I often shake my head and wonder when I see some USA chain announce a huge development deal in the Asia Pacific region. In almost every case when you look at the reality 5 years later you find that there is more hype than actual success. A Professor at the Cornell University School of Hotel & Restaurant Administration, Arturs Kainins, conducted a study a number of years ago looking at a wide sample of actual master franchise development agreements and then compared them to the actual results. He found only a small minority of deals ever achieved the development target. In other words, franchisers were not being realistic about the store potential for their brand concepts. Big development deals sound great on press releases, especially for public companies, but do not do their brands any favors in the long run.
I remember Subway announcing a deal in Japan with Suntory over 20 years ago with the goal of developing 1000 stores. The last time I looked there were less than 200 and many franchisees were closing stores due to poor financial returns.
Robeks announced a big deal back in 2010 to open 500 stores in Japan and other Asian markets. The deal was the largest in the company’s history. I often got calls from my clients asking why I could not get these deals done for them. How many Robeks are there in Asia today? I doubt you can find more than a few.
That brings me to the recently announced development deals by Quiznos, Dunkin Donuts and Johnny Rockets – all for the China market. Quiznos announced a 1500 store deal, Dunkin Donuts 1400 and Johnny Rockets 100 stores. Please do not believe any of this hype.
Subway is struggling in China and so are all the donut chains. McDonald’s barely makes money after more than 20 years in China and BreadTalk recently gave up the Carl’s Jr franchise because of losses. Burger King is also struggling financially.
I would like to know what special insight these chains have to announce such large development deals in a challenging market like China? Let’s revisit this 5 years from now and see how they all do. I predict it will not be pretty!