❓ How to Handle Foreign Franchises
Posted: Aug 10, 2025 | Updated: Aug 12, 2025
Corporate structures in Canada vary widely: domestic or foreign ownership, independent or multinational scale, retail storefronts or direct-to-consumer models, product-based or service-oriented enterprises. This diversity makes the task of The CANADA List particularly challenging. Our goal is to estimate each company’s economic contribution to Canada on a 1–10 scale that is both fair and consistent, but doing so across businesses/sectors with widely varying structures isn’t always a simple process.
Among the most complex cases we face are foreign franchises.
On one hand, they remain tethered to foreign parent companies, with a share of their revenue flowing abroad through franchise fees, royalties, advertising levies, and/or the forced purchase of certain ingredients or materials. In addition to these direct financial outflows, there is the (weighty) issue of lost autonomy in decision-making around menus, sourcing, manufacturing, logistics, etc.
On the other hand, each location is typically a locally-owned franchise, operated by a local businessperson, who employs local staff, often makes efforts to source or produce within Canada, and retains a majority share of that location's profits.
Should these businesses be penalized because of their foreign ties, partial revenue outflow and reduced autonomy? Or should they be lauded for their local ownership, domestic sourcing and partial profit retention?
This is a dilemma that has been on our radar for some time. But it came into sharp focus this week, as we focused on the pizza sector (where several foreign franchises dominate), during which it came to our attention that we were likely underestimating the local ownership and economic contribution that these franchises provide.
We thus spent a lot of time this week thinking through this issue, with the aim of developing a formalized strategy for handling foreign franchises that:
- Maintained the essence of our existing scoring system
- Fairly acknowledged both the strengths (local ownership, significant profit retention) and weaknesses (franchise/royalty fees, reduced autonomy) of the franchise model
To anticipate: after considerable reflection, we’ve established a new scoring policy that we believe strikes the right balance. FYI: this has led us to raise CANADA Scores for a number of foreign franchises – sometimes by as much as 4 points. We encourage you to read beyond to understand the rationale for our new policy, and also to review The CANADA List to see the updated scores of affected franchises (also listed at the bottom of this article).
Our Approach
After considerable reflection, we have established the following formal policy, which we believe strikes the right balance:
Foreign franchises will be assessed as Canadian-owned businesses, but with two points deducted from their assessed score to account for their foreign connections.
The logic behind this scoring process may not be immediately intuitive, so let us break it down further and explain how it works in practice:
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We begin by assessing the foreign franchise on the same 10-point scale that we use for assessing any other company. However, our starting position is that the locally-owned franchise should be assessed as a Canadian-owned business. This means that the starting score for these franchises is generally going to fall between 7–10, which are the scores we designate for Canadian-owned businesses.
Thus, as with any other Canadian-owned business:
- A franchise with near-complete Canadian manufacturing and sourcing would be awarded a 10.
- A franchise with strong, but incomplete, Canadian manufacturing and sourcing would be awarded a 9.
- A franchise with partial Canadian manufacturing and sourcing would be awarded an 8.
- A franchise that outsources the majority of its manufacturing and sourcing would be awarded a 7.
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Following this assessment, foreign franchises will then generally be subject to a 2-point deduction, for the following reasons:
- One point will be deducted to reflect the ~10–20% of sales that are typically remitted to the foreign parent through franchise-related fees.
- One point will be deducted to reflect the reduced control that the local franchise has over key decisions such as menus, recipes, sourcing, manufacturing, and logistics.
In practice, what this means is that Canadian-owned foreign franchises will generally receive a CANADA Score between 6–8, depending on the royalties remitted to other countries, and on the level of domestic manufacturing/sourcing that they integrate into their supply chain. However, in rare cases, foreign franchises may receive as low as a 5 or as high as a 9, depending on the unique characteristics of their franchise relationship.
Example: Bob’s Pizza
To outline the process further, we use Bob’s Pizza as a fictitious example of a foreign-owned company with locally-owned franchises in Canada. Consider Bob’s general process:
- All Canadian locations are independently owned franchises.
- Dough, cheese, and some meats and vegetables are sourced domestically.
- Sauces, certain frozen ingredients, and packaging are generally imported.
- Standard franchise fees are paid to the U.S. parent company.
- While some decisions are made locally, they remain within limits set by the parent brand.
Applying our scoring system:
- As a domestically owned business with strong but incomplete Canadian sourcing, Bob’s Pizza would be assessed a preliminary CANADA Score of 9.
- Following the two-point deduction for foreign franchise fees and reduced autonomy, Bob’s Pizza’s final CANADA Score would become 7.
Placing This in Context
It may be instructive to consider these scores within the context of our existing 10-point system:
- A score of 6 is generally assigned to foreign-owned companies with very significant manufacturing, or a very significant retail footprint in Canada.
- A score of 7 is generally assigned to Canadian-owned companies that have moved the majority of their manufacturing overseas.
- A score of 8 is generally assigned to Canadian-owned companies that have a significant retail footprint, or that have retained partial manufacturing or sourcing in Canada.
By this measure, a 7 for Bob’s Pizza seems proportionate: it’s higher than a foreign-owned manufacturer, as ownership and much spending remain in Canada, but lower than a Canadian-owned business.
Moving Forward
As with other aspects of our scoring system, this framework for foreign franchises may continue to evolve. However, through this evolution, our goals will remain constant:
- To be as transparent as possible about our reasoning
- To be as accurate as possible in our assessments
- To encourage practices that we believe are in the best interests of the Canadian economy
Whether you are a user of our platform or a company featured on it, we welcome your feedback. Thoughtful discussion helps us ensure that our scoring reflects both economic realities and the values we aim to promote.
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