Canadian Franchise

Business in La Belle Province – Can You Really Afford to Ignore it?

from Lori Karpman, President, Lori Karpman & Associates Ltd.

Business in La Belle ProvinceI am a born and bred “Quebecoise”, and proud of it. I grew up and was educated in English in the Province of Quebec. I have lived through the turbulence of the sovereignty calls, the language laws, and the economic situation it has created. Notwithstanding all that, I still maintain that any company ignoring Quebec expansion for any of those reasons is doing so as its own risk. Quebecers are the most loyal consumers in Canada. Furthermore, their philosophy and buying habits are aligned with the European way of life, a ‘joie de vivre” not found in any other province. Over the past 25 years as a franchise specialist in a variety of capacities, it always surprises me how the most sophisticated and successful professionals regard this province much like the planet “Mars.” In fact, when I asked the President of a very successful franchise chain why she did not plan to come to Quebec, her answer to me was, I kid you not, “that’s like going to Mars!” Much like NASA grappling with the issue of even if there was confirmation of life and water on Mars do we still want to go? With respect to expanding to Quebec the answer is a resounding “yes”.

A Unique Market

Having had the luxury of doing business in almost all the provinces in Canada, both as franchisor and franchisee, I have come to learn the differences amongst different parts of the country. The first and foremost reason to develop the Quebec market is that one third of the Canadian population lives here. One third- that’s a big number. To me a market that size cannot be ignored no matter what it takes to develop it and yet, this is still not enough of a motivator for most brands. Secondly, Quebecers are the most loyal consumers around. Unlike their counterparts in many other provinces, Quebecers are much less price sensitive as they are value oriented and rate their experiences based on the overall quality of the product or services as well as the service and quality of the supplier.

For example, if you are a coffee supplier to a brand who is then approached by another supplier who can provide the same or equal product at a lesser cost, the brand is not likely to change suppliers if they have a good relationship with their current one, even if they can get the product at a lower cost! It’s the value of the relationship in total that is being assessed, not just the price of the product or service. The same applies at the retail level; stores and restaurants enjoy tremendous customer loyalty if the shopping and dining experience provides value over and above the price, such as excellent customer service, free returns, loyalty programs and the like. Thirdly, given the joie de vivre in our DNA, Quebecers will not think twice about dining out for $150 on a Tuesday night for no particular reason. In many other provinces, a $100 meal is reserved for weekends and special events like birthdays and promotions. What this all translates into is (1) the ability to sell a product or service at a higher price (within reason) than in other provinces. This assumes that you are providing a full and valuable service experience that goes with it, and (2) benefit from the ability to maintain relationships with your customers that are not based solely on the dollar.

This being said, it is true that several franchises have come to Quebec and failed, but those who plan for entry thoughtfully and properly have been rewarded with higher ticket averages, higher royalties, greater brand awareness and very successful franchisees. Although the initial entry price may not be cheap, the undeniable size of the return from market development makes it almost impossible to ignore. Like everything else, it’s all in the planning.

Making the Move

The number one reason concepts fail in their Quebec development is that they do not engage the services of local professionals. Many franchises expand into the province with a tremendously successful marketing strategy from other provinces/states, only to find results are not as successful as anticipated. This is due to the fact that selling in Quebec whether it be franchises or products is different. Quebecers are interested in aspects of a business that may be positives/negatives in other provinces. For example when the proliferation of home based businesses began this was a very attractive and number 1 sales tool used to sell franchises. In Quebec however, when I represented a client with this attraction, I had to advise the client that a home based office is not a positive in Quebec as we are social beings, we like to be in offices, see people, make connections. So a home based office to a Quebecer is isolating and not a big selling point. While this is just one example, there are many more and this is the reason for which engaging local assistance is primordial to a successful expansion.

One way to have local representation is to set up a small regional office in Montreal with a franchising director or regional manager. This establishes a presence in the market, which can be used for meetings and corporate visits. It is also cost-efficient and provides a sense of professionalism and permanence, reassuring to prospective franchisees. Alternatively, there are a variety of franchise consultants who specialize in Quebec development and can meet the needs of any out of province franchisor.

To capitalize on the Quebec market, you must first be willing to make an investment, both in dollars and manpower. One obvious obstacle is the French language, which seems to strike fear in the minds and pocketbooks of senior management. Since French is the official language of Quebec, it must be predominant, even in bilingual materials. Simply stated, language laws require all documents, including the franchise agreement, operations manual, marketing materials and other papers used in the course of business, be available in French. This is a one-time start-up cost of doing business. While it is expensive, the investment is generally recuperated from initial franchise fees over time. Again it is recommended that you use a Quebec translator as the French used here is not the same as that of other countries. Additionally, the Franchise Documents themselves often need some revision to bring them into accordance with Quebec law but the changes are minimal.

Ways to Develop the Quebec Market

Quebec has a vibrant franchise industry with more than 100 homegrown franchise systems, many of which have over 100 franchisees. If planning on entering the province, there are several business models to choose from a few of which are discussed below:

  • Via a Master franchise agreement. In this case the master franchisee steps into the shoes of the Franchisor and provides all services that the Franchisor is obligated to provide, in the province only. Unfortunately, experience shows this model to be unsuccessful, as there is not enough money to be made by each party in a master agreement (at 50/50) where the Franchisor is so close geographically. However, to the extent that the franchisor is willing to lower their share substantially, then this can work);
  • Via an Area development. One or many agreements are made and an individual or corporation is granted several years in which to establish a predetermined number of units in defined territory. This agreement, with a solid candidate who has both general business experience and the financial capacity, is an excellent way to go;
  • Via a Joint ventures. This approach, where the franchisor and Quebec franchisee are partners in a venture for Quebec development, is becoming more popular; and
  • Via Traditional single unit development.

My recommendation to brands coming to Quebec is to operate a corporate store for at least six months to a year. To many, this step is optional, however, I believe if you are going to do business in Quebec, you should fully understand the market and its complexities. The only real way to do that is with a corporate store. Additionally, this gives you a ‘showroom’ from which to sell additional franchises and a cash flow to find franchise development. Later on, this store can be sold, or my preference, it can be kept as a corporate test center.

Remember, what makes a good franchisee in one territory in Canada may not be suitable in Quebec. By having both local representation and preferably a corporate store, you will be best placed to evaluate exactly what qualifications a franchisee requires and if the candidate before you meets them.

Quebec legislation

When entering any new legal jurisdiction, your current contracts have to be reviewed to ensure compliance with the laws of the host province. In Quebec, there is no franchise legislation per se, and there is no legal obligation to prepare or provide a Disclosure Document. However, if you are from a disclosing province, it is always a good idea to provide prospects with your Disclosure Document so that they can have the same information as prospects in other provinces. The caveat is not to sign it. If you do you will be bound by it as you are in other provinces. Generally, it is provided with a cover letter and disclaimer stating that it is not to be relied on. It’s given as a goodwill gesture and because it answers most questions franchisees have.

With regard to specific industry legislation Quebec, like all provinces has regulated industries such as pharmaceuticals, insurance, opticians, travel agencies, real estate brokers, and the like. Insofar as relationships, business or personal, these are all governed by the Civil Code of Quebec. This voluminous piece of legislation governs all relationships and imposes in every contract whether it is stated or not, a duty of fair dealing and good faith in relationships. Quebec is the only province in Canada that has a Civil Code.

Lastly, Quebec’s security legislation while it has a different mechanism and name, achieves the same results as the Personal Property Security Act (PPSA), by granting a right in all movable property. Although, unlike other provinces, commercial landlords have the legal right to—and always do—register a prior charge against all the assets on the leased premises, both movable and immovable. The landlord’s charge is generally equivalent to the value of the gross rent for the term of the lease. The franchisor can still register a security interest, but it will be ranked 2nd to the landlord, or third if there is a bank loan.

The Quebec market is both vibrant and vital. Quebecers love to try new concepts and the idea of being the “first in Quebec” to have a new concept, is a very appealing selling point. Contrary to what you see in the press, Quebec is not in the middle of a hostile civil war on language or anything else for that matter that should keep a franchisor from expanding here. On a day to day basis, it’s business as usual; one third of the Canadian population is willing to reward businesses by shopping more frequently, paying higher prices, and remaining loyal, all in return for a valuable experience and good value for the dollar. There’s a reason why it’s called “La Belle Province”, and it’s a lot closer than Mars!

Lori KarpmanLori Karpman is President of Lori Karpman & Associates Ltd. The only full service management consulting firm that can respond to all the needs of a developing brand, provincially, nationally or internationally.

For more information:
Email: [email protected]

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