Exporting Brands Through Innovative Licensing and Franchising Strategies

Transcription

1 Exporting Brands Through Innovative Licensing and Franchising Strategies 1

2 International market entry strategies Subsidiary Joint ventures Contract manufacturing Franchising Licensing Exporting 2

3 International market entry strategies BRAND Physical product Direct Exporting Sales revenues Franchising Franchise fees Sales revenues BRAND Intellectual property Licensing Indirect Exporting Royalties 3

4 International market entry strategies Exporting Brand Licensing Franchising Contract manufacturing Complementary strategic tools Can be used separately or together in different combinations The choice depends on the product and target country market Sometimes in combination with contract manufacturing 4

5 Brands and intellectual property Brand a bundle of intellectual property assets Intellectual property (IP): An intangible output of the mind which has something new, original or distinctly different about it 5

6 Brands and intellectual property Distinctive marks (brand name, logo, slogan) Product (functional features, design) Packaging (functional features, design) Production technology Business model Product commercialization (sales and marketing strategies) 6

7 Licensing and franchising Contractual methods of exploiting IP by: o Granting permission to another party to use IP o Agreed terms and conditions o Defined purpose and territory o Agreed period of time o In exchange for compensation (royalties, franchise fees) The licensor/franchisor continues to own the IP and only permits the licensee to use it, based on the agreed conditions. 7

8 Brand licensing 8

9 International brand licensing The owner of the brand (licensor) allows a foreign company (licensee) to produce the branded product The licensee is an independent business The licensee is responsible for manufacturing, packaging, distribution, sales and marketing of the brand in a defined geographic area The licensee pays royalties to the licensor 9

10 Brand licensing vs. contract manufacturing Brand Contract manufacturer Production & packaging Sales & marketing Profit from price mark-up Brand Brand licensee Production & packaging Sales & marketing Royalties Profit from royalties 10

11 Brand licensing to manufacturer Brand licensor Licensed Manufacturer Production & packaging Sales & marketing Production capacity Quality standards Distribution channels Marketing capabilities Brand fit Shared vision for the brand 11

12 Licensing to wholesaler or retailer Wholesaler Brand licensor Retail chain Sales & marketing Contract Manufacturing Production capacity Quality standards 12 Distribution channels Marketing capabilities Brand fit Shared vision for the brand

13 Brand licensing package Brand name Product Brand Packaging Production technology Marketing strategy 13 Licensor s brand name

14 Brand concept licensing package Brand name Product Private label Brand Packaging Production technology Marketing strategy 14

15 Trademark licensing package Brand name Product Licensor s brand name Packaging Licensee s product Brand Production technology Marketing strategy 15

16 Technology licensing Brand name Product Brand Packaging Production technology Marketing strategy 16 Licensee s product and trademark

17 Brand licensing Kit Kat in the U.S. United States Brand licensing Licensee s distribution Licensee Licensor 17

18 Brand licensing Nestle in Asia Regional Brand licensing Multi-brand years Royalties on net proceeds 18

19 Brand licensing Sunkist Brand Licensing Licensee Licensee Trademark licensing Licensing agreements in over 80 countries 19

20 Brand licensing Sunkist in India Brand Licensing Retail outlets Big Bazaar Food Bazaar, Foodhall KB s Fairprice Big Bazaar Direct General trade stores Sourcing Manufacturing Packaging Distribution 20

21 Brand licensing and exporting Brand licensing Licensee BRAND Export o o o o Ingredients Parts Packaging Other 21 Licensee s distribution

22 Brand licensing - Coca-Cola in El Salvador Export Supermarkets Gas stations Convenience stores Kiosks Restaurants Other Coca Cola syrup Sourcing: Sugar Packaging Other supplies Manufacturing Packaging Distribution Merchandising 22

23 Brand licensing Pepsi Cola in Holland The Netherlands Brand licensing Licensee s distribution Export Pepsi Cola syrup 23

24 Key reasons for brand licensing Lack of production capacity to serve potential international markets through exporting Lack of financial resources to invest in production capacity and/or brand marketing activities in a foreign market High import tariffs or non-tariff barriers Transportation costs Currency exchange rate fluctuations 24

25 Reasons for brand licensing Brand licensing Craft brewers have limited: Production capacity Financial resources Human resources Fast growing competition in the U.S. market Brand licensing might be an attractive strategy for international expansion 25

26 Brand licensing to manufacturer in Poland Brand licensing Side Delights Retailers Biedronka Lidl Private label Spolem Selgros Intermarche Delkatesy Milea Stokrotka Potato grower and distributor 26 Wholesalers Jurasz Side Delights Agropol Prominex Tropicana

27 Brand licensing to wholesaler in Poland Brand licensing 1,000 stores 1,400 stores Side Delights Contract manufacturing Franchised retail stores 27 2,800 stores 7,000 stores

28 Brand licensing to retailer in Poland Private label Brand licensing Poland 200 stores Germany 650 stores Czech Rep. 120 stores Slovak Rep. 60 stores Side Delights Contract manufacturing Romania Bulgaria stores 60 stores Side Delights

29 Brand licensing strategies in Poland Brand licensing Side Delights Private label Side Delights Contract manufacturing 29

30 Benefits of licensing Production capacity in foreign markets without capital investments and operating expenses Possibility of lower production costs No international transportation costs No import tariffs No foreign currency exchange 30

31 Benefits of licensing Access to the licensee s distribution network (country and regional) Licensee is responsible for sales and marketing activities Licensee provides local market knowledge Brand can be marketed as locally produced Revenues from markets where exporting is not possible 31

32 Financial terms Financial terms should be agreed upon at the early stages of negotiations Financial terms typically include: o Initial license fee o Royalties 32

33 Royalties Per unit sales the licensee pays a set amount for each unit sold Percentage of revenues o Gross revenues o Net revenues (gross revenues minus agreed upon costs) Royalty range: % Royalties can be adjusted over time 33

34 Royalties Guaranteed minimum royalties o Minimum annual royalties the licensee must pay to the licensor o If actual royalties are greater, the licensor receives an additional amount Capped royalties - the maximum amount the licensor will pay 34

35 Sales forecast Licensor and licensee must agree on the sales forecast Foundation for calculating royalties Year 1 Year 2 Year 3 Sales $200,000 $240,000 $288,000 Royalties $10,000 $12,000 $14,400 If actual sales exceed the forecast, the licensor will receive additional royalties (up to the capped amount) If sales are lower, the licensor will receive the agreed minimum 35

36 Payment schedule Payment schedule is essential The licensee provides a royalty statement and the licensor cuts an invoice Royalties are typically paid quarterly Minimum annual royalties - 50% of the amount is often paid at the beginning of each year 36

37 Brand licensing success factors Licensing is a strategic alliance - success depends on finding the right partner Other key success factors include: Continuous innovation to ensure a win-win value proposition for both sides Proactive management - from finding the right partner to monitoring quality of production, distribution and marketing 37

38 Proactive management Dedicated personnel and resources Clear strategic plans and policies regarding licensing Clear guidelines and criteria for licensees selection Carefully drafted licensing agreements 38

39 Brand licensing management Export Component Manufacturer Own brand Brand Brand Licensing Wholesaler Retailer Contract manufacturing 39 Private label

40 Brand licensing agreements Know-How Training 40

41 World Intellectual Property Organization WIPO was established in 1967 An agency of the United Nations Headquartered in Geneva, Switzerland Dedicated to protection of IP around the world (policies, guidelines, training, dispute resolution) Focused on improving IP management in SMEs 41

42 World Intellectual Property Organization Every business should create an IP management system and strategy, and integrate the IP strategy into the overall business strategy WIPO Report, Intellectual Property for SMEs, 2015 Objective: to extract maximum revenues from IP assets in new international markets, market segments or new distribution channels 42

43 Franchising 43

44 Franchising Business format franchising Brand distribution franchising 44

45 Business format franchising The brand owner (franchisor) licenses to another party (franchisee) the right to use a particular business model including business process and the intellectual property associated with it Franchisee sells the goods or services according to practices outlined in a franchise agreement (fast food restaurants, hotels, other services) 45

46 Origins of brand distribution franchising 18th century tied houses in England 46

47 Origins of brand distribution franchising French wool producer La Lainiere de Roubaix, 1920s 47

48 Traditional brand distribution franchising A branded product manufactured by the franchisor is sold to a franchisee who, in turn, sells it to consumers under the trademark of the franchisor. The franchisor creates distribution for its products through a network of affiliated dealers or franchisees. The franchise network works like a large retail chain. 48

49 Traditional brand distribution franchising Franchisee sells the franchisor s products on an exclusive or semi-exclusive basis Franchisee has complete independence in running the business (including appearance of the business, business practices, etc.) Lager ticket items requiring services (cars, farm equipment, gasoline) 49

50 Traditional brand distribution franchising Franchisee pays an initial franchise fee for the right to enter the franchise network Typically, no ongoing royalties are paid to the franchisor Franchisor derives a stream of revenues from product sales to the franchisee 50

51 Modern franchising Benetton Contract manufacturing Export Benetton distribution centers Design Fabric dying Export Garment pieces 100 countries 6,000 franchise stores 51

52 Franchising Benetton Benetton s franchisees: Carry exclusively the Benetton brand but pay no royalties Follow corporate guidelines regarding the look and layout of the store, pricing and merchandising Receive strong marketing and advertising support 52

53 Franchising - Zara Design Contract manufacturing Zara Distribution Export 2,220 stores in 93 countries 53

54 Franchising - Zara Zara s franchisees: Carry exclusively the Zara brand Must strictly follow corporate guidelines regarding the store layout, the look of the store, merchandising and pricing Receive a steady flow of fast fashion twice a week in small batches 54

55 Franchising - Zara Standard elements: Product selection modified because of: Locations Window displays Interior design Store layout Customer service 55 Cultural differences Sizes Legal requirements Seasonality around the world

56 Franchising - Zara Russia Poland S. Korea Turkey Saudi Arabia Romania India Indonesia Colombia UAE Argentina Chile Philippines Lebanon Kuwait Zara s franchise stores by country Not all inclusive

57 Franchising - Mastermedia Mastermedia wholesale distributor of food products from Poland Established in 2006 to export food products directly to retail stores in the United Kingdom Expanded to the Netherlands, Belgium and Germany 57

58 Franchising- Mastermedia Started a franchise retail strategy to enhance the export strategy Personnel hired and new store concept developed focus on attractive and efficient shopping environment Frequent deliveries, high quality products and friendly service 58

59 Franchising- Mastermedia Three-month training program Assistance with store set-up and special events for store openings Ease of placing and tracking orders, twice weekly deliveries Preferential sales terms Marketing support Assistance with category management and store optimization 59

60 Franchising- Mastermedia Export Complete product United Kingdom Warehousing Distribution A portfolio of branded food products from Polish manufacturers U.K. Netherlands 120 franchised stores 60 Germany Belgium Netherlands

61 Franchising- Mastermedia Export Complete product United Kingdom Warehousing Distribution Germany Feedback loop Expanding product portfolio to meet local needs growing exports 61 Netherlands

62 International franchise development Direct franchising Area development agreement Master franchise agreement Area representative Subsidiary Joint venture 62

63 International franchise development ADF outlet Area Development Franchisee (ADF) ADF outlet ADF outlet Warehousing Distribution Development of outlets owned by the Area Development Franchisee Country or regional warehousing and product distribution 63

64 International franchise development Franchisee Master Franchisee Franchisee Franchisee Warehousing Distribution Recruitment and training of franchisees Country or regional warehousing and product distribution 64

65 Area Representative Area director, area development agent Contract between the franchisor and the area representative for franchise development services Direct contracts between the franchisor and individual franchisees Responsibilities: recruitment of franchisees, training and support 65

66 Conversion franchising Conversion of independent dealers or unaffiliated businesses into franchisees Business people already in the industry as opposed to those looking for new business opportunities in an industry new to them 66

67 Rocky Mountain Chocolate Factory Manufacturer of chocolate candies and other confectionary products, est First company-owned retail store opened in 1981, followed by the first franchise store in Went public on NASDAQ in 1985 In 2017: Domestic franchise stores Co-branded franchise stores International franchise stores Company-owned stores

68 Rocky Mountain Chocolate Factory Franchise stores drive demand for: Company manufactured chocolate products (53%) Company supplied ingredients for products freshly-made made in the store (47%) Combination of brand distribution and business format franchising 68

69 Rocky Mountain Chocolate Factory Revenues in 2017 Factory sales* Retail sales (own stores) Royalties and franchise fees Total: $25,423,000 (66%) $ 4,452,000 $ 8,419,000 (22%) $38,294,000 *Factory sales - franchise stores (70%) and others (30%) 69

70 Rocky Mountain Chocolate Factory Canada 64 stores S. Korea 18 stores Export Japan 5 stores Exports of products and ingredients U.A.E 4 stores Philippines 94 international franchise stores 70 3 stores

71 Rocky Mountain Chocolate Factory Contribution of international sales: Factory export sales $4,525,000 Royalties and franchise fees $2,172,000 Total: $6,697,000 18% of total revenues New international markets being targeted include Mexico, Australia, India and Indonesia 71

72 Rocky Mountain Chocolate Factory New innovative solutions: Co-branded stores with Cold Stone Creamery - as an option to reduce initial investment and operating expense Developing smaller store formats kiosks (250 sq. ft.) for different locations and lower investment levels 72

73 New retail concepts Pop-up stores 73

74 New retail concepts Mobile outlets 74

75 New retail concepts Vending machines 75

76 New retail concepts Vending machines 76

77 New retail concepts Internet merchants 77

78 Franchised retail distribution Export Complete product BRAND Master Franchisee Warehousing Distribution Franchisees operate retail pop-up stores 78

79 Craft beer brand licensing & franchising Brand licensing Master Franchisee Consortium of craft brewers Contract manufacturing Complementary product range Franchisees operate mobile retail outlets 79

80 Franchised retail distribution Brand licensing Master Franchisee Farmer s Fridge Contract manufacturing 80 Warehousing Distribution Franchisees operate vending machines

81 Franchised retail distribution Exporting Brand licensing Brand Master Franchisee Contract manufacturing Warehousing Distribution 81

82 Benefits of franchising Fast expansion of brand distribution at low cost Franchise network drives demand Control over the retail concept, brand merchandising and marketing Being close to the end consumer new product ideas, growing product range New revenue streams from franchise fees and royalties 82

83 Franchising vs. distributors Distributor s customers Distributor Warehousing Distribution Franchisee Franchisee Master Franchisee Franchisee Warehousing Distribution Franchisee 83

84 Exporter-distributor relationship Exporter Little control over the distributor s activities and business conduct Limited contact with end customers Distributor Represents multiple suppliers No retail locations of their own 84

85 Exporter-franchisee relationship Franchise agreements specify how to conduct business, merchandise the product and market the brand Greater common interest mutual vision and dedication of independent business people who buy into the system Franchisees are much closer to the market and can provide valuable market information to the franchisor 85

86 Franchising Inglot Cosmetics Inglot Cosmectics Polish manufacturer of cosmetics Value proposition - The Freedom System From wholesale distribution to franchised retail distribution Standardized store layout and overall look No royalties, no franchise fees 86

87 Franchising Inglot Cosmetics Export Products Franchise stores Export Store displays 87

88 Franchising Inglot Cosmetics Europe Middle East U.S and Canada Russia Africa 50 S. Africa, Namibia, Nigeria, Angola, Ivory Coast, Morocco, Tunisia, Libya 566 franchise stores around the world Asia India, Nepal, Kirghizstan, Turkmenistan, Kazakhstan, S. Korea S. America 53 Colombia, Peru, Chile, Argentina Caribbean islands 88

89 Franchising Inglot Cosmetics Total revenues (2016) Export sales Net profit from export $77,000,000 $58,000,000 (75%) $11,000,000 (20%) In 2016, revenues from export sales to the franchise stores around the world accounted for 75% of total revenues 89

90 Financial terms Initial franchise fee - usually a lump sum payment due upon the execution of the franchise agreement Profit on merchandise sales to franchisees Royalties on retail sales (in business format franchising). Typically 5-9% of gross sales. Advertising fees collected from franchisees for advertising programs, according to specified terms and conditions (typically around 3%) 90

91 Financial benefits of franchising Company-owned stores: 1,550 Revenues: $1.69 billion Expenses: $1.42 billion Pre-tax profit: 270 million (16%) Franchised stores: 4,550 Revenues/royalties: 486 million Expenses: 78 million Pre-tax profit: $408 million (84%) Source: WIPO Presentation: Different types of franchises 91

92 Franchising key success factors Franchising is a strategic alliance - success depends on finding the right partners Close cooperation between the franchisor and franchisees (training, marketing support, new product development) Proactive management 92

93 Proactive management Dedicated personnel and resources Clear strategic plans and policies regarding licensing Clear guidelines and criteria for franchisees selection Carefully drafted licensing agreements Detailed Operations manual 93

94 Franchising management Export Complete product Master Franchisor Brand Franchising Area Development Franchisor Brand Licensing Contract manufacturing Export Component 94 Traditional Pop-up Mobile

95 Franchise agreements Know-How Training 95

96 Transfer of know-how Operations Manual is a standard tool used to transfer know-how in franchising: o A detailed description of operating methods and procedures to replicate the franchise/brand concept o Quality standards in all aspects of a franchise operation 96

97 Training Initial training o Rocky Mountain Chocolate Factory Chocolate University, a week-long on all aspects of store management o Mastermedia - extensive training on store management, marketing, placing and tracking of orders etc. Continuous training - internet, classroom, on-site o Mastermedia Food Plus Retailer Academy; updates on the franchise system, best practices and retail trends 97

98 Dispute resolution WIPO is recognized as a neutral international dispute resolution provider Administers dispute resolution procedures under the WIPO Mediation, Arbitration and Expedited Arbitration Rules 1,500 mediators and arbitrators from all over the world WIPO Electronic Case Facility 98

99 Legal issues Laws and regulations regarding licensing and franchising differ by country seek legal advice in specific countries Brand licensing and franchising take place all over the world legal issues should not be a deterrent for U.S. exporters 99

100 Brand licensing and franchising Clear strategic plans, policies and procedures Consider all available building blocks for strategy development Proper resources (personnel, financial) A network of tested partners international legal advice and IP protection 100

101 Brand licensing and franchising Enter new international markets Create new distribution channels Create new revenue streams Increase export sales 101

102 Contact information Mark Wocial, MBA, CGBP e wocial-associates@att.net t