16 July 2019

Building a healthy franchise brand in the U.S.

Trade uncertainties aren’t slowing Nurse Next Door’s American and global expansion

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When you’re in the business of bringing health and happiness to the world’s aging population, you can’t let negative headlines get in the way of your brand’s strategic growth objectives.

That’s why Cathy Thorpe, president and CEO of Vancouver-based Nurse Next Door Professional Home Care Services Inc., monitors, yet doesn’t fret, over news of tariffs, trade wars and an as-yet-unratified U.S.-Mexico-Canada Agreement (USMCA) – the successor treaty to NAFTA – that has given pause to so many in the C-suite.

“[USMCA] hasn’t impacted our thoughts around U.S. expansion,” Ms. Thorpe says. “When you look at this business … it’s about how we continue to build relationships with our U.S. partners regardless of what’s going on politically.”

With more than 200 franchise locations across North America, 100 corporate employees and more than 7,500 caregivers in the field, Nurse Next Door is one of the dominant players in the fast-growing private senior home care industry.

Nurse Next Door is growing at an overall rate of about 30 per cent per year, according to Ms. Thorpe, with 40 per cent coming from south of the border. Now the CEO has her expansionary sights set on Australia, where franchise sales are slated to kick off later this year, while the United Kingdom and Germany remain potential long-term target markets.

But it’s in the U.S. that Ms. Thorpe, like many CEOs of medium-sized businesses across Canada – and especially franchisors – see the greatest opportunities for growth and success.

“If you’re looking at North America, the U.S. is an absolute juggernaut when it comes to population and market size, and in particular the franchise market,” explains Tom de Larzac, the Head of Franchise Banking at HSBC Bank Canada.

“Despite the U.S. being 10 times larger in population than Canada, I think the franchise market opportunity is even bigger than that because people in the U.S. are so used to going to franchised businesses on a regular basis, they want a brand name. You also have population density, which is more conducive to gaining scale locally, which is a challenge for Canadian brands growing locally because we’re so spread out.”

According to the International Franchise Association, the U.S. franchise market, the world’s largest, was projected to generate $451-billion in gross domestic product last year, up 6.1 per cent from 2017, representing 3 per cent of total U.S. GDP.

Still, the path to U.S. success for Canadian franchisors is less clear than it used to be, thanks to an unusual degree of trade turmoil, explains Igor Chigrin, an export consultant with Win Global Partners in Toronto. “Traditionally the U.S., our largest trading partner, was considered a safe harbour,” he says. “But with the political and economic uncertainty it’s now more challenging for people in the business community to make the decision whether to expand into the U.S.”

The news isn’t all bad for Canadian exporters, however.

Mr. Chigrin sees the USMCA as a potential boon for some companies, assuming that it’s eventually ratified. “What we hear from our clients and see in some analyses is that it appears to be a lot more advanced [than NAFTA]. For several industries there are new terms and it will be easier for them to export across North America.”

For Ms. Thorpe and her team, confidence in the Nurse Next Door brand made aggressive, continued U.S. expansion an obvious decision, despite those nagging trade headwinds: “We had to say, ‘Listen, we are ready and we have an awesome brand that’s giving people choice and we want to do that across the globe, so let’s go and make that happen.’”

As she continues to expand the company’s footprint in the world’s most competitive franchise market, Ms. Thorpe has more than a few lessons to share with other Canadian franchisors venturing south.

“We were very strong about understanding who we are as a brand and how we could bring that training to the franchise partners,” she says. “We were also very realistic. The U.S. is not Canada and Canada is not the U.S. You have to make sure you have the openness for nuances and look at and understand things differently.”

Building a U.S. brand

Brand differentiation is also an essential element of success for franchisees, Ms. Thorpe says.

Rather than attempting to compete with other home care providers on price, Nurse Next Door maintained its premium brand positioning and built credibility by striking a partnership with a major hospital system in California, reinforcing key value propositions such as a focus on helping seniors live independently in their homes longer, guaranteeing hours to caregivers to boost staff retention, budgeting more time for each personal care session to improve the quality of care, and emphasizing a focus on tending to clients’ physical and mental well-being.

But it takes significant capital to build a premium brand in an already over-crowded market.

Accurate budgeting and the acquisition of adequate financing are two key areas where Canadian franchisors don’t always dedicate enough attention, says HSBC’s Mr. de Larzac.

“You can’t go in there with a limited budget,” he says of the American market. “Scale is vitally important in the U.S. A new brand needs to build a presence quickly, so you have to enter by either spending corporate money to build that scale, or by partnering with somebody that has the capital to build that network of units relatively quickly.”

Banking relationships are equally important because without the right amount of capital, growth in saturated franchise markets such as the U.S. can be nearly impossible, he stresses.

“I think franchisors have to consider financing or the ability of their franchisees to raise capital in that local market,” Mr. de Larzac says. “As a franchisor you need to leverage [banking] relationships as much as possible. Canada and the U.S. are similar, but revenues and unit costs aren’t one-to-one and it’s critical to understand both what it’s going to cost, how competitors are operating and whether the unit economics are sufficient to source adequate financing. .”

He adds that decisions over how to structure franchise operations are equally critical – namely, choosing either a corporate ownership, joint venture or master franchisor model – and whether to set up local operations to support franchisees. That’s why he recommends having a partner locally who understands the market and can support its expansion with finance, investment, legal and accounting advice and contacts.

But as Ms. Thorpe says, achieving success in the U.S. isn’t just about bean counting. Without the right managerial talent and approach, any expansion is doomed to fail.

“By and large it’s also about having people that really understand our brand and can build it out in any country.”

Franchise facts

  • Canada is home to 75,765 franchise units, while the U.S. has about 760,000
  • The U.S. franchise market was worth $451billion in gross domestic product in 2018
  • Franchise businesses in the U.S. support around 7.5 million jobs
  • 75 per cent of Americans surveyed think franchise brands offer quality products and services
  • In the home-care sector, there are more than 4,100 franchise businesses in the U.S.

Source: International Franchise Association

CONTENT PRODUCED BY THE GLOBE CONTENT STUDIO. THE GLOBE'S EDITORIAL DEPARTMENT WAS NOT INVOLVED.

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