White Spot Restaurants opened its first Triple O's location in mainland China July 28 and plans to open another 15 restaurants in the country within the next four years.
The move is part of the rapid expansion of the company's Triple O's brand in Asia through franchise agreements.
White Spot aims to avoid some of the pitfalls that have resulted in other food chains failing when their executives attempted to franchise in the Middle Kingdom.
Unlike Blenz Coffee, which opened 20 locations in cities across China in the early 2000s before beating a hasty retreat, White Spot's strategy is to target a single Chinese province – Zhejiang near Shanghai – and grow from there.
"China is vast," stressed former Blenz Coffee president George Moen.
"Companies franchising in China should give the partner a test market to prove themselves. That way, if the partnership goes sideways, you don't block yourself from seeking other potential lucrative partnerships in other parts of the country."
Moen added that, in retrospect, Blenz should also have:
•done more thorough due diligence of its Chinese partner;
•asked for a larger initial up-front payment; and
•more thoroughly explained and stressed the terms of the Blenz franchise agreement.
Moen said that one of the Blenz master franchisor's many breaches of the company's franchise agreement in China was the use of contraband coffee and other products.
"China is still the wild west when it comes to franchising," he added. "Franchising only became a legal business model a couple of years prior to us going in."
He said the result is that Chinese entrepreneurs are not accustomed to paying royalty fees for corporate support.
White Spot president Warren Erhart said his team has done extensive due diligence on the company's China-based partner, Ibull Investments owner Michael Guan. He added that White Spot chose Guan to be the Zhejiang province master franchisee after rejecting requests from several other interested parties.
"We'll have a total of four new openings this year in Asia: two in mainland China and two in Singapore," Erhart told Business in Vancouver.
All of White Spot's six Triple O's restaurants in Hong Kong are franchised. So is the chain's only Singapore location, which opened earlier this year. Erhart's plan is for Singapore franchisee Jun Sugandhi to open four locations by 2014.
Triple O's has been in Hong Kong since 2003 thanks to a partnership with master franchisees Cynthia and Sidney Suen, who own six locations there.
The Suens also operated a Triple O's in Bangkok, Thailand, until rioters involved in anti-government demonstrations burned it down in 2010.
The Suens never rebuilt their marginally profitable restaurant.
Erhart cites two lessons from the Bangkok experiment:
•don't have a single store orphaned in a country where there's no strategy to open nearby locations; and
•have a local franchisee rather than one based in another country.
White Spot sent a team from Canada to China several months ago to ensure that food preparation and quality at the new Chinese restaurant will be the same as it is in Canada.
White Spot operates 65 Triple O's fast-food restaurants, 58 of which are in Canada. It also has 65 full-service White Spot restaurants.
Approximately half of White Spot's full-service restaurants are franchised, but the lion's share of its Triple-O's restaurants are franchised.
The company is also expanding in Canada.
In the past year, White Spot has opened new full-service restaurants in Surrey, Edmonton and at Vancouver International Airport.
Another two are under construction: one in Langford near Victoria and the other one in Penticton.
Triple O's locations have also opened in the past year at the University of British Columbia, on 200th Street in Langley and on Coquitlam's United Boulevard.
Erhart said the new openings have come despite a tough economy, harmonized sales tax (HST) complications and tougher drinking driving regulations.
"Between the full service and the Triple O's, we're opening about 10 restaurants each year." •
