Franchising's Global Opportunity

Continued urbanization around the world has opened new, vibrant markets on every continent.

By Carlos Herrera

Throughout history and for multiple reasons, humanity has progressively moved to the village, the township, the city, in other words, the world has become more urbanized. If nothing else, the exchange of goods and services is facilitated due to the physical proximity of the receiver and the supplier of said goods and services. For franchising, this is the world’s most important trend. It represents a tremendous opportunity to grow franchised businesses around the world.

There are several diagrams in this article that are sourced from a tool called Gapminder1. Gapminder is the brain child of Hans Rosling: physician, academic, statistician and public speaker. He died in 2017 but his children continue to further his thoughts and ideals through the Gapminder Foundation.  In the diagrams accompanying this article, each bubble represents a country, the size of the bubble is proportional to its population. Additionally, each region of the world is highlighted in a different color: yellow for the Americas, orange for Europe, red for Asia, green for the Middle East and North Africa, light blue for the Indian subcontinent, and dark blue for Sub-Saharan Africa.

Back to our story on the most important trend in the world today: urbanization. The vertical axis in Figures 1 and 2 shows the percent of the population of each country that lives in urban centers. Figure 1 shows how much of each country’s population lived in urban centers in 1960 while Figure 2 shows the same data in 2017. The big red bubble is China, which in 1960 was 16 percent urbanized. By 2017, Figure 2, China was 58 percent urbanized. This means that in China alone, hundreds of millions of people have moved to the city. The largest bubbles are: the United States in yellow, Russia in orange, China in red, India in light blue, Nigeria in dark blue.

If you compare Figures 1 and 2, you can see that the whole world is shifting upwards in the urbanization scale, meaning that a large portion of the world’s population is moving to the city. I have added the rectangles and the labels to highlight the shift. One of the most beautiful features of Gapminder is that it allows you to see the evolution in a dynamic way. Here, I can just show you the initial state and where we are most recently, two snapshots, but in Gapminder you can see the full evolution from 1960 to 2017.

You may have noticed that the bubbles are not only moving up but also moving to the right. The horizontal axis in these diagrams is the income per person (gross domestic product per capita in $/year adjusted for inflation and prices). The bubbles moving up and to the right show an important correlation: that, when we move to the city, income generally goes up.

Figures 3 and 4 display urbanization in the vertical axis and the average life span on the horizontal axis. By comparing these two charts, we can appreciate a second relevant correlation, when we move to the city we generally live longer.

The main reason for this correlation is likely that doctors, pharmacies, hospitals, etc. are more available and accessible in the city. In a rural environment, these are either not available or hard to access.

The driver behind these improvements is the access to markets as well as to all kinds of services. Our job in the city is typically not very close to our place of residence, and so we must commute. There is no time to cook, and we need markets, street stalls and restaurants to provide the sustenance that we need during the day. Additionally, food markets provide a continuous supply of vegetables, proteins, and partially prepared foods for when we have little time to cook.

So when we move to the city, generally speaking, our income goes up and we live longer. In the city, we cannot provide for all our needs by ourselves. We need the help of others, but importantly, we now have the income to pay for it. Other city dwellers specialize in producing the products (food, shoes, clothes, etc.) or providing the services (car repair, dry cleaning, etc.) that we need. And while initially these are small individual businesses, the increasing size of the city generates opportunity for expansion, e.g.: branches, franchisees, etc.

The global move to the city over the last 50 plus years has created a golden opportunity for franchising around the world.

Many businesses in the U.S. have developed over this period the equipment and the processes that facilitate expansion through franchising and are now set to take advantage of this opportunity.

Carlos Herrera is the leading economist for Coca-Cola North America Foodservice and On-Premise division. He regularly shares his insights on the impact of the economy on consumers and the restaurant industry with the executive leadership, boards of directors and franchisees of leading foodservice companies around the world. Learn more about Coca-Cola here.

Certain graphs and commentary in this article are based on free material from GAPMINDER. ORG, CC-BY LICENSE; www.gapminder.org.