As the System grows and revenues come in, you will want to eventually train the future more francophone only candidates on site in Quebec and translate all documents at that time. This is one answer to the argument of translation and training costs at the beginning. However, anything to do with the consumer and the public has to be dealt with immediately as far as marketing adaptation, if necessary, but certainly on translation issues for the Offering, signage, product and image points of view. There cannot be compromises on doing everything you need to do achieve success at the Brand level in this new market!

Many people think that they must, by law, change the name of the Brand to French. That is certainly not true. Visit the Province and read the hundreds of Trade names on signs or in windows! You should consult your lawyer and get the facts about the French Language laws, not the perceptions.

On a different subject, many franchisors feel that they should have a Master Franchisee for Quebec instead of dealing with the franchisees directly. While this structure does have advantages, it also has serious drawbacks. Master franchises work well for international franchising because of the distances and a number of other benefits, an important one being the strong financial returns for the Master when there are a number of franchises potential in the Country. In other words, before granting a Master franchise for Quebec, is there a business for the Master in potential number of franchises? The second question to ask is how will this structure work when most Canadian franchisees deal directly with the Franchisor, and some with a Master Franchisee, in the same Country?

There are different ways of dealing with franchising today.

You are encouraged to obtain the right advice and to share your experiences with other franchisors that have been successful in entering Quebec.

Quebec’s economy is doing well, real estate costs are still lower that in most markets, and the Quebecer is a very active consumer. What needs to be done is to do your homework properly, get the right people and adapt. This 7 Million strong market is yours!

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