Fresh wave of US franchises set sail for Australia

Patrick Stafford and Michelle Hammond
22 January 2013

A fresh wave of US franchisees will soon descend on Australian shores, including dining chain Denny’s, while an exercise machine created in the US has rolled out an Australian franchise program.

StreetStrider, a cross trainer on wheels that supposedly combines the benefits of jogging, skiing and cycling, was discovered by Shane Martin while he was holidaying in California last year.

Martin told Franchising he knew the exercise machine would be a hit in Australia, so he and his business partner Adam Fletcher began distributing it through their online store.
Keen to test the franchise market, Martin and Fletcher decided to team up with a number of distributors, and recently rolled out a national franchise program.

The franchise model includes a non territory-specific level and two territory-specific levels. All of them include two StreetStrider models, accessories and marketing materials.

Meanwhile, the popular US dining chain Denny’s is now searching for a master franchise, along with ice cream group Rita’s, fondue restaurant The Melting Pot and healthcare firm BrightStar.

The move comes as a number of American businesses have arrived in the past few years, with more such as Pottery Barn on their way.

Grant Garraway of The Franchise Shop is administering the local search process for the four brands, and says Denny’s is now ramping up its approach in the Australia-New Zealand region.

“They were here in the market some time ago, and then withdrew. They’re up to about eight stores now in New Zealand,” he says.

“It’s not an inconsiderable investment that we’re talking about for Australia. It’s a 10-location license.”

The investment itself will require about $5 million in capital, says Garraway, who will be setting up meetings for the company’s representatives.

The arrival of the Denny’s brand is unusual, considering Australia has no long-term connection with the concept of a 24-hour diner.

But Garraway says the company has performed well in New Zealand, where economic circumstances have been worse than they are here.

“It’s done very well to expand to eight stores,” he says.

“New Zealand was affected by the economic crisis more than Australia was, and they’ve had the difficulties of earthquakes and local disasters.”

Denny’s operates more than 1,600 locations in the United States, along with Canada, Japan, Mexico, New Zealand and the United Arab Emirates.

The brand has become famous for never closing – it even stays open on holidays.

The company has also had a good financial run. In the past year, shares in Denny’s Corporation have risen 22.7% and are trading at $US5.19.

The business appointed John C Miller as chief executive in 2010, who has had a substantial amount of success in increasing revenue and profit.

While Denny’s is a returning entrant, The Melting Pot is a brand which was considering the Australian market a few years ago, with no success.

Garraway says several American franchises tend to have a look every few years and decide if the market is worth entering.

“If they don’t, they’ll put it on the backburner. They might advertise in 12 markets, pick up one or two and then just focus on those,” he says.

The arrival of the chains suggests Americans are still interested in the Australian market and its relatively strong economy, which is in much the same situation as it was a few years ago when interest first peaked.

The American economy remains weak, while Australian businesses remain relatively strong.

As a result, the local market has welcomed a number of American businesses – and several have achieved sizeable success.

Apart from big-box retailer Costco, ice cream chain Ben & Jerry’s, hardware chain Lowe’s and clothing chain Gap have all opened stores.

Several more are looking. Lingerie chain Victoria’s Secret is scouting for locations, along with fashion chains Forever 21 and Hollister.

The influx of stores has caused retail rents to rise in several premium location shopping precincts.

Garraway says while American chains may feel uneasy with the more stringent regulation found in the local franchising sector than back home, it does mean they can be assured of solid returns over a long-term period if the company is run well.

“In general terms, they see Australia as a safe environment. It’s much easier to sell a master franchise here than in somewhere like the Middle East,” he says.