Alberta’s booming economy has made the province a promised land for franchises
by Tim Querengesser
Franchising has an interesting history in Alberta. Some of Canada’s most successful franchise concepts got their start here. Consider Boston Pizza, which started in Edmonton in 1964, the same year that Tim Hortons popped up in Hamilton, Ontario. In 1971, Alberta also became the first Canadian province with franchise legislation, and remained the only one until 2001. And each of the six provinces to adopt franchise legislation since has used Alberta’s law as a model.
But while Alberta’s robust economy, its favourable legal environment and its cultural openness towards franchises might seem to make it an ideal place to run such a business, it’s not as easy as it might appear. Many new franchise concepts fail here, while others that have been successful in other markets – think “breastaurant” concepts like Hooters or iconic U.S. brands like Krispy Kreme Doughnuts – have failed to find traction and been forced to retreat.
Welcome, then, to the wonderful world of franchising in Alberta, a place that offers up both risk and reward to those willing to seek it. We hope you enjoy your stay.
Jasper Avenue in downtown Edmonton, is Main Street for what looks like Franchise Land, a place otherwise known as Alberta. In 30 blocks a passerby will see not just Subway and Second Cup franchises, but endless homegrown ones – two Wok Box stores (including the original), a Press’d Sandwich shop, a Booster Juice, a Famoso Neapolitan Pizzeria, two Ricky’s All Day Grills and a Boston Pizza, the now-international franchise, its first location started only 25 blocks away in 1964. The gaps don’t appear to be filled by independent retail, either, but by franchise imports. Here a Mucho Burrito or a Jugo Juice. There a Mongolie Grill or a Pita Pit.
But are franchises really more plentiful in Alberta than other parts of Canada, or does it just look that way? According to the Canadian Franchise Association’s 2013 Franchise Canada directory, 69 franchise systems are headquartered here. That represents about 10 per cent of Canada’s total franchises, in line with Alberta’s percentage of Canada’s population, according to Kenny Chan, a spokesperson with the association. On the other hand, Chan says more than 52 per cent of franchise systems are headquartered in Ontario, and 18 per cent are based in British Columbia. Both these figures exceed population percentages. Of course, the number of franchise headquarters in a province does not equal the total number of franchises. But even on that front, Alberta isn’t noteworthy, says Daniel Zalmanowitz, a franchise lawyer with Witten LLP in Edmonton. Indeed, Zalmanowitz says there are just a handful of franchise lawyers in Alberta, yet dozens in similarly populated B.C. and hundreds in Ontario. This suggests, he says, that the appearances are wrong, that Alberta is not Franchise Land.
Or is it? After all, numbers also suggest that Alberta is only getting started with franchises, especially food concepts. In 2012, the province’s franchise-dominated food-service sector led sales growth in Canada, at 8.9 per cent versus the year before – and 2011 was no slouch. In fact Alberta led the provinces in sales growth in 2011, too, at 7.6 per cent, as well as in per capita commercial food-service sales, at $1,897.93 (nearly $200 higher than second-placed B.C.). Another number to consider is revenues: One national franchise owner in Alberta says revenues from his Alberta stores are fully 30 per cent higher than stores elsewhere in Canada. And a closely related factor to that is consumer support for franchises and their close cousins, chains. How does Alberta fare? It tops the country. A 2011 Statistics Canada survey found that operating revenues in Alberta’s retail trade sector attributable to chain stores (one with four or more locations) stood at more than 50 per cent, or “well above the national average.”
While some numbers suggest Alberta isn’t as franchise fanatical as it appears, they also say it’s only starting what could be a future fanatical franchise story. And the reasons behind that are surprising. Why, after all, if Alberta is a province unique in Canada for its “entrepreneurial spirit” (each person interviewed for this story pointed to it) are Alberta entrepreneurs choosing franchises, with their profit-eating licence fees, over independent business concepts? The reason, say experts, is an interesting mix of capitalism, entrepreneurial zeal and conservative caution. And that may indeed be unique to Alberta. And it may be partly responsible for a fanaticism for franchises both now and into Alberta’s future.
Demographics are behind franchising’s rise as an entrepreneur’s business choice in Alberta, says Ron Smith, the Calgary-based author of Open for Business: An insider’s guide to franchise ownership in Canada. Alberta’s fertility is on the wane and life expectancies are increasing, and this leads to an aging population – the province’s median age is now 36 years and fully a quarter of residents are aging baby boomers. And that’s key to understanding people choosing franchises as businesses, Smith says. “A lot of folks who look at starting their own business here will tend to look into something a bit more structured,” he says. The reason is age: when a boomer leaves his job to pursue a dream of business ownership, “That’s when the franchise conversation really comes up,” he says. “They’re saying ‘I don’t have that new widget and I don’t know what else I would do, but I want to start my own business where I can call my own shots. But I want a formula, I want a system.’ ” Yet are boomers really the main group getting into franchising? Smith says they’re more likely to, as they have the financial capability. And the sentiment is backed up by Barry Arndt, co-owner of the Boston Pizza empire. “First and foremost you can’t get financing for a ma and pa operation,” Arndt says. The reason is that independents struggle while businesses like franchises with proven track records typically don’t. “The franchisees and franchisors have that history behind them,” Arndt says. “Lower risk, higher reward.” In short, if you want to go into business for yourself in Alberta, a franchise is still a great way to do it both for you and for your lenders.
The First Chatters Hair Salon was not in Alberta. It was in Regina. But the second, opened in 1990, was in Red Deer; the next was in Spruce Grove in 1992; and the next after that, well, you get the picture. The reason the chain grew from Alberta and not Saskatchewan was a major reason behind much of the proliferation of franchises in Alberta – the province’s hot economy. “We just joined on that [economic] bandwagon,” says Jason Volk, CEO of Chatters (and its spinoff male hair salon concept, Tommy Gun’s Original Barbershop). “The economy was booming out here.” The company is now headquartered in Red Deer, and Volk says Alberta’s favourable taxes and “ideal” transportation linkages east, west and south, help him run the business, which has expanded to 113 stores across Canada. Nowadays, only 40 per cent of the company’s franchises are in Alberta but they pull more financial weight than their counterparts. “The Alberta stores outperform the other provinces by about 30 per cent, on average,” Volk says. “Our best stores are in Alberta because there are markets like Fort McMurray, Grande Prairie and Red Deer, where the oil and gas impact is more significant and there’s a higher percentage of disposable income.” The number one store in the entire chain is in Fort McMurray, he says.
But aside from the tax regime, there’s also a favourable legal environment for franchises in Alberta, says Gregory Kopchuk, a business coach at ActionCoach Canada’s Edmonton location, itself a franchise. While Alberta’s entrepreneurial spirit is “probably better than anywhere else in the country,” Kopchuk says, laws are key to understanding franchise proliferation. Alberta was the first Canadian jurisdiction to introduce franchise legislation in 1971. Alberta’s legislation was updated in 1995 to remove some government oversight, and these changes were largely adopted when Ontario and three other provinces (B.C. is in progress to join this group as well) created their own laws, beginning in 2001. The legislation now offers both sides of a franchise relationship a level of certainty that’s lacking in jurisdictions like Quebec, where no franchise laws exist, but also offers flexibility that’s missing in the U.S., where rules are far tighter, Kopchuk says. Alberta’s legislation has also been emulated in Eastern Canada, and this, potentially, means a franchise starting in Alberta can expand eastward with ease (or vice versa), as the disclosure documents, financial statements and other legal requirements are transferable.
Is the legal framework that Alberta built for franchises leading to more starting up or immigrating here? Daniel Zalmanowitz, the franchise lawyer, isn’t convinced. He points to the number of franchise lawyers here as proof. Still, Zalmanowitz does note franchises can appear more prominent on Alberta’s city streets than other parts of Canada. His explanation is that downtown Alberta was ground zero for franchise claims in the recent past. “They would have staked out their territory initially” in Alberta’s downtowns, Zalmanowitz says. “They would have had their flagship [franchise] initially on those high-profile locations, and they would have done their [expansion] closest to them.” To understand how this expansion pattern plays out in making franchises visual, he points to Tim Hortons, which started in 1964 in Hamilton, Ontario. “If you ever walk around Hamilton, it’s got the most dense number of Tim Hortons – you wouldn’t think that a population could soak those up.” Change the franchise for an Alberta-headquartered one and you’ve got some answers about their numbers, he notes. Add in the large amount of remaining greenfield sites for franchises to build on and you have a great formula for continued growth. And why do we support our franchises so vehemently? “Hometown pride,” he says. “The feeling of ‘That came from us.’ ”
Alberta is fertile ground for franchises to start and thrive, thanks to its hot economy. But that also creates risk, says Christian Bullock, one of the Albertan founders of the Famoso and Wok Box franchise chains. “The franchising system is actually very flawed,” Bullock says, pointing to a lack of support as the primary reason. “When there’s a hot market, every brand known to man is going to flood to Alberta and not necessarily do enough homework. There are maybe people taking too many opportunities [and] there’ll be a lot of carcasses left in Alberta when it’s all said and done.” Bullock speaks from experience: The Wok Box chain, started in 2004, has seen significant contraction. “We were at 65 [stores] at one time; we closed probably 30 per cent of those. That means 30 per cent of those people lost a lot of money.”
Another looming problem, says Smith, is Alberta’s preoccupation with food franchises. He says 80 per cent of the calls he fields about franchising are about food. These models are the ones “people seem to get here in Alberta,” he says. “But from a franchise consultant perspective, it’s extremely frustrating whenever somebody calls and says ‘I want to buy a Tim Hortons.’ I’ll say, ‘Why?’ and then they’ll answer, ‘Well, I like coffee. There’s one on every corner.’ A lot of folks will stop there and won’t dig to the next level, which is finding a concept that really is an amazing Alberta success story that people can make a good living without having something like big leases and lots of staff.” He says the visibility of food franchises means many wanting to enter franchising don’t see the home-based franchises, which he says are booming. “They’re happening in homes, not on the main streets in Edmonton or Calgary,” Smith says, pointing to franchises like Tutor Doctor, Young Rembrandts and several concepts for senior nursing services. The reason food continues despite these successes, he says, is Alberta’s “copy-cat business mentality.” It’s more prevalent than elsewhere in the country, Smith says, and with food booming, it could also be reaching the saturation point.
But Arndt says the reason Alberta is a great place for franchises is this particular moment in its business evolution. Edmonton and Calgary are “new frontiers” compared to the established retail bases in Toronto, he says. In bigger, older places like Vancouver, Toronto, Montreal, “There are definitely more independents in those markets [than in Alberta] because they’ve been around a lot longer; they’re more established.” Time will tell if that’s Alberta’s future, or if an aging population and an inherent entrepreneurialism mixed with conservatism that seems to result from it, will only see franchises become more plentiful.