Franchising – The Road Abroad™
SEOUL—When Catherine Germier-Hamel arrived in Seoul eight years ago with her husband, a French diplomat, the 45-year-old Parisian and French-bread lover was delighted to find outlets of a store called Paris Baguette on many street corners.
But then Ms. Germier-Hamel bit into her first baguette. The bread was rubbery, she recalls, and “awful.”
“For them to call themselves ‘Paris Baguette’ here in Korea is not a problem. I’d even say it’s funny,” Ms. Germier-Hamel says. “But if there was a Paris Baguette in France, I think I would be upset.”
Paris Baguette now has come to Paris. The new location, the first in France, is within walking distance of both the Louvre and Notre Dame.
Ms. Germier-Hamel says that her compatriots may not take kindly to new concoctions, like Paris Baguette’s popular “cheese sausage pastry,” which wraps a hot dog in a cheesy glazed pastry, smothered in ketchup and mayonnaise.
“Maybe we are chauvinistic, but French people here don’t think there is any French thing in Paris Baguette,” Ms. Germier-Hamel says.
The bakery chain, founded in 1988 by Korean businessman Hur Young-in, says it wants to be to global French-style bakery chains what McDonald’s is to the hamburger. The company’s ambitious blueprint aims to plant stores in 60 countries over the next six years.
Paris Baguette’s management contests the notion that it can’t serve as the face of French-style baking around the world. “There’s no reason a Korean company can’t become the best French bakery chain in the world,” Ahn Tae-ju, a company executive who has helped plan Paris Baguette’s overseas expansion, said in an interview.
In South Korea, Paris Baguette operates about 3,250 outlets, not counting a slew of faux-French affiliates—L’Atelier, Le Pommier, and Petit 5. In countries other than France, including China, the U.S., Singapore and Vietnam, Paris Baguette calls itself a “traditional French bakery” and prominently features the Eiffel Tower in its logo. In its outlets, shop employees working the cash registers wear Breton stripes and berets.
In many cases, the chain has made it overseas by playing down the fact that it’s actually Korean. In fact, many Koreans didn’t know Paris Baguette was a local company until a few years ago, says Mr. Ahn. While the chain’s predilection for sugary baked goods—often heavily glazed and filled with cream—hits the sweet spot with Asian consumers, success in France won’t come as easily.
France is home not only to Paris and the baguette, but also to some of the most demanding bread lovers in the world, people who are famously finicky about a food many consider part of the national identity.
Paris Baguette’s dough is made in a factory an hour’s drive south of Seoul before it is frozen and shipped to the company’s branches around the world, though not yet to France for on-site baking.
So far, none of this has been an obstacle to the company’s growth in Asia and the U.S. But some French expatriates in South Korea wonder whether the company’s success has gone to its head.
“If people in China and Singapore think that Paris Baguette is French bread —from my point of view, I think it’s sad,” says Guillaume Diepvens, a Frenchman whose namesake bakery in Seoul is considered by many expats to be the most authentic in town.
So far, Mr. Hur and his team, keenly aware of the challenges of selling bread to the French, are striking the right tone. “We regard France as the spiritual home of our bakery products,” Mr. Hur said in a statement.
Mr. Hur has also carefully courted the French government, which has made him an officer in the National Order of Merit and a knight in the Order of Agricultural Merit, which entitles him to wear two ribbons for his contributions to French cuisine.
At Paris Baguette’s Paris outlet, which is registered with the Chambre Professionnelle des Artisans Boulangers-Pâtissiers, a local trade group, the company says it aims to “preserve the artisan traditions of its Parisian predecessors.”
At least at first, it will employ only local chefs and use “only traditional French bakery ingredients and methods” at the branch. The stuffed breads and creamy cakes will come later, a company spokesman said.
Paris Baguette found success at home and abroad by offering a local twist on French bread, eschewing soft, salty grains in favor of sweet, gooey confections.
The plan worked, and Paris Baguette’s parent company, SPC Group, grew quickly. The Paris location “looks like a family-owned business,” said Veronique Soenen, a 44-year-old pharmaceutical company worker, as she bit into an éclair au chocolat.
But not everyone is happy about the makeover.
Lee Kang-san, a 23-year-old medical student in Paris, was so excited by the arrival of Paris Baguette that he made a point of visiting the store on opening day in search of the creamy pastries he had come to love in Korea.
“We wanted to taste products we like back home and can’t find in Paris,” Mr. Lee said. “We were a bit disappointed.”
—Inti Landauro in Paris contributed to this story.
Write to Jonathan Cheng at email@example.com
Franchising Is Bringing Jobs to the Developing World
A brighter future: VisionSpring hosts a vision screening for women in India.
Franchising is a powerful business model capable of efficiently delivering to the masses such varied resources as oil changes, emergency medical care, accounting services and jelly doughnuts. But could it do even more? Philanthropists are considering whether the franchise model can be used to bring vaccines, contraception, clean cooking fuel, food and other basic necessities to people in the developing world. The idea, known as social franchising or microfranchising, is beginning to catch on. After a few years of experimenting, the aid community is refining its approach and is ready to make social franchising a major plank in the way nongovernmental organizations (NGOs) assist the world’s poorest regions.
The model is similar to commercial franchising, but the bottom-line goal is not pure profit–although many social franchises do aim to become self-sustaining. Rather, these organizations measure success through the number of people they feed, vaccinate or otherwise serve, and the number of franchisees provided with jobs.
In general, a social franchise, often sponsored by or spun off from an NGO or aid organization (although there are many independent social franchises), creates a network of local entrepreneurs who sell products or services door to door or from their homes. For instance, World Health Partners, a nonprofit launched in 2008 in India, recruits people in remote rural villages with limited access to healthcare. Through cell phones and portable computers, these reps connect their neighbors to a doctor in a larger city for a telemedicine session.
Other franchises offer internet connections or the use of cell phones, fortified dairy products, family-planning materials and even beekeeping supplies. Most social franchises rely on charitable donations or grants to stay in operation, but as the businesses become more sophisticated, many are hoping to reach self-sustainable levels.
Chuck Slaughter, founder of clothing and gear company TravelSmith and an entrepreneur who has helped turn around several international apparel brands, started his social franchise, Living Goods, in 2007, delivering lifesaving products to the poor by harnessing the power of the market. Using what he calls the “Avon lady” model, his crew of franchisees go door to door in villages in Uganda and Kenya, selling basic medicines, healthful foods, high-efficiency stoves, solar lights and other health and safety products.
Living Goods reps go door to door in villages in Uganda and Kenya, selling solar lamps, cookware and other health and safety items.
Photo © Tine Frank
Living Goods provides working capital loans to its agents, who earn sales margins of 15 to 25 percent. The company’s goal, besides improving the livelihoods of its agents, is to treat deadly diseases in children, as well as to improve the health and income of its customers. With local on-the-ground knowledge and a desire to increase their profits, Living Goods representatives often venture into areas that are passed over by aid organizations.
Living Goods isn’t self-sustaining yet, but Slaughter says the franchise is moving toward that goal. Much of that will come from the introduction of private-label products, designed by the company, which will reduce margins. Living Goods is also harnessing technology, using mobile phones and smartphone apps to gather market data that will help sellers market products directly to individual villagers.
“I’ve been doing this for seven years, and we’re structured as a nonprofit,” Slaughter says, “but the longer I’m involved, the fewer distinctions I see between ordinary franchising and what we do.”
A brighter future: VisionSpring hosts a vision screening for women in India.
Photo © Esther Havens
VisionSpring, which sells eyeglasses to people in more than 20 countries, followed a model much like Living Goods when it was founded in 2002. But simply selling glasses wasn’t profitable enough to support sales reps, so the company changed the way it operates: Now the majority of its 15,000 “Vision” entrepreneurs are health workers allied with other organizations. VisionSpring teaches them how to dispense reading glasses, so that selling glasses can become an extra source of income. For the 703 million people who need glasses–the vast majority of them in the developing world–a pair of simple reading specs can improve their quality of life or help them find employment, especially for high-detail work such as weaving.
But VisionSpring also has a second model, one that has seen success in India and El Salvador. Instead of just selling reading glasses, entrepreneurs are associated with an optical store in a larger town. They travel to communities, selling glasses and eyedrops and treating common eye problems but are able to refer more complicated cases to the optical store. “We call it the hub-and-spoke strategy,” says Jordan Kassalow, founder and co-chairman of VisionSpring. “It’s like LensCrafters meets Mary Kay.”
But after years in the nonprofit world helping millions of people, Kassalow is convinced that VisionSpring needs to be a viable business to reach a significant number of the millions more who need vision care.
“If we were a charity, we’d be really proud of ourselves,” he says. “We recover $7 from the marketplace for every $10 we spend. But if we aren’t sustainable, we’ll be scaling those losses as we grow. We don’t want to make ourselves more dependent on charity. We recognize there just aren’t enough philanthropic dollars. Unless we develop a viable business model, we’ll never be able to scale enough to make a dent in the overall problem.”
As Kassalow and his team refine the way they do business, they’re getting close to sustainability. They estimate they will break even in El Salvador this year. In India, they will cover 80 percent of their costs. But the main reason Kassalow wants his business to be self-sustaining is to demonstrate to multinational companies that there are ways to find and sell to the world’s poor, and that the endeavor can be both philanthropic and profitable.
“We’re so small compared to these $8 billion or $10 billion companies. If we help just half a million of the 700 million people who need glasses, we’ll be wildly successful,” Kassalow says. “But if one of these companies sees our success, they can help 100 million people easily. If they came in, we’d feel pretty proud to be the catalyst.”
Living Goods Photo © Esther Havens
Greg Starbird is CEO of the HealthStore Foundation, which franchises 65 CFWshops (the name stands for Child and Family Wellness) in Kenya and 56 One Family Health locations in Rwanda. He’s like to see his business become sustainable but knows he has to be realistic. “Nowhere in the world is healthcare delivered without subsidies of some sort,” he explains. “We are trying to figure out ways to reroute those subsidies into the system so they become revenue for our franchisees.”
The franchisees for CFWshops, typically trained nurses, spend roughly $7,500–a vast amount of money in the region–to open their small-scale drug stores and health clinics, which chiefly serve subsistence farmers in rural areas.
“Our fundamental concept is to provide access to drugs and healthcare through stripped-down drug shops and clinics,” Starbird explains. “Currently, every link in the healthcare chain in the area is severely compromised. There is inadequate information. Assessment is poor. Drugs are substandard. There’s an irrational use of antibiotics. Treatments don’t reach patients. All of this leaves people sick and dying for no reason.
“But it’s not because people are so poor,” he continues. “It’s a systemic issue. In that context, our concept is a standard-format, high-quality, low-cost system that can operate in small clinics. We observed that among business models, franchising seems to maintain brand standards and scale well and does that efficiently.”
Starbird has consulted with members of the business franchise community to help streamline and organize CFWshops, and he believes there’s much more that for-profit franchises could do. “We’re one of the only groups, if not the only, that have worked explicitly with people who have built large franchise systems. We get real operational advice from them,” he says. “I think there are huge opportunities for businesses with social benefits that go beyond the boundaries of NGOs and development work.”
Living Goods Photo © Esther Havens
In fact, this year the International Franchise Association (IFA) will reveal the results of its Social Sector Franchising Task Force. Consultant Michael Seid, a franchise veteran and chairman of the task force, believes there are many ways the for-profit franchise community can help social entrepreneurs.
“Scott Hillstrom, chairman of the board of the HealthStore Foundation, pigeonholed me at an IFA convention a decade ago,” Seid recalls. “I had no interest in social franchising. But after five hours of talking with him, I’d agreed to go to Kenya. He asked me, ‘Have you ever saved a life through your work?’ And I never had. Franchising brings the ability to sustainably and consistently provide quality products and services to populations that have never seen that before.
“Did you know 50 percent of drugs in sub-Saharan Africa are made of chalk?” Seid adds. “Think of that. Social franchising can help control the quality of medicine just like Subway or McDonald’s controls its food. It’s really no different than any other franchise system.”
Seid and the IFA task force are creating a mentorship program that will enable franchising leaders to advise social enterprises. They are also creating model operations manuals and guides for NGOs on how to operate franchises efficiently.
But social franchising is just one strategy in a new world of market-driven solutions to poverty, one that includes micro-credit, social venture capital and more traditional vehicles such as grants. The Skoll Foundation, which supports social-entrepreneur-led organizations, has been so impressed by the impact of World Health Partners that it has invested in leveraging the nonprofit’s microfranchising model to provide energy to rural areas.
“Microfranchising is a tool that may or may not be appropriate, depending on the impact you’re after. It fits into an overall ecosystem. But it’s exciting,” says Sally Osberg, Skoll Foundation president and CEO. “It just shows you that once you unleash the entrepreneurial ambitions in people, there are all types of opportunities to build on.”
Going global: Is your brand ready?
When to take a franchise global is probably one of the most difficult questions for restaurant owners to answer, but a couple sessions this week at the International Franchising Association convention aimed to help buisness owners with the decision.
Three restaurant executives with global success discussed several best practices when it came to deciding when and where to stake international claims. The experts included: Adam Scott, cofounder and COO of Wingzone; Dan Stone, CFE, VP of Franchise Development of Front Burner Brands, which owns The Melting Pot and Burger 21; and Kurt Ullman, CFE, VP of Global Development for Planet Smoothie and Tasti D-Lite.
The men agreed that if done correctly, going global has many perks, including providing new sources of revenue such as initial license fees, unit franchise fees and royalties and making brands less dependent on home markets. Ullman also pointed out that it can lead to an increase of brand value for stakeholders.
Those benefits are reaped, however, only when a company makes a wise decision regarding when and where to expand. Simply moving into a country where a competitor is already operating isn’t enough, said Scott. It’s also not enough to look at a country’s overall economics, even if they are growing. Many of the people making up the population won’t be in a position to spend money on you, no matter how much you target them.
“You can’t look at the entire population,” Scott said. “You only care about who can afford you.”
Adapting to new markets and cultures
It’s important to learn as much as possible about any country where you want to do business, said Stone, who believes that conducting “in-market due diligence visits” prior to executing final agreements is a must.
It’s not enough to just take the franchisee candidate’s word for it; you have to validate what they have shared with you about the culture. While visiting, Stone said to tour and study the differences in the other American brands already operating there.
When Wingstop first went global, Scott hired an expert in international franchising and recommends the same strategy for other brands. It worked for Wingstop, which now has more than 600 restaurants around the world and recently signed a deal to open 50 units in the Philippines.
“I can’t imagine doing that alone,” he said. “He knew all the numbers; he knew the questions to ask; he had taken brands to other countries.”
While it’s important to respect cultures, it’s also it’s imperative to stay true to your brand wherever possible, Stone said. Disneyland Paris made that mistake when it opened with French-only food on the menu. Customers not only expected but demanded American food, Stone said, and Disney quickly switched gears and gave them what they wanted.
“There is a strong desire for the American concept ‘as is’, not a loosely inspired version for another country,” he said.
Sometimes compromises must often be made, however. For example, The Melting Pot is not open for lunch in the U.S., but that’s not the case in Mexico, where the long-lunch siesta is the country’s most popular meal. The décor is different, too. The bright purples and fuchsias would not fly in the States, but it’s perfect for the Mexican culture. Even the food is a bit different; the brand had to invent a spicy sauce specifically for the Mexican market since customers there expect bolder, hotter flavors, Stone said.
Other changes were necessary for the brand to succeed in Saudi Arabia. For example, the brand had to change its cheese recipe because of the country’s alcohol ban. Normally, the cheese fondue has a beer base, but that was off limits in the Middle East.
Since alcoholic beverages and the wine display are a big part of The Melting Pot’s image, Stone said it was important for it to showcase that in another way.
“We have a large ‘mocktail’ menu, and that’s very popular there,” he said.
A FRANCHISE TO WATCH!
London’s first pay-per-minute cafe: will the idea catch on?
Ziferblat is London’s first pay-per-minute cafe, based on a Russian chain where ‘everything is free, except the time you spend there’
Vicky Baker theguardian.com,
Ever felt you’ve overstayed your welcome in a cafe, by reading, working or surfing the web while hugging the latte you bought two hours ago? Pay-per-minute cafes could be the answer. Ziferblat, the first UK branch of a Russian chain, has just opened in London (388 Old Street), where “everything is free inside except the time you spend there”. The fee: 3p a minute.
Ziferblat means clock face in Russian and German (Zifferblatt). The idea is guests take an alarm clock from the cupboard on arrival and note the time, then keep it with them, before, quite literally, clocking out at the end. There’s no minimum time. Guests can also get stuck into the complimentary snacks (biscuits, fruit, vegetables), or prepare their own food in the kitchen; they can help themselves to coffee from the professional machine, or have it made for them. There’s even a piano – an idea that could seem brilliant or terrible, depending on who takes the seat.
Pick one of the clocks from the cupboard and take a seatZiferblat has opened 10 branches in Russia in the past two years and now wants to take the idea worldwide. With hostels, hotels and cafes around the world often filled with people either working remotely or enjoying some downtime online, the market for expansion is certainly there. The “coffice”, we’re told, is the way of the future.
Owner Ivan Mitin says during the first month of the UK opening, they have already drawn in some regulars. “Londoners are more prepared for such a concept; they understand the idea instantly. It’s funny to see people queueing here to wash their dishes. It’s not obligatory, but it’s appreciated. They even wash each other’s dishes. It’s very social. We think of our guests as micro tenants, all sharing the same space.”
Eight days into 2014, Time Out has already declared Ziferblat “a contender for best opening of the year”. But what do you think? Does the idea appeal? Does £1.80 an hour sound like good value? Would you feel more relaxed, or more under pressure with a clock by your side? Let us know in the comments below.
Juan Valdez Plans a New Challenge to Starbucks
Colombian Growers Group to Open [Franchised]Cafés Around the World
BOGOTA—After stumbling the first time around, Juan Valdez and his mule are again forging into international markets with a chain of Colombian coffee shops.
Procafecol is advancing its Juan Valdez cafes into international markets. Associated Press
Procafecol SA, the company that runs the Juan Valdez Café brand, is set to have a total of 250 stores around the globe by year-end. That is a fraction of the more than 20,000 coffee shops operated byStarbucks Corp. SBUX -0.68% , but is more than double the amount Juan Valdez had three years ago, as it ramps up efforts to get a piece of the global market for specialty coffee drinks.
“Juan Valdez is a widely recognized image, and we wanted to leverage that brand,” said Hernán Méndez, the company’s president.
Juan Valdez coffee has been sold for decades in the U.S. and elsewhere in the world in grocery stores and restaurants, with the Colombian Coffee Growers Federation spending millions of dollars in marketing the icon of the mustachioed coffee grower and his mule, Conchita.
But despite the established brand, the company’s initial attempt to turn packaged coffee into successful coffee shops abroad fell flat. Procafecol opened more than 100 stores between 2006 and 2008 around the world, but many were in pricey locations, such as Times Square in New York City, and racked up big losses. Nearly all have closed. A handful remain in the U.S.—travelers still see Juan Valdez cafes in terminals at airports in New York and Newark, N.J.
Procafecol is using franchises this time, so it can avoid putting capital up front, and receives a percentage of sales from franchisees. Shops must buy coffee exclusively from the coffee federation. Potential franchisees also are required to visit Colombia’s coffee region, dotted with small-scale coffee farms, and meet Procafecol executives before being approved.
The franchisee must understand the origins of Colombian coffee and “be passionate about it,” says Mr. Méndez.
When Mr. Méndez was appointed Procafecol’s president in 2010, the company hadn’t made a profit in seven years, largely due to its disastrous foray into international markets. Yet believing the brand had potential, Mr. Méndez—who holds an M.B.A. from Cornell University and once headed Chilean retailer Falabella SAFALABELLA.SN +0.32% ‘s Colombia operations—decided to try expansion again.
Unlike most global coffee chains, Procafecol is 83.6% owned by farmers, through the Colombian Coffee Growers Federation. The company buys its coffee from the group’s members and pays royalties to Colombia’s National Coffee Fund to use the Juan Valdez brand.
Procafecol dates to 2001, when the government convened a commission to determine what could be done to help the sector’s revenues, as the country’s coffee growers faced a tough time as prices fell. The idea of a for-profit company, running Starbucks-like cafes, was born.
Its new international push seems to have met more success than the first. In 2012 Procafecol eked out its first profit in a decade, of $775,000. By the third quarter of this year, Procafecol had gained momentum, reporting a net profit of $1.9 million.
The focus this time is on Latin America, tapping into the region’s new middle class. For many, consuming coffee at a cafe is a recently afforded luxury. In addition, Juan Valdez’s direct ties to coffee growers also appeals to socially conscious consumers in places like the U.S., say executives. Other shops have opened in the Middle East and Malaysia. Within the next sixth months, Procafecol says there will be additional cafes in Spain, Peru, Chile and the U.S.—in Miami and elsewhere—as well as new ones in South Korea, Kuwait and Brunei. The company has close to 180 cafes open in Colombia, up from 154 a year ago.
Juan Delgado, a franchisee who recently opened three cafes in Mexico City, says he sees “a great opportunity with the growing consumption of coffee here.”
Still, Juan Valdez cafes have a long way to go to offset the problems facing Colombian coffee growers. Global coffee prices have been falling, pounding the bottom lines of producers in Colombia and elsewhere. Prices for arabica beans, the most widely grown variety of coffee, have tumbled about 30% this year. The coffee futures hit a seven-year low in November, when arabica coffee for delivery in December fell to $1.015 a pound.
In a twist, lower global prices actually help Procafecol and other rivals, such as Starbucks, boost their margins, since they pay less for the wholesale coffee. In the case of Procafecol, higher margins mean more money flowing back to the producers, since the producers are the majority-owners.
Analysts say there are always risks to a franchise model, namely that a sloppy franchisee could damage the brand. In addition, economists say that many economies in Latin America are showing signs of a slowdown after a decadelong boom, which could dent current consumption.
Like their competitors, Juan Valdez cafes sell lattes, poundcakes keepsake mugsand bags of beans. The interiors are contemporary and filled with photos of Colombia’s coffee region, aiming to project “the urban face of Colombia’s coffee producers,” say the company’s executives.
Perhaps the biggest marketing tool is the man who represents Juan Valdez himself. He flies around the world in his traditional Colombian garb and hat, greeting people at cafes. Sometimes a local mule is rustled up to stand beside him. Today’s Juan Valdez is Carlos Castañeda, a coffee grower from Antioquia Department, chosen in 2006 after a two-year search.
As Juan Valdez forays abroad, the chain will now face competition at home. In August, Starbucks said it would open its first cafe in Colombia next year.
“Well, we have a significant head start,” said Mr. Méndez.
Write to Sara Schaefer Munoz at Sara.Munoz@wsj.com
Starbucks Tries Franchising to Perk Up Europe Business
Beginning in the U.K., Coffee Chain Uses Model It Has Long Avoided
Updated Nov. 29, 2013 6:58 p.m. ET
Starbucks Corp. SBUX -0.20% in Europe has rolled out loyalty programs, localized store designs and opened coffee shops in less ritzy locations in an effort to fix a wobbly business. Now it is trying something else: letting others run its cafes.Starbucks has long avoided franchising—even as the strategy has gained popularity among other U.S. restaurant chains—saying it wants to control its brand. But in Europe, where it stumbled by opening stores mostly in high-rent shopping areas in big cities, Starbucks sees franchising as a way to make quick inroads in more remote areas where its executives have little familiarity.
Starbucks has begun franchising some stores in the U.K. Above,aStarbucks in central London. AFP/Getty Images
In February, the company opened its first franchise-owned store in the world, in the British village of Liphook, and it now has 45 franchise-owned stores in the U.K. owned by nine franchisees. It plans to soon open its first such outlet in France, and roll the strategy out elsewhere in the region.
Franchised cafes are still a small share of the nearly 2,000 Starbucks stores in Europe, the Middle East and Africa, and are only in the U.K. for now. But working with franchisees “has allowed us to go into many geographies that we hadn’t considered before,” said Kris Engskov, who heads the EMEA region for Starbucks. “It’s given us a new opportunity in retail in the U.K. and we will continue to look across the continent to see if that makes sense for other countries.”
Mr. Engskov, an Arkansas native who was a close White House aide to former President Bill Clinton, was promoted to his current job in May, tasked with accelerating turnaround efforts for the EMEA business. In addition to using franchisees, Starbucks has closed stores in expensive locations and tried to improve customer service. Operating profit in the region, after dropping by nearly three-quarters in its 2012 fiscal year, rose sharply in the company’s latest fiscal year to $64.2 million and restaurant traffic grew 3% in the year’s final quarter, ended Sept. 29.
Starbucks has been widely criticized by consumers and politicians in the U.K. for not paying corporate taxes for several years on the basis that its business in Britain hadn’t been profitable. In response to the pressure, Starbucks in June made a tax payment to the British government and plans to make more payments. A company spokeswoman said the tax controversy hasn’t affected its sales.
U.S. restaurant chains have long worked with franchise partners overseas, with McDonald’s Corp. relying on the model for decades world-wide. Burger King WorldwideInc. BKW -0.52% recently signed a franchise agreement with a partner in India to start opening restaurants there. Many other chains are using it more in the U.S., too, to limit business volatility and ensure more predictable profits from royalty fees collected from franchisees. Burger King, Wendy’s Co. and DineEquity Inc. DIN +0.27% ‘s Applebee’s chain have been selling company-owned restaurants to franchisees recently.
Sharon Zackfia, an analyst with William Blair & Co., said the franchise model is particularly appealing for companies in Europe’s weak economy. “Investors would prefer they spend more of their capital on markets with higher rates of return,” she said.
While Starbucks has traditionally avoided franchising, it has long operated a minority of its stores in China through a joint venture with a Chinese company and last year entered into a joint venture in India. Starbucks also has licensing agreements world-wide, typically involving a retailer or travel company operating small Starbucks kiosks in places like grocery stores and airports. Its licensing partners in the U.S. include Target Corp.TGT -0.75% and Safeway Inc. A Starbucks spokesman said it has no plans to franchise its full-scale coffee shops in the U.S.
In Europe, Starbucks plans to expand those licensing deals as well as increase franchising. Of the more than 200 Starbucks stores the company will open in the Europe, Middle East and Africa region in its current fiscal year, approximately 75% will be with licensees or franchisees.
Franchising carries risks in the event franchisees don’t live up to company standards or relations otherwise sour. Starbucks has been aggressive about guarding its brand. It terminated a partnership with Kraft Foods KRFT -0.51% in 2011 because it alleged Kraft wasn’t properly promoting and stocking Starbucks’ bagged coffee in retail stores. An arbitrator this month ordered Starbucks to pay its former distributor nearly $2.8 billion for prematurely severing the agreement. Starbucks said it disagreed with the ruling.
Mr. Engskov acknowledges the need for caution. “The way you mitigate those risks is you take a lot of time to pick the right partners,” he said.
Starbucks has gotten to know prospective franchisees and their families over dinner and has taken some to its Seattle headquarters to learn its ways, Mr. Engskov said. “It’s very personal,” he said. “We have to make sure they understand the culture of Starbucks.”
Anil Patil, owner of the company’s first franchised outlet in Liphook and former owner of 20 Domino’s Pizza shops in England, said the process to become a Starbucks franchisee involved attending a three-day workshop at the regional headquarters in Amsterdam where he learned about how the company procures and roasts its coffee.
He said that for “a company that historically believed franchising was anathema” to decide otherwise when the business necessitated it “shows that they’re nimble with their strategy.”
Mr. Patil, who currently owns five Starbucks stores, will build another seven by the end of the fiscal year and hopes to build another 15 over the next two years.
Starbucks plans to limit its number of franchise partners to fewer than 25 in the U.K. The franchisees, who sign 10-year contracts with Starbucks, are expected to open 10 or more stores and must have experience in real-estate development or with operating branded retailers—not to mention liquid assets of at least £500,000 (about $805,000).
One of its new licensed stores in Europe is on a Swiss commuter train. The cafe, operated by Switzerland’s national railway company, reflects Starbucks’s parallel strategy of getting its brand in front of customers wherever they are.
“It’s clear to us that we need to be more flexible in how we come to market in Europe. We’ve been traditionally known as a high-street retail store, but people expect high-quality coffee wherever they go and that’s a big opportunity for us,” Mr. Engskov said.
The chain has begun opening small self-serve cafes in office buildings in Europe and is introducing its Seattle’s Best Coffee brand in Asda, a unit of Wal-Mart Stores Inc.WMT +0.10%
Write to Julie Jargon at firstname.lastname@example.org
Fries with that? McDonald’s is rolling out free 2Mbps WiFi across China
With more and more public places in China getting free Wi-Fi as part of the government’s efforts to promote Internet usage, McDonald’s is also jumping onto the bandwagon to attract customers.
Sina Tech reports that by next year, more than 1,400 McDonald’s restaurants across China will have free Wi-Fi access. As of now, several McDonald’s restaurants in Shanghai already give their diners free Wi-Fi access with download speeds of up to 2.0 Mb/s.
It remains to be seen whether McDonald’s can attract more customers at its restaurants simply by offering free Wi-Fi, but what can’t be denied is that the ubiquitous fast-food chain has added a lot more convenience for users in the world’s largest smartphone market — where data can be expensive.
Yum! Brands and its franchise partners will invest $10 billion in the next seven years to build its presence in seven emerging markets including India, China, Africa and Brazil to more than 20,000 restaurants, said CEO David Novak. In India, the parent of KFC, Taco Bell and Pizza Hut expects sales to hit $1 billion by 2015. “We’re on the ground floor of global growth in a lot of countries, particularly the emerging markets,” Novak said. Bloomberg
EXPECTATIONS in the Franchisor-Franchisee Relationship
By Harish Babla, Managing Director, Franchise Mind Corporation, USA.
“Life is an echo—WHAT YOU SEND OUT COMES BACK.”
An EFFECTIVE Franchisor-Franchisee relationship is one where the parties achieve the intended results in a harmonious manner.
In order for such a relationship to be created and nurtured, it is important for both parties—the Franchisor and Franchisee to understand and appreciate the goals and expectations of the other party in the relationship.
Lets take a look:
Franchisor goals and expectations
In a nutshell, the Franchisor expects the Franchisee to follow the plan that the Franchisor has laid out for the Franchisee to run the business and achieve success.
To the Franchisor, success is measured by using several criteria:
- Increasing sales of the franchise unit
- Delivering a high quality product/service to the customer
- Ensuring that the customer receive the intended experience
- Franchisee participates in company events
- Franchisee extends cooperation and collaboration on all programs introduced by the Franchisor
- Franchisee achieves intended financial results
- Franchisee provides good validation to prospective franchisees
Franchise Mind™ identifies four stages in the Franchisor-Franchisee relationship:
1. Pre-franchisee stage
2. Pre-launch stage
3. Launch stage
4. Operational stage
In addition to the above mentioned criteria which the Franchisor considers as ‘success criteria’ for a franchisee, the Franchisor has two additional ‘expectations’:
- Launch stage. During the opening of the business—the launch, the Franchisor expects the Franchisee to learn the business and follow the plan outlined for its growth. The Franchisor does not want a Franchisee to offer suggestions for ‘improvement’ no matter how well intentioned they may be
- Operating stage (consisting of 4 phases: Confidence, Ego-driven, Resentment and Inter-dependent). During the last phase, when the Franchisee fully appreciates the inter-dependent nature of the relationship and has achieved success with their own business, the Franchisor hopes and expects that the Franchisee will ‘pay forward’ by mentoring other franchisees
Franchisee goals and expectations
Unlike the franchisor, whose expectations of the franchisee are somewhat similar throughout the relationship, the franchisee has changing expectations at different stages of the business. Lets take a look:
||Franchisee considers the franchisor to be the expert and as such expects that the franchisor will guide them and help them to achieve success
||Franchisee continues to have positive expectations of the franchisor. While the franchisee is extremely eager to learn, if they have any experience or expertise in any of the areas critical in the pre-opening stage such as site selection, financing or human resources, as a minimum they expect the franchisor to hear them out and explain to them how their past experience is connected or not connected to the requirements of the franchise system
||The franchisee expects that at the launch stage of the business everything will go smoothly and business will come at least at the pace of an average unit if not higher. At this stage the 1stcracks in the relationship can appear if the franchisee’s expectations are met with disappointment as it relates to smooth operations and increasing business
|Operating: Confident phase
||As the franchisee gains confidence with business growth, they begin taking credit for their success and expecting the franchisor to do more and more for them
|Operating: Ego-driven phase
||With more success, the more the franchisee feels that this success is due to their efforts and not the system and as such their expectations shift to ‘What have you done for me today?’
|Operating: Resentment phase
||The franchisee feels that they know the business better than the franchisor. As such, they expect the franchisor to do something exceptional for them, something they are not capable off doing by themselves. Since the predominant thought in their mind is that they don’t really need the franchisor for their success, they place an undue burden on the franchisor to do something significant to demonstrate value in the system
|Operating: Inter-dependent phase
||Expectations shift as the franchisee becomes more collaborative and recognizes that both sides need each other and each brings value to the relationship. While the expectations for the franchisor to deliver a high value remain they are tempered by the franchisee’s acceptance that not everyone is perfect and as such limitations are acceptable within reason
It is the responsibility of both parties—the Franchisor and Franchisee to develop a clear understanding of the goals and expectations of the other party to ensure that the relationship they have entered into is effective in that it produces results for both parties while maintaining harmonious relations.
While the goals and expectations of the Franchisor may seem straight forward, a Franchisor must remember that those expectations may be a tall order for a Franchisee, especially one that may have never been in business before.
On the other hand, a Franchisee evolving through the various stages and phases of the relationship develops a different set of expectations at each level and makes the job of the Franchisor to decipher the expectations a little complex.
Both parties have great reasons to be in the relationship and need to strive to get to the inter-dependent stage where an appreciations for each other and the roles they play are mutually appreciated.
I welcome your thoughts.
Harish Babla, CFE is the Managing Director of Franchise Mind Corporation based in San Diego, USA. A successful entrepreneur, a business visionary, an inspiring franchise leader, a mentor to many companies and a growth strategist who has honed his franchise skills in various capacities since 1983.
Harish is passionate about growing franchise companies and helping others achieve their dreams of building successful global franchise companies by ensuring the highest standards of franchise excellence with a strong focus on growth and operating results.
Harish is a Certified Franchise Executive as designated by the International Franchise Association and conducts learning events and mentoring for numerous companies all over the world. Harish can be reached atharish@Franchisemind.com
Denver-based Quiznos opens in Russia, plans 500 restaurants there
Quiznos lastest menu addition, the Spicy Pulled Pork sandwich at the Quiznos test kitchen in downtown Denver Wednesday afternoon, June 5, 2013. (Andy Cross, The Denver Post file)
Denver-based Quiznos announced Friday that its first two Russian locations are open for business in St. Petersburg.
The company said it plans to open 500 restaurants in Russia in the next 10 years.
The openings are the latest in a series of recent Quiznos international development announcements.
“QSR Russia, our franchise partner, has an aggressive timeline to open hundreds of Quiznos across Russia in the coming years that works well with our expansion plans,” Kenneth Cutshaw, president of international business for Quiznos, said in a news release. “We couldn’t be happier to be working with a strategic partner that knows the Russian market and its needs so well.”
Darrin Stock, founder and CEO of QSR Russia, said the two St. Petersburg locations are at Moskovsky 2, which opened Friday, and at Prospect Engels, which will open Saturday.
QSR Russia has plans to open more than 60 locations in St. Petersburg and more than 50 locations in Moscow in the next five years.
Quiznos said it expects to open more than 1,000 international locations in more than 40 countries by 2020.
Former Marine Starts International Franchise Helping Stranded Boats
To the rescue: Joe Frohnhoefer’s Sea Tow assists stranded boaters.
There was a time when, if you wedged your boat on a sandbar or ran out of gas while racing a dolphin, you could call the U.S. Coast Guard for a rescue. But in 1982, Congress let the military organization off the hook when it came to dealing with citizens’ boneheaded behavior, handing nonemergency calls over to private companies.
Joe Frohnhoefer, a former marine police officer and bay constable on New York’s Long Island, wanted in on the action. In 1983 he took out a $30,000 loan, bought a boat and began helping stranded seafarers under the name Sea Tow. Thirty years later, the family-run company is nearing 200,000 members and 100 U.S. and international franchise locations, each serving lakes, rivers and oceans within their designated area of responsibility.
“When the law was passed, I started meeting with independent tow [operators]. It was a ragtag group of people with little boats that usually worked on weekends,” Frohnhoefer recalls. “I saw what we were facing. It was a monumental task, but I decided to take it on. I worked with the Coast Guard to develop professionalism in the industry and to work hand-in-hand with them. We more or less started this industry.”
Today, Sea Tow’s bright yellow boats are an iconic sight on both U.S. coasts, as well as in the Virgin Islands, Puerto Rico and Europe. We got Joe, daughter Kristen and son Joe III to share their sea stories.
How does Sea Tow work? Is it like AAA?
Joe: Yep, members have priority, and we respond to them first. If you’re not a member you might have to wait, and then pay an hourly fee. Members pay for fuel and parts. We can usually unground a boat in less than 15 minutes if it’s in a safe, stable condition. If you’re out of fuel, we’ll transfer some, or if it isn’t safe to do so, we’ll tow you in to the dock. Sometimes we assist with repairs on the water, like fix a belt. Sometimes we can fix a problem over the radio. About 99 percent of what goes wrong with a boat is covered under our membership. Only salvage isn’t covered, and that’s usually covered under the boat’s insurance policy.
What’s it like being in such a niche franchise segment?
Kristen: I’ve been to a few International Franchise Association conferences, and we were the only business in the marine industry. It’s hysterical; people come up and say, “What are you? Is that some sort of food?”
We’re also unique in the way we treat franchisees. We give them a lot of input, and at least once a month our National Marketing Council votes on how we spend our money. We are a family business, and we’re family-oriented at every level. Everyone is involved.
What are the most common causes of trouble on the water?
Joe: Lack of education, mainly, and a lack of basic maintenance. But fuels high in ethanol are causing problems–marine engines don’t like them very much since they attract water and corrode tanks and battery jumps.
We have a favorite saying here: The more electronics on a boat, the farther up on the beach it goes. People look at their radar, depth finder and GPS but don’t look in front of them, and that’s when they run into something. Observation on a boat is extremely important.
Do you respond to serious emergencies?
Joe: If we’re not under tow and it won’t endanger our lives or boats, we’ll respond. The Law of the Sea is to offer aid in any way you can. We save lives first, and there is no greater reward than doing that.
Each year at our annual convention we give out lifesaving awards. On average there are eight to 10 every year. One franchise owner in Brooklyn saved his 46th person last November. We feel a responsibility and give first responders aid when we can.
So, have any of you ever had to call Sea Tow to pick you up?
Joe III: I was using the family boat and had the radio on all day, which drained the battery. I had to call Sea Tow. A couple weeks later it happened to Dad, too. He didn’t call Sea Tow–he called me instead! It just goes to show that problems can happen to anyone. Mother Nature and Murphy’s Law reside well on the water.
Read more: http://www.entrepreneur.com/article/227097#ixzz2aF0F7ugD
Where in the World There Are No McDonald’s
OAK BROOK, IL–(Marketwired – Jul 15, 2013) – McDonald’s (NYSE: MCD) today announced Henry Nguyen, a Vietnamese businessman and the founder of Good Day Hospitality, as developmental licensee for Vietnam to build the Brand.
“As we grow our presence in the Asia region, we are looking for partners with a blend of strong business acumen and a unique understanding of our Brand,” said Dave Hoffmann, President of McDonald’s Asia Pacific, Middle East and Africa region. “Henry Nguyen is that ideal business partner who has an impressive business background and proven track record in driving new business ventures in Vietnam.”
McDonald’s first restaurant is planned to open in Ho Chi Minh City in early 2014. The menu will include iconic favorites known the world over, from the Big Mac sandwich and cheeseburgers to World Famous Fries.
“McDonald’s is a well-loved Brand around the world, and we are pleased to be opening in Vietnam and bringing the McDonald’s experience of quality food, great service and contemporary design to our 38th country in Asia,” said Don Thompson, President and Chief Executive Officer of McDonald’s Corporation. “We will be focused on meeting our customers’ needs and will work hard to exceed their every expectation.”
The contract with Nguyen as developmental licensee is the result of a rigorous selection process that began years ago. Nguyen brings a strong passion for the Brand that he developed while working as a part-time crew member for McDonald’s as a young student in the United States.
“I have been a big fan of McDonald’s my whole life and have had so many wonderful experiences there, including one of my first jobs when I was a teenager. I have dreamed of one day opening a McDonald’s restaurant in my native country ever since my return to Vietnam more than a decade ago,” Nguyen said. “I have been in contact with McDonald’s over the years sharing the opportunity that exists in our country.
“I’m proud to be part of a great team that is working hard to open up our first restaurant in Ho Chi Minh City. Our local team is preparing and training our first managers and crew for that exciting day.”
Vietnam is one of over 65 markets worldwide where the McDonald’s Development Licensee (DL) structure has been deployed. The developmental license model is a form of franchising that McDonald’s has been using for more than 30 years around the world to grow the Brand.
Ponderosa International Development, Inc. Announces Development Agreement to Franchise Ponderosa Steakhouse Restaurants in Egypt
Plano, TX (RestaurantNews.com) Ponderosa International Development, Inc. today announced an agreement granting franchise rights to Egypt to Mr. Kareem Awny Abdel Dayem. The agreement calls for a minimum of five Ponderosa Steakhouse restaurants to be developed in Egypt.
“We are very excited to enter into this relationship with Kareem, who shares our vision of continuing the growth of Ponderosa Steakhouse restaurants throughout the Middle East and indeed the rest of the world,” stated Thomas A. Sacco, President and Chief Executive Officer of Homestyle Dining LLC, the parent company of Ponderosa International Development, Inc.
“Kareem is a consummate business professional who shares our total dedication to quality and customer satisfaction,” Sacco added.
Mr. Abdel Dayem’s family owns the Alpha Tex Group, a textile company established by his grandfather in the 1930s. In addition, he is the co-founder of Kryptonite Toys, a specialty store that sells licensed and proprietary collectibles including comic books and hobby items.
“I have fond memories of Ponderosa from my childhood family visits to Orlando and I am delighted to be bringing this iconic brand to Egypt,” stated Mr. Abdel Dayem.
“More recently, during my visits to Ponderosa Steakhouses in Bahrain and Dubai I have been impressed by the quality of the dining experience and how families can enjoy a great steak and a healthy, all you can eat food bar at a family price; Egypt needs a place like that,” he added.
There are over 200 Ponderosa and Bonanza Steakhouses currently operating in the United States, Canada, Puerto Rico, the United Arab Emirates, Qatar, Bahrain, Jordan, and Taiwan.
About Homestyle Dining LLC
Homestyle Dining LLC, owns, operates, and franchises family-focused restaurants throughout the United States and internationally under the Ponderosa Steakhouse and Bonanza Steakhouse brands where guests can enjoy flame-grilled steaks and entrees along with a high quality buffet featuring an endless selection of salads, soups, appetizers, vegetables, and desserts at affordable prices.
FLUENT IN FOREIGN BUSINESS™ AND FRANCHISING AGENCY OF KAZAKHSTAN TO COOPERATE ON DEVELOPMENT AND IMPLEMENTATION OF INTERNATIONAL FRANCHISING IN CENTRAL ASIA
Fluent in Foreign Business (www.fluentinforeign.com), a New York City based organization that helps companies grow, finance and protect their business internationally, has announced that it signed a strategic partnership memorandum with the Franchising and Licensing Agency of Kazakhstan.
The memorandum calls for the Agency and Fluent in Foreign to cooperate on bringing international franchises to Kazakhstan. It also calls for the Agency to conduct training programs developed by the Fluent In Foreign Academy (www.academy.fluentinforeign.com). These programs are designed to help local franchisees attract international businesses to Kazakhstan and franchises seeking to expand into the Kazakh markets, learn about bridging cross-cultural gaps, available financing and business development techniques. Programs also cover such topics as FCPA compliance, political risk insurance and other risk-mitigation techniques. A featured product in the program is the Cultural Navigator® suite, which has been developed by the TMC/Berlitz company and is available on the Academy as part of the strategic distribution arrangement reached earlier this year. For the next 60 days, The Agency and Fluent In Foreign are offering FREE assessment testing and proprietary Kazakhstan country profile with Fi3F Index™($100 Value) to all who sign up and register for the cross-cultural workshop
“We are very excited to team up with Fluent In Foreign to assist our Agency in developing franchising in Kazakhstan,” said Saule Duysembaeva, Agency’s President. “Franchising is an emerging area in our country and we see terrific potential for both existing and young American brands to develop throughout Kazakhstan. We believe that by bridging cross-cultural gaps and helping structure the business side of the transactions our Agency can greatly speed up adoption of franchising and facilitate entry of quality brands into Kazakhstan,” Added Duysembayeva.
“Kazakhstan is one the most successful FSU countries that emerged from the Post Soviet Union transformation. The country possess significant oil and uranium deposits and is benefitting from rapidly growing middle class,” said Alexander Gordin, Managing director of the Fluent In Foreign Business™ Given the country’s 16 million population and thirst for quality international brands, many franchise concepts are poised to succeed in Kazakhstan. Yet concepts such as children’s education, online commerce/social networking, fitness and others that do not require extensive supply infrastructure have a head start due to easier adoption and shorter implementation cycles,” added Gordin
Franchising and Licensing Agency expects to introduce three to five cutting-edge American franchising concepts to Kazakhstan by September 1st of this year. The Agency will also conduct a series of franchising roundtables throughout the country. For more information on the workshops, or how to sign up for the online training email rsigalus@fluentinforeign or email@example.com
IFE -2013 in pictures.
Another super successful International Franchise Expo in New York. Thanks to the organizers at MFV Expositions, all international visitors and U.S. Commercial Services specialists who attended the show, staff of Fluent in Foreign and Broad Street Capital Group. Special thanks to my Dad – Michael Gordin who came out to help. All of you were instrumental in making this year’s show a great success. See you all next year on June 19th.
NEW 2013 Fi3F INDEX™ RANKS APPEAL OF 180 NATIONS
FOR FRANCHISE EXPANSION OPPORTUNITIES
First-of-its-kind index ranks risk/reward factors for franchising worldwide
Second annual edition of the Fi3F™ index, – proprietary and forward-looking indicator that measures the attractiveness of 180-nations for franchisors seeking to expand internationally – is being introduced today by Fluent in Foreign™ LLC, a New York City advisory group that guides companies, as they seek to establish or expand their franchise business abroad.
The Fi3F Franchisor Country Appeal Index™ evaluates each nation using proven factors that include its proprietary data combined with information obtained from the World Bank, United Nations, Transparency International and several U.S. government agencies. The index looks at factors that include each country’s GDP growth, population size, education, availability of franchise financing, political risk insurance, corruption, investor protection and legal framework for contract enforcement and IP protection.
The rankings of all 180 rated nations is available exclusively on Fluent in Foreign Academy™ site as part of the Fi180 Global Business Atlas™ individual country profiles. READ MORE
If you’ve ever stayed at the Radisson Royal, the old Hotel Ukraine in Moscow, you know why Russia is the No. 1 luxury hotel market in the big four emerging markets. Bugattis and Ferraris in the parking lot; Rolls’ for sale in a showroom to the left of the entrance. Toilet paper like you’ve never seen in your life. This is where the one percenters go to nurse a glass of Russo-Baltique on the rocks by the river.
Of course, Moscow being home to the highest concentration of billionaires also helps.
Russia’s luxury hotel market has grown around +12.8% year over year, according to a report released on June 6 by the Digital Luxury Group, a luxury market research firm tracking consumer travel trends. By comparison, Brazil’s luxury market showed a regression since last year at -12.1%.
The report was done with the Chair of Luxury Hospitality of Ecole Hôtelière de Lausanne.
According another study on Russia in particular, this one by Smith TravelResearch Global, there are a total of only 550 hotels (mid- to upscale and luxury hotels), with 83,127 rooms in Russia. Of this total, 145 properties with 36,542 rooms are in Moscow.
The fastest growing hotels in the BRICs, according to Digitial, are the Shangri-La hotel in Brazil (+72%), Hyatt Regency in Russia (+89%), Ritz-Carlton in India (+59% – with a new property set to open this summer) and St. Regis in China (+56%). The most popular international destinations for people coming from the BRIC nations were: Miami and New York for Brazilians; Hurghada, Egypt and Dubai for Russians; Singapore and Dubai yet again for Indians and Singapore for Chinese travelers staying in luxury hotels.
Starwood leads in BRIC markets, but Dubai-based Jumeirah is the most rapidly growing hotel among those in the top 25 luxury hotel groups as ranked by Digital Luxury Group.
CULTURAL NAVIGATOR® Demonstration and 2013 FI3F Index™ Release Will Highlight the IFE in NYC on June 20th.
Fluent In Foreign Franchising™ Team is once again proud to sponsor the International Visitors’ Center and the Boat Cruise at the upcoming International Franchise Exposition at the Jacob Javits Center, June 20th-22nd. Please visit us at the show and view the demonstration of the Cultural Navigator® product suite by the elite demo team from the Fluent In Foreign Academy and our content distribution partners at Berlitz/TMC. Cultural Navigator is a unique cross-cultural training tool and is a must for anyone doing are seeking to do business internationally.
At the conference Fluent in Foreign will be releasing its acclaimed 2013 FI3F Franchise Index™, which ranks attractiveness of 180 countries to franchisors.
Also, please register with the U.S. Commercial Service for meetings with over 200 international franchisee candidates coming in from multiple countries. Invitation from the USCS Franchise Team us below:
Dear U.S. Franchisors:
The U.S. & Foreign Commercial Service – Global Franchise Team is pleased to once again partner with the International Franchise Association (IFA) and MFV Expo’s to bring you expert advice from U.S. Embassy Franchise Specialists from Austria, China, Colombia, Czech Republic, Ecuador, France, India, Indonesia, Iraq, Kazakhstan, Malaysia, Nigeria, Pakistan, Russia, Spain, Thailand, Ukraine, United Kingdom and Vietnam to discuss our Services Worldwide.
As an Exhibitor at the International Franchise Expo, June 20-22, 2013 in New York, New York, we are offering you the special opportunity to schedule private, one-on-one meetings where you can discuss and plan your international growth strategy, and receive a market evaluation for your brand or concept from experts who have helped many U.S. Franchisors achieve success!
•Appointment times for this unique and highly popular program do fill up quickly. REGISTER NOW via this link:http://export.gov/michigan/forms/internationalfranchise/index.asp
Your opportunity to have an in-depth discussion about trends in these pro U.S. Franchise markets, the U.S. & Foreign Commercial Service and how to take advantage of them is here! Through the one-on-one consultations you will learn about:
•Your concepts entry and growth potential in the previous listed markets and their surrounding regions.
•Challenges and unique opportunities in the marketplace
•Recent revisions to franchise laws & regulations
•How to be successful in these markets by leveraging the U.S. & Foreign Commercial Service to help you find investors, solve problems, create a launch event in market, discuss next steps, etc.
U.S. & FOREIGN COMMERCIAL SERVICE WORLDIWDE SERVICES: Many successful U.S. Franchisors utilize our offices and vast array of customized services around the world for critical market entry assistance, identifying and meeting the right partners, qualifying prospects and creating special launch events in country. Our offices exist in 162 cities in 84 countries and as a U.S. Federal resource; we are standing by to welcome you to leverage our contacts, expertise and knowledge to make your global growth a successful endeavor!
If you are interested in private one-on-one appointments please fill out the form below. All meetings will be 30 -60 minutes long and held on the Expo site. Your confirmation of appointments along with time, date and location will be e-mailed to you on or about Wednesday, June 12th. Please feel free to include any specific questions you may have in your registration form.
Thanks so much, and I look forward to seeing your registration!
2012 IFE International Boat Cruise Co-sponsored by Fluent In Foreign
INTERNATIONAL FRANCHISE PERFORMANCE SURVEY
Hooters a hit in developing countries
Complete package attributes give Hooters a sporting chance in emerging markets
A new Hooters restaurant in South Africa has a grander feel than those in the U.S.
Hooters has a head start when it goes into emerging markets—name recognition, thanks to TV and movies; good-paying server jobs; and a wide world of sports.
There’s a good reason why an iconic brand like Hooters does well in emerging markets like South Africa, and even in Brazil. No, it’s not the curvaceous Hooters girls, it’s the flat-screen TVs.
While Americans take their personal plasma television sets for granted, the rest of the emerging world doesn’t always have the luxury of staying home to watch sporting events. Which is why Hooters in these markets are more than just a pretty face. For instance, in one market: “Here’s a guy in his mid-40s, a CFO (with an) MBA, who was blown away he could watch four soccer games at one time,” says Michael Pruitt, CEO of Chanticleer Holdings, an international franchisee of Hooters of America, with rights to develop the brand in four emerging international markets.
Sports on TV is just one reason Hooters is hot in emerging markets. Some of the changes they’ve made to accommodate the local market are: better wine selection; steak on the menu in Brazil; and kids eat free on Sundays in South Africa. Plus, the tip money is good. In one market, an employment ad posted on Facebook garnered 300 applications for three positions.
A down side is security becomes an additional line item to your P&L. In locales where crime is an issue, location becomes even more important, and restaurants need to be inside shopping centers and casinos—areas where people feel safe, Pruitt says.
Chanticleer owns and operates four Hooters in South Africa and one in both Australia and Hungary. They expect the number of restaurants to be 10 by the end of 2013. The company also has exclusive rights to parts of Brazil, and has entered into a joint venture with the company with exclusive rights to Australia.
Brazil will be a particularly fertile territory for Hooters, since it’s hosting the World Cup in the summer of 2014 and the Olympics two years later.
Finding qualified, financially viable partners overseas is always a challenge. Another source to add to your due diligence, Pruitt suggests, is the local vendors, who will be able to tell you whether the restaurant group you’re thinking about partnering with pays its bills on time and takes care of its restaurants and employees.
Beer and liquor distributors also are invaluable when it comes to researching a market. “They have great data,” he adds.
It’s a matter of looking for “good businesses run by good people you like.”
And it doesn’t hurt to have 17,000 Hooters girl worldwide, sports such as soccer and rugby on the telly and brand awareness thanks to TV shows and movies with characters visiting Hooters. Having an actual restaurant to promote the concept in these emerging markets is like adding color to a B&W TV.
Indonesia Restricts Franchises
JAKARTA, Indonesia—A jump in the number of chain stores in Indonesia has triggered a backlash from regulators and owners of small shops, concerned that homegrown entrepreneurs could get elbowed out of the country’s economic growth.
Agence France-Presse/Getty Images
For decades, Torikin did a brisk business selling batteries, cigarettes, cold drinks and instant coffee from his cart in central Jakarta. Then a brightly lighted store sprouted in the vacant lot where he had been setting up shop.
The Wall Street Journal
He had never heard of 7-Eleven or its Slurpee frozen drinks. But in the past year he has watched almost all of his customers defect to the chain store, with its wide selection and low prices.
“There is no way I can compete,” says Mr. Torikin, who, like many Indonesians, uses only one name. “Office workers that bought cigarettes from me for years, now just walk right past me on the way to that store. They say ‘Hello,’ but they don’t buy anything.”
Mr. Torikin says his sales plunged to around $5 a day from roughly $100. Now he is looking for a new spot to set up, far from a Western-style convenience store.
Hoping to protect and enrich small-shop owners like Mr. Torikin, Indonesia has been implementing rules to force large chains to share their success. The new rules could change expansion plans for such chains as KFC, Starbucks SBUX +1.17% and 7-Eleven.
Generally, each chain has just a single master franchisee here—allowing the foreign company to maintain control over operations. But under the new rules, any convenience store or other retailer with more than 150 stores and any restaurant or café with more than 250 outlets will have to bring in additional Indonesian partners. That can mean signing up more franchisees or having the existing franchisee take on partners. Also, chain stores are required to get 80% of their supplies locally.
As the number of chain stores in Indonesia has more than doubled in the past five years to 40,000, the country’s small-business owners say they need protection—or the opportunity to join the big chains. The number of grocery stores, which tend to be family owned, grew only 10% in the three years to 2012 according to a trade group of Indonesian retailers. The number of convenience stores jumped 82% over the same period.
Indonesia’s Traditional Traders Association, which represents millions of mom-and-pop shops, has been lobbying the government to bring the franchise cap down to 10 stores from 150 and 250. “If the government is really pro-people, then it should spread the wealth to as many people as possible, and give traditional traders the space they need to grow,” says Ngadiran, the secretary-general of the association.
Indonesia—like other fast-track emerging markets—is struggling to balance its appetite for international capital and know-how with the needs of its citizens. Southeast Asia’s largest economy has been attracting record amounts of foreign direct investment in recent years. But economists say Indonesia needs still more if it is going to create jobs and improve infrastructure in the archipelago’s 17,000 islands. Some analysts worry that the surge in investment from abroad has made the country cocky and more likely to slap new restrictions on trade and investment.
Jakarta last year unveiled rules forcing foreign investors to unload stakes in mining companies. The government also announced plans to make mining companies process their yields within the country. And Indonesia has lowered the amount of beef and horticultural goods that can be imported.
Standard & Poor’s earlier this month lowered Indonesia’s ratings outlook from positive to stable, citing worries about economic policy and chances it could get more restrictive as the country heads toward national elections next year.
PT Fast Food Indonesia, FAST.JK 0.00% KFC’s master franchisee here, says its agreement with U.S.-based brand owner Yum Brands Inc. YUM +1.87% doesn’t allow the Indonesian company to bring in partners. The fried-chicken chain is the most popular global name in the country, with more than 440 outlets.
“If it stays as is, then we will have to slow down or even stop expanding,” says Fast Food director J.D. Juwono. The company is trying to negotiate with the government for another way to share its success with other Indonesian companies, he says.
Yum says its plans haven’t changed, and that its franchisee “will continue to work with authorities on the guidelines.”
Henri Honoris, the chief executive of PT Modern Putra Indonesia, says he has yet to reach the limit of 7-Eleven convenience stores but plans to start accepting new small-business owners as franchises in the next year.
“The government urged us to cooperate with small-business owners and to share with local people,” he says. “If we do not create opportunities for small-business owners they could challenge us in the future.”
U.S.-based chain owners 7-Eleven Inc. and Starbucks Corp. didn’t respond to requests for comment.
Indonesia’s trade ministrysays most franchises have agreed to follow the new rules. And some had sought the requirement that 80% of supplies be locally sourced so they wouldn’t be forced to buy expensive imported ingredients from the franchise holders, says Nurlaila Nur Muhammad, the ministry’s director of business development. The ministry predicts that the new rules will speed expansion of international companies as they open up to more partners.
“We would like to encourage them to share with the small and medium-size enterprises without killing them,” she says. “It may not be easy, but they have to do something.”
—Andreas Ismar contributed to this article.
THE WORLD-FAMOUS FRENCH FRY
Japanese kids have always been early adopters of global cultural trends—consider baseball (the country’s national sport) and Santa Claus, whom the Japanese have transformed into a kind of Jewish matchmaker presiding over a Christmas that looks more like Valentine’s Day.
Now Japanese youth are storming fast-food joints to order belly-busting volumes of fried potatoes, disgusting some observers by eating them all, and outraging others by leaving some behind. Blogger Brian Ashcraft reports that one scold took to Twitter to admonish the revelers: “Look, buying 23 large French fries is fine, but you gotta eat them all, you gotta eat every last one.”
Fried potatoes are truly international—whether they make a cameo in Canadian poutine (put to bed beneath blankets of gravy and a kind of cheese), as chips in England, as Belgian fries or a freak Japanese trend. But no matter where you eat them, the global trade cycle of what Americans call “French fries” begins in the Andes.
In the 1550s, Spanish infantry encountered the potato in the arid Peruvian highlands. Shipped back to Europe, the tuber slowly grew in popularity, imbedding itself in Ireland, for example, as the chief staple. “No London merchant ever formed a new company to trade potatoes,” writes Steven Topik, my Global Trade colleague and co-author (with Kenneth Pomeranz) of The World That Trade Created. “But crises created needs to which the potato was beautifully suited; today, potatoes are the second-largest food crop in the world.”
In 1875, Luther Burbank, a self-taught Massachusetts botanist, cultivated what we now call the Idaho potato. When blight wiped out the Irish potato crop in the middle of the nineteenth century, it was Burbank’s Russet, shipped across the Atlantic, that ended years of famine—but only after one million Irish died and another million fled the island, many for the U.S. Burbank’s potato followed the path of Americans themselves—westward with Burbank to California, Colorado and Idaho.
The Idaho Potato Commission website describes local growing conditions in terms that might apply equally to the Andes of Peru: “snowcapped mountains provide the perfect elevation,” “free-flowing rivers contribute cool, clear water,” “rich, volcanic soil” and “warm days and cool nights.”
Idaho remains famous for its potatoes—it says so right on the state license plate.
But Idaho is also rightly famous for global trader J.R. Simplot, the man who ran away from home in 1923 at age 14 and bought his first potato-processing machine a few years later. Simplot learned the principles of international logistics while supplying dehydrated potatoes to U.S. troops serving around the globe in World War II.
In 1967, Simplot expanded on that vision, cutting a deal with Ray Kroc to produce the fries that flowed through the McDonald’s international burger empire.
Simplot picks up potatoes in massive 18-wheelers that thread two-lane country roads throughout Idaho bound for the company’s plant in Caldwell, Idaho. Growers farther afield ship via the Boise Valley Railroad, one of 30 shortlines run by Kansas-based Watco.
“Twenty years ago, I could have told you that every McDonald’s French fry you ate in Mexico was grown in Idaho,” says Brad Foster of Foster Land and Cattle in Rigby, Idaho, a company that produces for J.R. Simplot. But these days, Simplot and Canada’s McCain Foods also grow potatoes overseas to satisfy McDonald’s desire for local sourcing.
Simplot grows potatoes for the chain’s China stores right in the People’s Republic, opening that nation’s first potato-processing plant in 1993. In December, when members of the Indian parliament charged the company was importing foreign potatoes into that country, McDonald’s quickly dismissed the allegation. Company officials explained that, yes, Simplot routinely rejected inferior potatoes, but had in fact worked with local farmers to grow the “process-grade varieties” it used in all Indian stores.
Simplot potato products are shipped around the world, whether through the Port of Portland or from its foreign processing plants. The company’s Australian unit, for example, serves markets throughout Southeast Asia, including Malaysia—where the Idaho Potato Commission promotes the tuber-centric menu.
The French fry name can occasionally become political. When France refused to OK the 2003 U.S. invasion of Iraq, North Carolina restaurant owner Neal Rowland renamed his fried potatoes “freedom fries”; Republicans in the U.S. House of Reps followed suit, amending the menu in the House cafeteria. These days, they’re called French fries again.
Yum Fights the China Flu
Yum Brands‘ YUM +7.01% China flu might be difficult to shake.
The fast-food giant reported a 41% year-on-year drop in operating profit at its China division in the first quarter, contributing to an 8% fall in earnings per share. Much of the blame goes to negative publicity on food safety following reports in the Chinese media at the end of 2012 of excessive use of antibiotics by the company’s suppliers.
The feathers from that scandal have settled. And investors were cheered by better margins as well as the company beating expectations. That led the shares to surge 7%.
But an outbreak of avian flu in China’s Yangtze River Delta means Yum’s problems aren’t yet over. Avian flu isn’t transmitted through properly cooked meat, but Yum’s KFC still suffers from guilt by association. Management expects China same-store sales in April to decline 30% from a year earlier, worse than the 20% fall in the first quarter.
ReutersYum’s China flu might be difficult to shake.
Two food-safety crises in quick succession are a reminder that operating in China’s fast-food sector is risky. China’s agricultural space is fragmented, with millions of small farmers—fertile ground for food-safety problems. Insulating against the risks is expensive and no guarantee problems can be avoided. The beady eye of China’s state media can amplify problems.
A sharp rise in competition adds to Yum’s ailments. It is sticking with plans to add 700 new stores in China this year, on top of the 5,726 it already has. ButMcDonald’s MCD +1.25% is planning to add more than 300 restaurants in 2013. Yum still outnumbers rivals, but in some malls it now jostles for space with McDonald’s, Subway and cheaper Chinese outlets.
Last year’s food-safety scandal triggered a bout of nausea for investors. Worries over bird flu have so far had little impact. But if Yum’s China complaints are chronic rather than acute, the shares could falter.
CEO on how Fatburger went from bankruptcy to growth spurt
Cherryh Butler, FastCasual.com
Although Fatburger has been around since 1947, and has more than 150 units, the chain has done most of its growing in the past 10 years. It has nearly quadrupled the number of units it had in 2003. Under the direction of CEO Andy Wiederhorn, the brand has not only expanded its footprint across North America but has also focused on the Middle East and Asia. Even after two of the chain’s subsidiaries filed for Chapter 11 Bankruptcy in 2009, Fatburger is thriving.
Q: You closed a few locations a few years ago but have since made quite the comeback. Why was the decision made to close those units?
Wiederhorn: The majority of the units that we had to close down were due to leasing agreements coming to an end or stores that were not generating a positive cash flow. In regards to leasing agreements, in some cases, we could not come to terms with the landlord in negotiating rent, and therefore made the decision to close. Also, when dealing with Chapter 11 Bankruptcy with two of our subsidiaries (California and Nevada), we had to make the difficult decision to close units that were no longer profitable.
Q: What has led to your recent success? How have you been able to double the footprint in the last few years?
Wiederhorn: We were able to turnaround the brand by placing great focus on areas like the Middle East and Asia, as capital was more readily available there at the time. Our first international location opened in Canada in 2006, followed by Macau, China in 2007, and Dubai in 2008. Since then, we have made great strides in increasing our presence internationally, with about half of our 150 current locations based overseas. Also, over the last few years, we have converted our business model to be 99 percent franchisee operated.
Q: You have a strong international presence. What are one or two things that any Western chain needs to consider when going international?
Wiederhorn: The most important thing that a Western chain needs to take into consideration is the versatility of their product. We are fortunate that burgers travel well and are loved throughout all areas of the world. In recent news, we opened in Karachi, Pakistan and were under the impression that our chicken items would be more heavily sought after, but soon realized that our beef was in higher demand. As a result, we needed to think quickly and actually airlifted beef in to feed our customers. Overall, when launching a store internationally, you must be able to adapt to the cultural preferences of the market and handle any situation that is presented to you in a timely manner.
Q: What is your growth plan — more international markets or more in the U.S.?
Wiederhorn: We plan to grow both significantly in the United States and in international markets. Last year, we signed a notable development deal with Shanghai-based investment bank, Puji Capital Limited, to aggressively expand the Fatburger chain by a large number of locations over the next several years. In addition to expansion in China, Taiwan, and Singapore, we are growing our footprint around the Middle East, opening units in Jordan, Lebanon, and The United Arab Emirates. In terms of our domestic presence, we will be bringing the burger brand to the New York City area. Our first location will open in the Murray Hill neighborhood this Spring, with nine more units to come over the next few years.
WENDY’S PARTNERS FOR EXPANSION INTO ECUADOR
Ecuador is the latest country targeted for expansion by the Wendy’s Company, which recently signed a long-term agreement with The Eljuri Group to develop 20 franchise restaurants in the South American country.
As the largest business conglomerate in Ecuador, Eljuri expects to open its first two Wendy’s locations in 2013 in Guayaquil, a coastal city with a population of 2.3 million people, the company said.
The deal is The Eljuri Group’s first venture into the fast food business. The group is comprised of more than 150 business in several sectors including hotel food service and commercial real estate.
Wendy’s – the world’s third largest fast food company after arch-rivals McDonald’s and Burger King – currently has franchise operations in 17 countries in Latin America, alone. Worldwide, there are more than 6,500 of the company’s restaurants in 27 countries with most of its global growth seen within the last four years.
Since January 2009, the Dublin, Ohio-headquartered company has followed an aggressive international marketing strategy with new restaurant development announcements in Singapore, the Middle East and North Africa, the Eastern Caribbean, Argentina, and the Philippines.
Last year, Wendy’s inked an agreement with The Wissol Group to develop 25 restaurants in Georgia and the Republic of Azerbaijan by 2022. One of the largest business groups in Georgia, Wissol is expected to open its first Wendy’s location in Tbilisi by the end of this year.
In 2011, Wendy’s reentered the Japanese market with the opening of a restaurant in Tokyo’s fashionable Omotesando shopping district in partnership with developer Higa Industries Co.
The move marked the company’s return to the Japanese market after a two year hiatus. Wendy’s ended a 30-year run there in 2009 after its partner at the time, Zensho Holdings Co., declined to renew the agreement, saying it would focus on building its main Sukiya chain of beef-bowl restaurants.
The same year the company opened in Moscow, Russia – the first in a plan to eventually open 180 throughout the country with franchisee partner, Wenrus, and signed an deal with Desarrollos Gastronomicos S.A. to develop 50 Wendy’s franchises in Argentina.
Easy as Cake
FoodTools’ Sweet Export Success
Reprinted from Global Trade Magazine
A McDonalds location in Moncton (mountain road). (Photo credit: Wikipedia)
“One of our major customers out of Australia started selling to McDonald’s,” recalls Marty Grano, president and founder of FoodTools, makers of food portioning products and headquartered in Santa Barbara, California. “They had to ramp up so fast, they couldn’t do it by hand anymore, they had to do it by machinery.”
The good news for FoodTools? Grano’s company patented “the machinery” back in the early 1980s. Since first exporting to Canada in 1985 and Europe in 1990, FoodTools has turned its attention to India, China and Australia, a region that now buys 50 percent of its total manufacturing. Western behemoths such as McDonald’s and Pizza Hut have moved eastward and are demanding more food products, and quickly. FoodTools simply followed the market.
“I was in a bakery in Shanghai in 2006. They had four plants and 14,000 people working for them—and these were just baked goods,” says Grano. Not surprisingly, China has been a focus for FoodTools since Grano’s visit, thanks in part to his son, a then-Stanford student studying abroad who connected his father with the college graduate who would eventually help establish a sales office in Zhuhai.
FoodTools emerged in 1983 with the CS-2, an “electric machine that could cut a cake into even portions and deposit a divider insert between the slices.” Grano’s technology had a profound impact for commercial bakers. Companies such as Sara Lee and Eli’s Cheesecake “grew up with our technology,” according to Grano, and similar food manufacturers began sprouting up across the country. In short, the CS-2 and its disciples have streamlined the packaging process once cakes leave the oven, and Grano says that in turn has changed the way restaurants handle dessert.
“If the restaurants can buy a wholesale cake and have it taste as good as what they could bake in their own kitchen, why not do it?”
A message from the Publisher
QUIZNOS PLANS GLOBAL, LATIN AMERICAN EXPANSION
Denver, Colorado-based submarine sandwich chain Quiznos has partnered with Mexico City-based Quizmex SA de CV to open more than 150 restaurants in Mexico – including five in the Mexican capital city alone by the end of this year – over the next decade.
“Quiznos is a highly respected international brand that demands excellence from its partners and we’re very confident in our ability to successfully position the brand in Mexico,” said Issac Levy of Quizmex in a statement to the press.
The partnership is the latest in a series of Quiznos international development announcements.
The company opened its first location in Russia last March and has said that it expects to open more than 1,000 international locations in more than 40 countries by 2020.
Over the last two years, the company has expanded in the Philippines, India and Latin America, particularly Brazil and Paraguay, where it opened the first of five new restaurants last September in the new Shopping Pinedo mall in Asuncion.
Quiznos said it expects to open more than 1,000 international locations by 2020 with particular emphasis on the burgeoning Latin American market.
According to the company’s website, it currently acts as a 114-unit multi-brand franchisee and master franchise quick-serve restaurant developer in 14 countries throughout Latin America/Caribbean region.
Quiznos currently has 80 licensed restaurants operating in the region with 16 units under development and an additional 27 units committed through development agreements.
As KFC Goes to Africa it Lacks Only One Thing: Chickens
ACCRA, Ghana—To make American fried chicken daily fare in Africa, Ashok Mohinani wants to bring this West African country nearly two dozen KFCs over the next couple of years. First, he needs a chicken farm.
Associated Press Children enjoy lunch at a KFC restaurant in Nairobi, Kenya in 2011—the first to open in the country.
The plastics-mogul-turned-restaurateur opened four KFCs last year, two short of what he planned when he opened his first franchise in 2011. The problem: Ghana’s chicken farmers aren’t professional enough to satisfy the chain’s requirements so Mr. Mohinani has been forced to import chicken. And Ghana’s currency, the cedi, has been falling. That has increased import costs, driving menu prices higher—and customers away.
“With fast food, you can’t keep raising prices,” he said. “It’s chicken.”
Mr. Mohinani is confronting a dilemma faced by colleagues across the continent. In 2010 KFC owner Yum Brands Inc. said it planned to open 1,200 KFCs in Africa by 2014.
In Ghana, Mr. Mohinani ships in all his chicken. But in Nigeria, it is illegal to import chicken, so KFCs in that country recently added fish to the menu. Poultry imports are barred in Kenya, too. And because only one supplier, a British-Kenyan monopoly, is professional enough to meet Yum’s requirements—such as keeping detailed records, laying rodent traps and refrigerating meat—the chain purchases chicken about $3 above market rates.
Yum didn’t return requests for comment.
KFC’s chicken hunt sounds a cautionary note to Western fast-food rivals seeking to expand in Africa.
The Subway sandwich chain, which is owned by Doctor’s Associates Inc., has almost 30 restaurants on the continent and plans to open 20 in Kenya over the six next years, plus others in Tanzania, Zambia and South Africa. “The business environment in Africa for us has been relatively sluggish until recently,” says Don Fertman, Subway’s chief development officer. He says the company expects to see additional progress this year.
Domino’s Pizza Inc. opened two restaurants in Nigeria last August, adding to its more than two dozen outlets in Egypt and Morocco, and says it is exploring opportunities to expand into Kenya and South Africa.
The reasons for expansion are clear: an emerging middle class on a continent where the total economy is set to grow at least 5% a year through 2017, according to the International Monetary Fund. The World Bank has estimated that food demand across Africa would double between 2012 and 2020.
But the continent’s often small, bucket-irrigated farms will be hard pressed to feed its hungry consumers. “Growing demand for food in Africa is increasingly being met by imports,” World Bank lead economist Paul Brenton wrote in a Jan. 8 report. “Clearly something has to change.”
Mr. Mohinani sees Ghana as well-suited for KFC. A stable democracy has attracted foreign investment and enlivened the restaurant sector.
As wages rise, dining at restaurants is among the first luxuries for upwardly mobile consumers. Ghana consumes five times the chicken it did a decade ago, the Agricultural Ministry says.
Chicken farms remain small, however. That’s a legacy of Operation Feed Yourself in the 1970s, when soldiers under the dictatorship of I.K. Acheampong forced civil servants to build backyard coops.
In the 1990s Ghana moved away from socialist dictatorship. Its government scrapped embargoes on poultry imports, making meat affordable but undermining domestic production. “That was the end of my broiler business,” says chicken farmer Magdalen Khoury.
Ms. Khoury, the owner of Agdalen Farms Ghana Ltd., had tried to supply one of the handful of local fast-food rotisserie that sprung up as cheap foreign chicken poured in to the country. But since she couldn’t deliver birds at a consistent weight, cost and quantity, she shifted her focus to eggs.
Kofi Appenteng wants to change all this. He is the financial adviser for Ghana’s West Coast Foods Ltd., which is building a $25 million processing plant to meet pent-up demand for chicken.
It won’t be easy. For starters, chicken feed also is imported, raising costs, because Ghana’s cornfields have suffered from foreign competition. Chicks are flown in to the country, many hatched in cargo holds.
Also, West Africans favor tough, bony cuts that farmers abroad are happy to unload here a loss. “We prefer the dark meat, the gizzard. People eat the neck,” Mr. Appenteng says. He plans to sell gizzards locally and ship unwanted boneless breasts abroad.
Eventually, he hopes, a farmer will amass the credit, know-how and clientele to build a farm high-tech enough to supply his plant—and from there, KFC.
Mr. Mohinani isn’t optimistic that Ghana’s farmers can get their henhouses in order.
Meanwhile, he is offsetting his high chicken costs by having his restaurants push shito, a local pepper-and-tomato hot sauce, instead of ketchup, which is imported.
That move hasn’t been trouble-free, either. Shito is brewed in a nearby factory, where KFC had to install a metal detector “so that bits of metal don’t fall into the food,” Mr. Mohinani recalls. “It’s going to be a long story.”
—Julie Jargon in Chicago contributed to this article.Write to Drew Hinshaw at firstname.lastname@example.org
A version of this article appeared February 9, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: KFC Leads Fast-Food Race to Africa.
Bennigan’s launches first UAE restaurant
Bennigan’s, a chef-driven US neighbourhood restaurant chain with outlets across South America, Asia, and the Middle East, has announced the opening of its first restaurant in the UAE.
Bennigan’s is a renowned American brand brought over by Dynamic Hospitality, a food and beverage investment company operating under the umbrella conglomerate Al Aroud Group.
The Irish pub-themed casual dining restaurant chain, known for its generous portions and generous pours and friendly ambiance, was founded in Atlanta, US, in 1976. The new UAE outlet is located in the Claren’s building on Sheikh Mohammed Bin Rashid Boulevard, Dubai.
Speaking at the launch, Saleh Al Aroud, the chairman of Al Aroud Group, said: “We are excited to bring Bennigan’s to the UAE and offer a new dining experience to the region. Dubai takes pride in its diversity, being a home of many nationalities, as well as in its strong reputation as a hospitality nerve center in the Middle East.”
The opening ceremony was held in the presence of several top officials incluing US Counsel General Robert Waller.
Bennigan’s is one of the American Franchisors with which Dynamic Hospitality has signed deals. The other brands include EarthFruits Yogurt and the well-known Spanish restaurant La Postreria.
The Al Aroud Group, whose investment list includes airline, information technology, real estate development, advertising, marketing, and event management companies, has invested Dh200 million ($54.4 million) in the food and beverage industry in the UAE and the Mena region through Dynamic Hospitality, stated Al Aroud.
“We are happy to open Bennigan’s in the heart of Dubai’s luxurious Downtown district, and are confident that our guests will enjoy the comfortable and unique environment that the restaurant offers,” he noted.
Bennigan’s menu offers a wide selection of American fare which includes signature Certified Angus Beef hand cut to suite the guests’ preferences along with the world famous Monte Cristo, Bennigan’s original, lightly fried and served with raspberry preserves for a unique combination of flavors, all offered extremely well generous.
Al Aroud said the company plans to launch two more Bennigan’s chains in the UAE. “In addition to this, we are opening at Dubai Mall and Sahara Centre,” he added.-TradeArabia News Service
China Woes Put Dent in Yum Brand
Yum Brands Inc.’s YUM -0.02% latest bout of bad publicity in China is putting a dent in sales and sending shares down, but analysts expect the company to bounce back soon, as it has following other negative news.
Yum, the Louisville, Ky.-based parent of KFC, Pizza Hut and Taco Bell, on Monday said it expects its China division’s fourth-quarter same-store sales to fall 6%, deeper than its previous estimate of a 4% decline, after publicity from a government review of China poultry supplies hurt its KFC outlets there during the last two weeks of December.
Authorities in China have said they are looking into whether KFC purchased raw chicken with higher-than-permitted levels of antibiotics from two poultry suppliers.
In 2003, despite an outbreak of severe acute respiratory syndrome, or SARS, KFC’s China sales were strong for most of the year. Sales had dropped there by between 20% and 30% for about three weeks, but then recovered. The following year, as news of avian flu spread in Asia, many customers stopped eating chicken for a while, but KFC bounced back. Then, in 2005, KFC pulled several products from its menus after it discovered that some of its chicken seasoning contained Sudan I, a dye linked to increased cancer risk, but sales didn’t suffer for long.
With the latest scare, RBC Capital Markets analyst Larry Miller said, “The question is: How long will the sales weakness persist? Although it is impossible to know, we’re assuming it continues for another month, similar to past food-safety issues.”
“The Chinese consumer takes food safety issues much more seriously than the U.S. consumer, we believe. The good news is the sales and earnings impacts are normally short-term and Yum has experience dealing with these types of issues,” Mr. Miller added. “We note that buying Yum [shares] on China weakness has proved to be a profitable strategy over the course of history.”
Janney Montgomery Scott analyst Mark Kalinowski on Tuesday reiterated his buy rating on Yum shares, saying, “Issues such as the current one affecting China have generally in hindsight proven to be buying opportunities.”
Xinhua/Zuma PressYum, the parent of KFC and Pizza Hut, expects its China division’s fourth-quarter same-store sales to fall 6%. Above, a KFC in Shanghai in 2011.
In 4 p.m. trading on Tuesday, Yum shares were down $2.85, or 4.2%, to $65.04 on the New York Stock Exchange.
The latest situation in China underscores the importance of reassuring customers about food safety in a country that has had its share of scandals. Foreign brands for years have been seen as higher-quality than domestic brands. Locals pay a premium for foreign baby formula following a 2008 tainted dairy-products scandal that killed at least six infants and caused illnesses in 300,000 others.
Foreign food and restaurant companies are coming under increasing scrutiny from Chinese consumers asking tough questions about how their food is made.
“I’ve read too much about KFC’s problems,” said 25-year-old Liu Xiu, who was near a KFC at a shopping mall in Beijing with no plans to stop in. “They use too many drugs in the chicken and it’s not safe.”
Yum, which has a 39% share of China’s fast-food market, said its products are safe and that it is working with food-safety watchdogs to strengthen its standards and prevent supplier problems. Health officials in Shanghai, the city where the probe first surfaced, said last month that they didn’t find elevated levels of antibiotics in KFC products they tested following critical media reports from China Central Television, the national state-run broadcaster.
To bring people back into KFC, Yum plans to increase its direct communication with customers in China, using social media and other marketing activities, a spokeswoman said.
The foreign company isn’t the only one that has faced scrutiny in recent months, particularly in China’s state-run media. McDonald’s Corp. was also named in CCTV reports last month about antibiotics in chicken, though to a lesser degree than KFC. McDonald’s said its products are safe and that it has terminated its agreements with suppliers that have been called into question. “When CCTV reports such incidents, there is an impact on the company to which we must respond to secure confidence and safety of consumers,” a spokeswoman said.
McDonald’s also came under fire last year, after CCTV reported that a Beijing branch of the chain sold beef that had fallen on the floor and chicken wings that sat out 24 minutes on a warming tray. McDonald’s apologized to consumers, saying on social media sites that it would enhance training at its stores.
In March, retailer Carrefour SA CA.FR -2.01% apologized and vowed to beef up training after CCTV reported that an outlet in the Chinese city of Zhengzhou sold expired chicken and had mislabeled other chicken products. Officials in Chongqing temporarily closed all of Wal-Mart Stores Inc.’s WMT +0.03% 13 outlets there and arrested or detained 37 employees for allegedly mislabeling cheaper pork as more-expensive organic pork. Wal-Mart said it would also improve standards; the employees have since been released.
Foreigners often grumble that international companies make plum targets for China’s state-run media. But experts say increased consumer awareness and cynicism is also contributing to the scrutiny, said Torsten Stocker, a partner at consulting company Monitor Group.
“Most consumers in general are afraid of the food they buy in China,” said Sun Mengda, a Beijing-based consumer who works for an online baby retailer. Mr. Sun said that he has for several years steered clear of chicken. “It’s a problem that goes far beyond KFC,” Mr. Sun said.
Ben Cavender, a senior analyst at Shanghai-based consultancy China Market Research Group, added, “the conversation here is motivated by fear.”
Some consumers are sticking by KFC. “Compared to all the little restaurants, KFC can’t be considered disgusting,” said one user of Sina Corp.’s SINA -1.41% Twitter-like Weibo microblog service, using the name Xiao Li. “Speaking truthfully, KFC’s quality is better than everywhere else,” said another Weibo user named Chi Boxiong.
China’s media reports didn’t detail any health impacts linked to antibiotics in chicken. Experts say when the drugs are properly monitored that they can prevent disease from spreading to humans, though the World Health Organization says misuse of antibiotics in food animals can lead to antimicrobial resistance, affecting humans.
KFC will continue to be under a microscope in China. The Shanghai authorities who found antibiotics within permissible levels also found what they labeled “suspicious” levels of an antiviral drug in KFC chicken. China lacks a national standard for the drug, but the regulators said they would continue reviews.
—Olivia Geng and Colum Murphy contributed to this article.
RUTH’S CHRIS STEAK HOUSE GROWS IN ASIA, LATIN AMERICA
The New Orleans restaurateur’s new international steakhouses mark the company’s 133rd and 134th openings. Credit: ruthschris.com
Ruth’s Chris Steak House has opened two new international locations in Singapore and El Salvador.
In Singapore, the 7,800 square foot restaurant is located in the five-star Marina Mandarin Singapore, which stands in the thriving center of the city with views of the financial district and Marina Bay.
This location marks the seventh Ruth’s Chris Steak House to open in Asia by franchisee-owner restaurant group Hasmore Limited, adding to their existing locations in Tokyo, Hong Kong and Taiwan.
The Ruth’s Chris franchise in the city of San Salvador is located in the World Trade Center – the tallest building in the city and home to the convention center, office space, hotels, banks and more – in the heart of the city’s financial district.
The restaurant is owned and operated by Corporacion Piramide S.A. de C.V. under the leadership of owners Conrado and Mercedes Rovira.
The new openings mark the New Orleans-based company’s 133rd and 134th steakhouses to open with international franchisee-owned restaurants also located in Mexico, Hong Kong, Taiwan, Tokyo, Aruba, and Canada.
Make way for Kentucky Fried, Chicken Kiev
A partial “coming soon” advertisement by KFC is seen on Dec. 5 on Gorky Street at the newly opened Ocean Plaza mall in Kyiv next to the Lybidska metro station.
© Kostyantyn Chernichkin
Ukraine’s signature poultry dish, the Chicken Kiev, will soon have an American-inspired competitor.
The world’s third largest fast-food restaurant chain, known as Kentucky Fried Chicken, or simply KFC, has branded premium space at the newly opened Ocean Plaza shopping mall near the Lybidska metro station in Kyiv. In oversized letters, the future restaurant is recruiting employees and lists a telephone number.
A spokesperson for Yum! Brands in Moscow – the parent company of KFC as well as other fast-food chains such as Taco Bell and Pizza Hut – said he will confirm the restaurant expansion in Ukraine “only after the eatery opens” and promised to invite the Kyiv Post to the door opening ceremony.
The Moscow office of Yum! Brands reportedly is overseeing the restaurant’s foray into Ukraine.
In March when the Kyiv Post first reported about KFC’s entry into Ukraine, the company official Illya Politkovsky said KFC restaurants here would use a multi-franchising ownership structure and that the main features of the KFC Russian menu will be offered to Ukrainian customers.
Politkovsky added in March that refrigerated chicken, not frozen, will be exclusively offered.
KFC’s Russian website offers classical buckets of chicken legs and wings, chicken strips, sandwiches and wraps. Unlike U.S.-based KFC outlets, the Russian menu offers chicken shish kabobs, beer and Belgian waffles as a dessert option, among other region-specific items.
The minimum financial requirement to open a KFC outlet in the U.S., according to the company’s website, is $1.5 million net worth, and $750,000 in liquid assets. The website added that financial requirements vary from country to country.
KFC was founded by Kentucky resident Harland Sanders in 1952. Sanders was named an honorary Kentucky Colonel in 1936 by that state’s Governor Ruby Laffoon in recognition of his contribution to the state’s cuisine.
Based in Louisville, Kentucky, KFC has more than 15,000 restaurants in 105 countries and territories around the world, according to Yum! Brands’ website
China Worries Gnaw at Yum Shares
By KRISTIN JONES and ANNIE GASPARRO, The Wall Street Journal
December 1, 2012
Shares in Yum Brands Inc. YUM -9.92% fell sharply Friday after the fast-food chain said its sales in China have softened and damped earnings expectations for next year.
The parent company of Taco Bell, KFC and Pizza Hut said late Thursday it expects fourth-quarter sales at outlets open more than a year to contract 4% in China because of weakness in the world’s No. 2 economy. That compares with same-store sales growth of 6% in the third quarter and 21% in last year’s final period.
Zuma PressYum Brands’ explosive growth in China is cooling, as is the economy. Above, a Pizza Hut delivery in Shanghai.
Louisville, Ky.-based Yum said it expects this weakness to be offset by results from other overseas markets and its U.S. division. But its projection that per-share earnings, excluding special items, will rise 10% next year fell short of the 14% growth recently projected by analysts polled by Thomson Reuters.
Yum’s shares were off 10% in Friday afternoon trading on the New York Stock Exchange. Before Friday’s decline, Yum’s shares were up about 26% since the start of the year.
Yum has been one of the most successful foreign companies in China, with roughly 5,000 restaurants in the country—more than other American fast-food chains have built. While that is far fewer than the 18,000-plus locations it has in the U.S., Yum’s much faster growth rate and quicker return on investments in China has made that division arguably the company’s most important.
Yum, which affirmed its full-year earnings view for 2012, said it expects to report 6% same-store sales growth in China for this year.
Customer traffic at its restaurants in China has been declining because of the economy, but Yum said Thursday the division continues to target same-store sales growth in the mid-single-digits over the long run. The company said that speeding up new-store development will further drive profits.
“Next year will be another strong year for our China division, given this year’s record development of at least 800 new units and significant innovation in the pipeline, underpinned by world class operations,” Chief Executive David C. Novak said. “We are extremely confident Yum China remains the best growth story in the restaurant industry.”
Still, some analysts downgraded Yum’s shares in response to Thursday’s announcement. UBS UBSN.VX 0.00% analysts expressed concern about the “murkier China consumer outlook,” saying that despite potential efforts from China’s incoming leadership to stimulate demand, Chinese consumers could “remain cautious over the near- to medium-term.”
Yum’s struggling domestic business has shown signs of a comeback recently, including Taco Bell’s successful launch of its Doritos Locos Tacos, with a nacho cheese Doritos taco shell. The chain hopes to build on that strength with its “Cantina Bell” menu, which launched nationally in early July and focuses on fresher and higher-quality ingredients, taking after Chipotle Mexican GrillInc.’s offerings.
Yum Brands says key sales trends soften in China
Bloomberg Businessweek via AP News Posted on November 29, 2012
LOUSIVILLE, Ky. (AP) — Yum Brands Inc.‘s shares fell in after-hours trading Thursday after the fast-food operator disclosed softer sales trends in China and backed a disappointing full-year forecast.
The company, based in Louisville, Ky., operates KFC, Pizza Hut and Taco Bell worldwide.
Yum Brands has focused much of its attention on rapidly expanding markets such as China. Revenue from its stores in China open at least a year increased 21 percent last year. Same-store sales are an important measure of financial performance because it strips away the effect of recently opened or closed stores.
The company said it expects same-store sales overall to be up 4 percent in the fourth quarter. The company said stronger-than-expected performance by its restaurants in the U.S. and other international markets will offset softer sales in China for the period.
Yum Brands expects same-store sales to increase 6 percent in China for the full fiscal year. The company added 800 new sites in China during the year.
Yum Brands backed its full-year forecast of earning $3.24 per share on an adjusted basis, which represents year-over-year growth of 13 percent. Analysts polled by FactSet had forecast earnings of $3.28 per share. Yum also expects its earnings per share to increase 10 percent in 2013.
The company made the announcement ahead of its annual investor meeting, scheduled for Dec. 6.
Yum Brands shares dropped $4.52, or 6.1 percent, to $69.95 in after-hours trading. It was up 58 cents to close at $74.47 in the regular session.
ERIN GO BIG MAC: MCDONALD’S IRISH EYES ARE SMILING
November 15, 2012 Global Trade Magazine
A bright spot in McDonald’s weak global sales picture is Ireland, where the company has said it will open 12 new franchises and create more than 700 jobs over the next three years. Credit: militaryphotos.com
Despite the grim international quarterly sales figures recently reported by McDonald’s Corp, there is one serious exception to the company’s sagging European business – Ireland, where the company has seen a dramatic upswing in business over the past year.
The solid growth in sales there has spurred the Illinois-headquartered fast food giant to draw up plans to invest $24 million in its Irish operations, open 12 new franchises, and create 700-plus jobs across the country by the end of 2015.
The Irish Minister of State at the Department of Enterprise and Jobs, John Perry recently dedicated McDonald’s newest restaurant in Airside, near Dublin, telling the media that “the company’s model of offering local business people the opportunity to run their own business as franchisees has been very successful.”
The opening in Airside created 82 jobs, bringing the total number of people currently employed by McDonald’s in Ireland to over 4,000.
The planned franchises include new outlets in Dublin, Kilkenny, Ballina and Kildare village with staff recruitment expected to get under way after the first of the year.
Adrian Crean, managing director of McDonald’s Ireland, said the company “takes pride in creating jobs and supporting Irish suppliers.” The company opened its first franchise in Ireland in 1977.
Earlier this year, one such supplier, DAWN Meats, won a $381 million, five-year contract to process 18,000 ton of beef annually for the fast food giant. The contract added 65 new workers to DAWN’s existing 1,400 person labor force.
McDonald’s is currently the single largest purchaser of Irish beef by volume, buying 40,000 tons of the product annually.
Interestingly, one in every five burgers bought at McDonald’s restaurants in Europe is made with beef produced by more than 18,000 farmers.
According to a recent study by Dublin-based Indecon Economic Consultants, McDonald’s overall expenditure in the Irish economy on provisions, restaurant development and labor in 2011 was more than $360 million, while sales at all McDonald’s franchises climbed by 3.3 percent to $266 million during the same period.
October 4, 2012 www.qsrweb.com
Krispy Kreme Doughnut Corporation announced today that it has entered into an agreement with Star360 Group for the development of 15 Krispy Kreme franchise locations in Singapore throughout the next five years.
Star360 Group currently operates retail outlets in Singapore, Malaysia, Indonesia, Hong Kong, Philippines, Thailand, Taiwan and Japan.
“This is a very exciting franchise partnership for Krispy Kreme as Star360 is a prominent retail operator in Asia,” said Jeff Welch, Krispy Kreme president, International. “Their unique understanding of the Singapore consumer, coupled with their sound business experience across a variety of retail concepts, matches perfectly with the Krispy Kreme brand and experience.”
Andy Chaw, CEO of Star360 Group, adds that Singaporeans are doughnut lovers and should respond well to Krispy Kreme’s Original Glazed offerings, as well as its coffee line.
“Proud to be the choice partner in bringing this iconic brand to the market, we expect that Krispy Kreme has the potential to take the local doughnut scene by storm,” Chaw said.
Krispy Kreme is approaching the 500-store milestone in international markets. With the Singapore agreement, the company now has commitments for nearly 400 additional international store locations.
Krispy Kreme exists in more than 21 countries, including Australia, Bahrain, Canada, China, Dominican Republic, Indonesia, Japan, Kuwait, Lebanon, Malaysia, Mexico, the Philippines, Puerto Rico, the Republic of Korea, Qatar, the Kingdom of Saudi Arabia, Thailand, Turkey, the United Arab Emirates, the United Kingdom and the U.S.
Midlevel U.S. Chains Move Into Fast-Food Hungry Gulf
By SARA HAMDAN, The New York Times
Published: September 12, 2012
DUBAI — After twelve years of running two small, organic tea shops in the New York borough of Brooklyn, Jonathan Spiel had to close one down when his landlord increased the rent in 2009. Facing that setback, Mr. Spiel decided to look into selling Tea Lounge franchises to expand into new markets and keep his business going.
The Tea Lounge’s first franchise opened this year, in Kuwait.
“When I and my family and friends first heard ‘Kuwait,’ it seemed a little out of the blue,” Mr. Spiel, the Tea Lounge’s founder, said.
“There are limitations and we’ll have to adapt our concept, but the key is that the ritual of socializing over tea and coffee for hours already exists there in people’s homes,” he said. “We want to bring it into the cafe.”
Big name American brands have not been able to open franchises in the Middle East fast enough to satisfy demand in recent years. Fast-food concepts like KFC and Subway have been popular for years, but recent additions include IHOP, The Cheesecake Factory and Papa John’s Pizza. These franchises have the backing of major family-run businesses, like the Al Shaya Group in Saudi Arabia.
The success of these well-known American names has encouraged midlevel brands, like Tea Lounge, to venture into the region in search of financing and some market share. And often, it is Arab businessmen that reach out to them.
When an Arizona-based employee of the Al Arbash Group, a private firm based in Kuwait, approached Mr. Spiel about the idea of expanding the Tea Lounge, the founder had not yet entertained the thought. But the interest from the Arbash group could not have come at a better time: With just one cafe on his hands, Mr. Spiel was eagerly looking for new avenues of growth.
“It’s been difficult for small businesses to get loans for a while now in the U.S., and even when banks do give money, it’s just not enough,” he said. In the Gulf, he said, people “will always have money, which is appealing.”
In December, Tea Lounge will open a new store in a mall in Kuwait. There will be the same 65 kinds of loose-leaf teas, 55 kinds of coffee and a variety of snacks on offer — all organic.
Unlike the cafe in Brooklyn, the Tea Lounge in Kuwait will not serve alcohol or allow live bands to perform, out of respect for cultural traditions.
“We don’t have nightclubs in Kuwait; when young people want to have fun they go to a coffee shop in the mall, so what we’re doing is staying true to that and adding Tea Lounge’s community touch,” said Mohamed Al Arbash, the franchise owner of the Tea Lounge in Kuwait and an executive at the Arbash Group. “Since we can’t serve alcohol, for example, we target families more by offering children’s story time or movies — things like that.”
Still, these franchises will face challenges, like maintaining a brand identity while adapting to new cultures. With its following of local artists and a strong attachment to the local community, the Brooklyn version of the Tea Lounge will be very different from the Kuwait branch, despite keeping the same cafe layout and menu items.
It is even trickier for an inherently American concept, like Famous Dave’s, a barbecue restaurant founded 15 years ago by Dave W. Anderson, an American Indian. Famous Dave’s has grown into a public company with 133 branches across the United States and one in Canada.
The company’s logo is a pig roasting ribs over a fire, highlighting one of its most popular dishes — an item that is hardly acceptable in the Middle East, where eating pork is often taboo.
Yet Famous Dave’s plans to open up to 30 stores in the Middle East and North Africa in the next few years as part of a global expansion, said Brett Larrabee, the company’s director for franchise development.
The chain will start with two stores in Dubai before expanding further in the Middle East.
Mr. Larrabee has based his regional forecasts on an analysis of other U.S. casual dining companies that have successfully entered the market, as well as population and demographic figures. The chain’s only franchise outside the United States currently is in Winnipeg, Canada. Famous Dave’s is also looking at expanding into South America, China and Asia.
“When we go into these new areas, we want to meet local needs, so we’re obviously not going to sell things to people that don’t want them,” Mr. Larrabee said. “But the essence of our brand is in our barbecue flavor, which we can serve everywhere.”
Famous Dave’s plans to tweak its menu to cater to local needs and find suppliers capable of providing Halal meat, which meets certain preparation guidelines and is acceptable under Islam’s dietary requirements.
The halal concept is not foreign to Famous Dave’s, Mr. Larrabee said. The restaurant receives similar food requests in the United States, namely in Detroit and New York.
Mr. Larrabee said that the chain was currently in talks with Mideast companies interested in opening a franchise, particularly in Dubai, as well as in other parts of the world.
“When one part of the world is challenged, another is prospering, and there’s great opportunity for us in Dubai” and the Gulf region, he said.
One mistake restaurant chains often make is to think of the Middle East as a homogeneous place, when, in fact, each country has its own legal framework and cultural norms.
This is what Wing Zone has learned after successfully entering Saudi Arabia last November. The company, an Atlanta-based restaurant chain that specializes in chicken wings, hopes to duplicate its U.S. success by opening branches in Kuwait and the United Arab Emirates. The chain says it will need to treat each market uniquely.
Wing Zone was one of the first midlevel brands to enter the Middle East, according to Nick Powills, the chief executive of No Limit Media Consulting, which focuses on the franchising market.
“Lots of the big boys like McDonald’s had mastered international franchising when the economy was good, but midlevel brands started doing this after the financial crisis, when they were looking for ways out of the burdened U.S. market,” Mr. Powills said.
“Breaking into the Mideast is not the easiest thing,” he continued, “it’s not like Wing Zone has brand awareness in Saudi.”
Wing Zone had not specifically targeted Saudi Arabia; the company was approached by Saudi businessmen when it was looking into expand globally.
The partners decided to expand in Jidda in November 2011 after seeing the potential of a growing market in the Middle East, a region in which chicken consumption is high.
Encouraged by the success of the Jidda outlet — which made a profit after just one year in operation — the company is embarking on an aggressive expansion program, planning to open an additional 50 franchises in the region in the next five years.
“From a financial standpoint, it doesn’t make sense for us to have one store; we’re aiming for 25 in Saudi alone,” Matt Friedman, the chief executive of Wing Zone, said from Atlanta. “Other markets on the radar are Kuwait, Jordan and Lebanon, but each country has its own rules so we start from the beginning again.”
It costs an average of $250,000 to open a franchise, while legal documents can cost up to $100,000, Mr. Powills said.
The Pita Pit, an American brand with 400 outlets globally, is now gearing up for its first foray into the Middle East, with two restaurants planned for Riyadh in 2013.
“International franchising is still a fairly new concept around the world, starting 20 years ago, and more so in the Mideast,” said Peter Panopoulos, the president of Pita Pit. “Even with established regional players, it’s still more of an experiment and the process is slower and unpredictable.”
A version of this article appeared in print on September 13, 2012, in The International Herald Tribune.
Pizza Rustica plants flag in Middle East
Tags: Franchising & Growth, Operations Management
Miami Beach, Fla.-based Pizza Rustica has signed an agreement with Kuwait International Franchise Company to expand the brand in the Middle East.
“We are very pleased to work with such a fine company as KIFCO and bring the Pizza Rustica experience to the Middle East,” said Pino Piroso, founder of Pizza Rustica. “We are confident our delicious, high quality pizza will be very well received in this new international market.”
In 2008, Pizza Rustica opened its first international outlet in Paris. Last year, the brand opened in Santo Domingo, Dominican Republic.
Pizza Rustica has plans for additional international expansion in the coming year. Pizza Rustica and KIFCO expect to open the first two units in Kuwait and Bahrain in the next few months.
MARRIOTT INTERNATIONAL TO OPEN FIRST HOTEL IN UKRAINE
Robust Growth Across Eastern Europe Continues with Addition of Historic Hotel to Renaissance Hotels Growing Global Portfolio
Marriott International, London, UK, Wed, August 15, 2012
LONDON – Marriott International, Inc. (NYSE:MAR) announced that it will open its first hotel in Ukraine, the 173-room Renaissance Kiev Hotel, under a management agreement with Subsidiary Enterprise Grand Plaza. The hotel is expected to open in mid-2013 following an extension and renovation of the existing historic building formerly known as the Leipzig Hotel.
Renaissance Hotels represents the signature lifestyle brand within the Marriott International global portfolio. Recognized for its signature guest programs including R Navigator and RLife LIVE, Renaissance Hotels currently has 35 hotels throughout Europe.Kiev, Ukraine’s capital city, serves as the economic, political, and cultural centre of the country. The Renaissance Kiev Hotel will be perfectly situated in the heart of the city centre on the corner of famed Volodymyrska and Prorizna Streets, facing Golden Gate Park. The hotel is located a short walk from the city’s key attractions including the shopping district, government buildings and Saint Sophia Square and a stone’s throw from the city’s Opera House.
STUNNING, ELABORATE ARCHITECTURE
Boasting stunning, elaborate architecture and design, the Renaissance Kiev will add a new extension to the existing, historic façade coupled with sensitive interior re-design. A hotel brand known for its ability to incorporate indigenous inspiration within every guest experience, the historic property will be restored to its former glory, bringing the distinct look and feel of the Renaissance Hotels brand to the dynamic city of Kiev.“We are thrilled to be adding our first hotel in the Ukraine,” said Amy McPherson, president and managing director of Marriott International in Europe. “As we continue to expand throughout Eastern Europe, we are excited to enter exciting new locations like Kiev, which offer both stunning natural beauty, as well as a fascinating mix of old and new, rich history and culture.”The hotel will boast 173 elegantly appointed guestrooms and a rich offering of authentic dining experiences, including a specialty and casual restaurant, as well as lobby bar. The hotel will also feature a well-equipped business centre and fitness center with spa.The new Renaissance Kiev Hotel will also introduce the Renaissance Hotels brand signature programs to the city, including its R Navigator lifestyle hospitality concierge service and the award winning RLife LIVE entertainment program which showcases the best of emerging talent within the local arts community to both hotel guests and locals alike.
Applying Lessons from Apple’s Marketing Philosophy To Franchise Expansion
By Harish Babla, CFE
Lessons reprinted from the book ” STEVE JOBS” by Walter Isaacson
The original Apple Marketing Philosophy was written by Mike Markulla and adopted by Steve Jobs in 1977. The beauty of the philosophy offers many lessons.
Mike Markulla, was Apple’s CEO in 1977, the same year he gave the company a $250,000 line of credit for a 26% stake in the company. Mike became a ‘father like figure’ to Steve Jobs who in the book states “Mike really took me under his wings.”
According to the book, the first lesson Markulla taught Steve was “Your goal should be making something you believe in and making a company that will last.”
Wow! Follow your passion for making great products (and services) without compromising standards. Building your company for the long-term required many disciplines in a world obsessed with making a quick profit and ever increasing quarterly earnings. To me it is adhering to the many disciplines required of your business:
- Understand the relationship the customer seeks with you and work towards creating customer loyalty
- Have a focused approach to growing your sales by wowing the customer, not sales for the sake of pushing products
- Hire the right people to provide excellence and invest in helping them grow
- Measure, monitor and make adjustments to the key metrics of your business and work on constantly improving the performance of your business
- Desire and cultivate healthy relationships with all stake holders within your business eco-system
- Keep improving every aspect of your business, every day
Apple’s Marketing Philosophy was brilliant in its simplicity:
- “Empathy, an intimate connection with the feelings of the customer: We will truly understand their needs better than any other company.”
- “Focus. In order to do a good job on those things that we decide to do, we must eliminate all of the unimportant opportunities.”
- “Impute. It is emphasized that people form an opinion about a company or products based on the signals it conveys. People do judge ‘a book by it’s cover’. We may have the best products, the highest quality, the most useful software etc., if we present them in a slipshod manner, they will be perceived as slipshod. If we present them in a creative , professional manner, we will impute the desired qualities.”
What are the lessons? For me:
- Nothing is more important than making the needs of the customer central to your business strategy. Without the customers there is no business. This thinking must permeate throughout your business: what the customers buy, how they buy, where they buy, how they receive what they buy, how they pay, how are they treated when there is a problem—in other words, defining the entire customer experience from the perspective of the customer
- Find what you are good at doing and stick to it. Immerse yourself and perfect your niche. Become a master of your space and not a ‘jack of all trades and master of none’. Focus leads to positive energy being poured in the areas of focus leading to many break-throughs
- We live in a fast moving world. The first impression ends up becoming a lasting impression because customers, with many choices, don’t invest much time with a company especially if the first impression is not positive. Every part of your business must impute the image and message that represents you the way you want the customer to perceive you consistent with the experience you want the customer to receive
Since 1977, Apple has become the most market capitalized company in the world. The lessons taught by Mike Markulla to Steve Jobs through the simple but brilliant Marketing Philosophy has played an important role in building such a valuable company and brand.
Share how you see Apple’s Marketing Philosophy being applied to your business.
Aside from lessons learned and conclusions, all Apple philosophy has been excerpted from STEVE JOBS by Walter Isaacson.
A 4th generation successful entrepreneur, a business visionary, an inspiring leader, a growth strategist and an advocate for family owned businesses who believes that business must be conducted with the highest standards of excellence and with an unwavering passion to serve the customer. Harish Babla, CFE. Is currently the Managing Director of Franchise Mind Corporation (www.FranchiseMind.com) and can be reached at Harish@FranchiseMind.com
Harish is a Certified Franchise Executive as designated by the International Franchise Association and conducts learning events and mentoring for numerous companies all over the world.
Brazil Experiences Franchising Boom
In Brazil, where young workers have typically opted to join large corporations in the public or private sector, statistics now confirm a rise in young entrepreneurs choosing instead to run their own franchise. According to the Global Entrepreneurship Monitor, the number of Brazilians aged 18 to 24 that attempted entrepreneurship increased by 74% between 2002 and 2010, with the franchising model being the simplest and safest way to run their own business. The sector has experienced a 10-13% average annual increase since 2002, generated a profit of $44 billion USD in 2011 (89 billion reals), and is responsible for 837,000 jobs.
The greatest draw towards franchising for Brazilians has been the slimmer chances of failure due to its business model. According to business support organization Sebrae, the risk of business failure for Brazilians in franchising drops from 80% to 15%. The strikingly lower success rate has resulted from several factors, explains Jaqueline Costa of Sebrae, including the franchiser’s developed methodology and communication strategies, preexisting suppliers, knowledge of target markets, and a brand that is typically established with well-known products.
Although there is an attractive element of security that comes with opening a franchise, Brazilians also admit that there are still risks involved with franchising. Initially, the entrepreneur must be able to decipher whether or not the brand is popular, how it is doing in the market, and if there are any restrictions that come with opening a new franchise. The franchising model of business also heavily restricts the entrepreneur’s creativity, seeing as everything associated with a franchise is already set to standardized measurements.
In spite of the risks, Brazil’s franchising boom continues to show no signs of slowing down, and it is expected to grow by 15% in terms of profit in 2012. While there are currently 2,031 brands in Brazil, that number is also expected to grow by 10% this year, making Brazil one of the largest countries in the world in terms of number of units. Around 11% of Brazil’s franchising sector are from foreign-based franchisors, which means that this franchising boom also provides an immense opportunity for international franchises looking to expand into Brazil.
Starbucks goes “glocal”
New concept store in Hong Kong puts the neighborhood back into the coffee shop
- By: Sarah Treleaven
- From: Business without Borders
- July 2012
McDonalds to Debut the McBaguette in France
Fast food giant McDonald’s has said it will introduce the French public to its new “McBaguette” sandwich in an effort to cater to local tastes.
The McBaguette will have a price tag of around $6 and is being launched as a test product for six weeks beginning April 18 at the chain’s 1,230 French restaurants.
According to Nawfal Trabelsi, McDonald’s vice president of marketing for France, the new offering blends beef, a slightly strong whole grain mustard sauce and ripe Emmental cheese heated on a crispy baguette.
The new product, he says, is of “symbolic importance” and part of the company’s efforts at local integration.
The Illinois-headquartered company “is trying to diversify and is aiming at more traditional or older customers” in an effort to attract customers who aren’t interested in Big Macs,” Yves Marin, a senior manager at consulting firm Kurt Salmon, told The Wall Street Journal. But whether the new McBaguette will be successful remains to be seen.
When The Journal showed a picture of the burger to one Parisian, she said, “It doesn’t quite look like a baguette; a baguette isn’t square. But I would give it a try.” —Mike White, Global Trade Mazagine
Burger-Loving Kuwait Becomes Oasis For U.S. Franchises: Retail
By Diane Brady, Michael Dolgow and Meghan Walsh – Jun 20, 2012 , Bloomberg
Jonathan Spiel has tried three times to turn his Tea Lounge in Brooklyn into a thriving chain. Four years ago, he closed his second location after his landlord raised the rent. Another outlet failed because of poor sales, and he abandoned his last attempt when a co-op board imposed tough rules.
With the sluggish economy crimping his cash flow, Spiel has found a new way to expand: franchising. In Kuwait.
Dubai diners get to line up, New York-style, at local incarnations of Manhattan hot spots like Shake Shack and Magnolia Bakery (housed in a Bloomingdale’s, the 140-year-old retailer’s first foray abroad when it opened in 2010). Photographer: Ryan Sutton/Bloomberg
Smashburger Chief Executive Officer David Prokupek, whose first foreign store opened in Kuwait in April, said he’s glad his five-year-old brand had 120 units at home before venturing overseas. Photographer: Matthew Staver/Bloomberg
Spiel hadn’t planned on doing business in the Gulf emirate. His first — and, so far, only — taker is in Kuwait, Bloomberg Businessweek reports in its June 25 issue.
How does a Brooklyn lounge that boasts a bar and is popular with nursing mothers become a winning concept in an Arab country where alcohol is banned and women must be modest?
“It’s a tea culture, yet there are no tea places,” said Spiel.
While that’s not technically true, the desert state does have two things Brooklyn lacks: oil money and a hunger for more U.S. brands.
For franchisee Mohammed Al-Arbash, whose family’s holdings range from its original jewelry business to recycling machines, that makes Tea Lounge a terrific bet.
“I don’t care if it’s famous,” said Al-Arbash. “I was looking for new ideas in the United States.”
He’s not alone. Hans Hess had barely expanded Elevation Burger beyond Falls Church, Virginia, when he struck a deal in 2010 to bring the chain to Kuwait. While some might balk at handing their organic burger concept to a Kuwaiti owner of hookah bars, Hess never looked back.
He has since signed several deals across the Middle East, and sales at Elevation’s restaurants there are more than double the average of their U.S. counterparts.
While Hess said he never thought he’d hit Kuwait before hanging a shingle in, say, New York, “it made sense once I understood how in love they are with American brands.”
The Middle East has long been a magnet for U.S. restaurant chains thanks to its wealth and large numbers of foreign workers — not to mention its malls, tax-free zones and jet-setting elites. Still, the usual franchising formula is to have some heft at home and then go global, often starting with a move into Canada or Mexico.
That was before slow growth, tight capital and stiff competition made expanding next door more difficult than opening in Dubai.
The result: Dubai diners get to line up, New York-style, at local incarnations of Manhattan hot spots like Shake Shack and Magnolia Bakery (housed in a Bloomingdale’s (M), the 140-year-old retailer’s first foray abroad when it opened in 2010). Soon they’ll also be able to sample the goodies at Sprinkles Cupcakes, a 10-unit chain from Beverly Hills that just agreed to franchise 34 Middle East shops.
Some question the logic of franchising a budding brand. In return for an upfront fee and a cut of sales, buyers are supposed to get a distinctive and proven business model that can be replicated.
“Franchisees are generally entrepreneur wannabes,” said restaurant consultant Michael Seid of MSA Worldwide LLC. When a seller has only a handful of outlets or little experience, Seid asks, what system is being sold?
Smashburger Chief Executive Officer David Prokupek, whose first foreign store opened in Kuwait in April, said he’s glad his five-year-old brand had 120 units at home before venturing overseas.
“I don’t think we’d have had the horsepower or supply chain to support a foreign franchisee before now,” he said. “There’s a real risk in these high-visibility cities. If someone has a bad experience, it can really damage your brand.”
Pollo Tropical debuts in Panama
June 6, 2012
Pollo Tropical announced this week that the first of five new restaurants planned with franchisee El Machetazo in Panama has opened. The new restaurant is located in the Albrook Mall in Panama City, Panama’s largest shopping center.
El Machetazo is a family-owned company founded more than 40 years ago by the late Juan Ramón Poll Cabrera. Among its holdings are 12 hypermarkets of the same name that operate throughout Panama and employ more than 3,000 people. The company also owns and operates 12 Café Caney coffee/pastry shops located inside the markets.
“Panama is an established banking, shipping and tourism-based economy that has seen phenomenal growth in recent years. It also shares strong cultural and business connections with Pollo Tropical’s hometown of Miami,” said Marc Mushkin, senior vice president of International Development for Pollo Tropical. “We are proud to be represented by the Machetazo Group in Panama because of both their strength as a nationwide retailer with extensive landholdings and established infrastructure.”
The new Pollo Tropical is located immediately outside the “Elefante” entrance of the mall, adjacent to other popular restaurants. It seats 60 guests and serves the brand’s signature flame-grilled marinated chicken, roast pork, guava barbecue ribs and made-from-scratch side dishes.
El Machetazo has two additional free-standing Pollo Tropical units currently under construction in the Panama City area. The first will open at the Versalles development and the second will be located at the Brisas del Golf Shopping Center, located in Panama City’s east side. Additionally, El Machetazo has an in-line Pollo Tropical model in development in the Panama City Multi-Plaza shopping center.
Burger King strikes deal to expand in Russia, in line with focus on emerging markets
By Associated Press, Published: June 5
NEW YORK — Burger King is expanding its empire overseas, this time in Russia.The world’s second largest hamburger chain said Tuesday it has reached a deal with its franchise operator in the country to open several hundred new locations in the next few years. There are currently 57 Burger King locations in Russia.
The deal continues the Miami-based chain’s focus on expanding in emerging markets at a time when the fast food industry is becoming increasingly saturated in the United States. In the past year, 80 percent of Burger King’s new openings have been in the region encompassing Europe, the Middle East and Africa.Burger King Worldwide Holdings Inc. did not disclose the terms of its deal with Burger Rus, its Russian franchisee, and VTB Capital, a Russian investment bank. The company last year announced a similar expansion deal with a franchisee in Brazil.Burger King, which has seen its market share in the U.S. decline in recent years, has been undergoing an overhaul since it was purchased and taken private by New York investment firm 3G Capital in late 2010.The firm has been cutting overhead expenses, renovating stores and working to improve relations with franchise operators to turn around its business. In April, Burger King launched a celebrity-studded TV ad campaign to tout its biggest ever menu expansion, which included fruit smoothies, snack wraps and salads.Soon after that launch, the company announced plans to go public again on the New York Stock Exchange this month.Burger King, which has more than 12,500 restaurants worldwide, isn’t the only U.S. fast food company looking for growth overseas.McDonald’s Corp. is also looking for revenue growth in emerging markets such as China, where fast-growing populations present enormous growth potential. The Oak Brook, Ill.-based chain plans to open 900 new restaurants this year, concentrated in Asia, the Middle East and Africa. That region grew revenue 13 percent over the year, faster than any other.Yum Brands Inc., owner of the Pizza Hut, Taco Bell and KFC chains, has also been expanding abroad; in its first quarter, the company added a record 168 new restaurants in China.Copyright 2012 The Associated Press. All rights reserved.
Global Franchise Brands Seek Out Latin America
Franchises have been booming worldwide. Close to 10 million employees work at approximately 400,000 franchise locations worldwide. Franchise owners enjoy that they can open a restaurant without as much risk, and the restaurants enjoy the increase in revenue coming from new stores in a variety of countries. One of the most recent booms in the franchise world is the massive growth in Latin markets. In the past year alone Brazil has experienced a 15% growth in franchises, Mexico has had a 13% increase, and Argentina also had double digit growth with 10.5%.
The large franchise growth in Latin America has many considering if it could be a good investment. Owning a franchise restaurant is not without risk however, there are many obstacles that franchise owners must also overcome. Start-up costs can be substantial, and continuing operating costs can also add up quickly. In Latin countries it can also be difficult to find enough skilled workers to employ. Still, it has been a great option for many especially considering the enormous growth of this type of business in Latin America. McDonalds, KFC, and Burger King along with Latin based stores like Havanna, Pao de Queijo, and Heladerias Grido have all expanded tremendously across Latin America.
There are many pros for brands to franchise in Latin America, but there are also many considerations. Legal issues, trademark considerations, political conditions, and international fees all need to be taken into account. In addition, taste differences are a major hurdle. Careful testing and marketing research needs to be used to ensure that the products offered will appeal to the local preferences. This often means altering the menu significantly. For example KFC serves black beans as a side in Brazil, and McDonalds offers Kosher options in Argentina to appeal to the large Jewish population.
Once cultural adjustments have been made, Latin America offers some of the highest potential markets in the world for franchisers. With its large population and growing middle class, Latin America is ideal for many international restaurant chains. Growth is expected to continue as new stores are opening daily and more brands expand into the area.
APPLE SEEDS, AWARD-WINNING CHILDREN’S PLAYSPACE, TAPS
FLUENT IN FOREIGN TO MANAGE INTERNATIONAL FRANCHISING
NEW YORK, NY May 14, 2012 — Fluent in Foreign LLC, a New York City based advisory firm that helps companies grow, finance and protect their business internationally, has been retained by Apple Seeds International LLC (http://www.appleseedsplay.com) to help them develop and manage children’s activity centers, through franchising arrangements, in international markets.
apple seeds, which opened its first activity center in Manhattan in2007, has won numerous awards for innovation in the design of its 15,000 sq. ft. facility as well as for its wide variety of extracurricular classes for children, and their parents or caregivers, from newborn to five years of age. Last year the company opened its first international facility, in Mumbai, India, with locations in Dubai and Mexico City slated to open this year along with a second Manhattan location.
“Our concept has won recognition and praise from prestigious media like New York Magazine, Time Out New York Kids and Nickelodeon, and we feel the time is right to take our concept — via franchising agreements — to other major cities around the world,” said Bobby Berna, who, with his wife Alison and another couple, Allison and Craig Schlanger, co-founded apple seeds. “Busy parents in other big cities have the same desire for quality playtime and an innovative learning experience for their young children. It’s something that is common to all parents no matter the border.”
apple seeds chose Fluent in Foreign to guide their international expansion, not only because of its 25-year reputation doing business abroad, but also because of the work of Alexander Gordin, the firm’s Managing Director. As Managing Director of the international merchant bank Broad Street Capital, NY, Gordin has worked with dozens of companies large and small to open opportunities to export a wide variety of goods and services. He is a Trustee of the Princeton Council on World Affairs, a frequent contributor to several leading business publications, and wrote “Fluent in Foreign Business,” a guide to doing business overseas.
“There are fantastic opportunities for apple seeds in many developed and emerging markets around the globe. Their proprietary concept of children’s programming is well suited for interactive learning outside of a traditional pre-school environment.,” said Gordin. “But, in the international marketplace there are challenges and potential pitfalls for the uninitiated. We will be guiding apple seeds in their international expansion and develop an international franchising and operating strategy. This will help them identify appropriate markets and find and vet the right business partners in each nation.”
For more information, visit http://www.appleseedsplay.com and http://www.fluentinforeign.com
KFC’s Big Game of Chicken
By Diane Brady
on March 29, 2012 Bloomberg Business Week
Even at nightfall, it’s easy to spot signs of Ghana’s growing wealth in downtown Accra—from the Toyota (TM) Land Cruisers scattered among honking taxis to the ripples of laughter that emanate from a packed rooftop lounge. There’s the young man window-shopping for electronics as he talks on his cell phone, while nearby, three Chinese executives climb into a sedan. But nothing beats the massive illuminated red-and-white bucket perched atop a 20-foot pole, emblazoned with a grinning, goateed Colonel Harland Sanders. For Americans, Sanders may be the faded icon who founded Kentucky Fried Chicken (now KFC) 60 years ago. For Ghanaians, the Colonel, who just arrived in September, is a symbol that their small West African country is now on the map.
Lining up at a new KFC in Ghana
This KFC is housed in a three-story building with floor-to-ceiling windows, semicircular booths, and flat-screen televisions. “This is how middle-class people want to eat,” says surveyor B.B. Acquah, as he pulls apart a piece of Extra Crispy Chicken. “I came around out of curiosity, and I’d have to say this is better than what we have.” Indeed, the chain’s launch last fall was even covered on national TV.
More than 5,000 miles away in New York, “greasy” is the word used by a 27-year-old sales associate named Melinda Chan. She’s in a KFC near Times Square, staring at the box on her tray, which contains a battered thigh, a drumstick, some potato wedges, and a Diet Pepsi. “This must be, like, 1,000 calories,” says Chan. (She’s not far off, according to calorie counts posted on the menu board.) Chan is seated downstairs in a cramped store that also sells pizzas under the Pizza Hut banner. The dining room is nearly empty; a few tables away, a disheveled-looking man is working his way through a tray of food that someone left behind. “I almost never eat here,” says Chan, looking a little embarrassed as she eyes her surroundings and reminisces about a “cute” KFC she once saw in Paris. “Can you believe this is Times Square?”
Brands rise and brands fall, though they don’t often do both at the same time, and under the same leadership. Yet that’s exactly what has happened at KFC. The fried-chicken chain is part of Yum! Brands (YUM), which also owns Pizza Hut and Taco Bell, and represents almost half of the roughly 37,000 restaurants the company operates in 120 countries. KFC has the added distinction of being both the best performer and the biggest headache in the family. In emerging markets such as China, India, and Africa, it’s a muscular player bursting with optimism, innovation, and growth potential. China was home to 3,701 KFC outlets at the end of last year;McDonald’s (MCD) had 1,464. In Africa, KFC plans to enter seven new countries this year (including Uganda, Zimbabwe, and the Democratic Republic of the Congo) and expects to generate $2 billion in sales from 1,200 KFCs across the continent by 2014. In the U.S., which is still KFC’s largest market with 4,780 units, it has closed restaurants and lost share to rivals such as Chick-fil-A and Popeyes. The goal there has been less to rebuild than to “refranchise,” reducing the percentage of company-owned KFCs from 35 percent about a decade ago to 5 percent by the end of this year.
For years, investors have endorsed Yum’s strategy of selling ever more fried chicken in China while reducing investment at home. This has allowed the fast-food giant to increase earnings per share by 13 percent for 10 straight years—a record it expects to maintain until at least 2020—and led to a quadrupling of the stock price. But failing on the home front carries other costs, from frustrated franchisees who are skeptical about a promised turnaround to consumers who are choosing to eat chicken elsewhere. And it’s all happening with a brand Ghanaians and millions of others worldwide are supposed to associate with high-end, American-style chicken. Even fans of the stock, such as UBS (UBS)analyst David Palmer, have wondered: “How did such a stale fast-food concept become such a juggernaut overseas?”
The man behind the Colonel is David Novak, 59, who has led Yum since it spun out from PepsiCo (PEP) in 1997, first as president, then as chief executive officer in 2000, and chairman as well a year later. In that time Novak has accumulated about $400 million in compensation, stocks, and options.
Photograph by Daniel Shea for Bloomberg BusinessweekWhile Novak has fueled Yum’s expansion abroad, U.S. franchisees have languished
The company headquarters in Louisville is an antebellum-style mansion, built in 1970, complete with six three-story-high columns and a flagpole; locals call it the White House. A motion-activated animatronic Colonel Sanders greets visitors in a small museum near the entrance. It’s a shrine to Sanders, who died in 1980, and it showcases old commercials, photos, and even his trademark white suit and bolo tie. The Colonel’s handwritten secret recipe of 11 herbs and spices is somewhere on-site, locked in a 770-pound high-tech safe inside a vault with concrete walls two feet thick.
In Louisville, the recipe vault
The rest of the building is more about Novak. He’s a strong proponent of employee recognition awards, like a set of smiling teeth mounted on skinny legs with big feet that he’s given to countless employees who “walk the talk.” He asks his executives to create awards, too. The many on display include a transparent “Show Me the Money” pig filled with Monopoly notes and a Pizza Hut “Big Cheese” award that’s worn like a hat, in the Green Bay-cheesehead style.
Novak greets me and two senior public relations executives in his office, itself an homage to what he calls Yum’s Famous Recognition Culture. There are photos of employees covering practically every square inch of the walls, all of which appear to include Novak—and in most, nobody has a bigger smile. Today he’s wearing a button-down shirt with the Yum! logo. (He made the exclamation point part of the official name to capture the company’s sense of fun.) It’s mid-October and he’s about to fly to Shanghai to teach leadership insights in a two-day workshop with more than 100 managers. He ushers us into a nearby room, where lunch is served. It’s an assortment of KFC menu items, including Original Recipe, Extra Crispy, and Kentucky Grilled Chicken, as well as string beans, fries, coleslaw, and biscuits. Between bites of grilled chicken—Novak tends to avoid fried food—he reflects on KFC’s much-chronicled success in China. “China has what every business wants—speed,” he says. “You have too much doom and gloom in this part of the world.”
He turns to talk about Africa and Ghana, a country that wasn’t even on Novak’s radar screen until he took a trip to South Africa about three years earlier. What excited him was finding the same long lines and energy he had come to associate with China. “You’d see this brand-spanking-new KFC in the middle of this sea of brown shacks, and people were in there, loving the product,” he says. While there’s little doubt that the continent will be more challenging than China, he thinks it’s ripe for explosive growth: “Nothing shows that we’re more global than if we can build a business in Africa that no one else has.”
That Novak wants to light out for new territory may be as much constitutional as corporate. His father was a surveyor who collected data for maps, and David lived in 32 trailer parks across 23 states by the time he had reached seventh grade. He has a genuine can-do attitude, boyish enthusiasm, and a goofball humor that have endeared him to many of his employees. “David cares deeply about people,” says Micky Pant, who heads international operations. “If you spend even five minutes with him, you come out feeling bigger.”
Novak is clearly a gifted motivator, though the inspiro-speak can get the better of the company under him. The first line of his letter in the 2010 annual report reads, “I’m especially pleased to report 2010 was another year of significant progress toward achieving our future back vision to be THE DEFINING GLOBAL COMPANY THAT FEEDS THE WORLD.” (Capitalization his.) Asked what future back vision meant, a spokesperson wrote, “future back vision is one of the tools we use from our Achieving Breakthrough Results (ABR) training. It’s a look forward at what we want the company to become in future years.”
Novak has written two books in this vein and is donating the proceeds from his latest, Taking People With You: The Only Way to Make BIG Things Happen, to the United Nations World Food Programme. He devotes several weeks a year to teaching his trademarked leadership program and offers his services as a motivational speaker with the Washington Speakers Bureau. Those fees, too, are donated to the UN program. He expects his particularly American brand of leadership to be embraced at Yum offices worldwide. “I was told by some people that my ‘Western ideas’ wouldn’t work in places like Asia or Europe,” he writes in his latest bestseller. “Boy, were those people wrong.”
At home, however, the franchisees are restless, and not only because same-store sales dropped 4.3 percent last year, according to market research firm Technomic. Of more than a dozen franchisees contacted, most declined to speak about management in Louisville on the record, likely because there’s no upside to alienating the company that controls their restaurants. Most do say they have yet to feel much love from management, and few display much enthusiasm for its vision of global expansion. Tales of closures or franchisees selling off assets are common. A bankrupt Kazi Foods agreed to sell off 113 KFC units, mostly in the Northeast, on Feb. 23 for $56.2 million, the bulk being debt owed toGE Capital (GE). While owner Zubair Kazi didn’t return calls for comment, an executive close to the company says the man who was once the country’s second-largest franchisee is “in a state of shock” and blames Yum for disjointed marketing.
Dean Sorgdrager started working at KFC when he was 16 and was a franchisee in Buena Park, Calif., for 21 years before having his license revoked late last year. He describes a business in neglect, where costs mounted as profits fell. Sorgdrager says he had to pay $100,000 to upgrade the outside of one restaurant two years ago, even though the business was losing money at the time. “I asked them if I could delay and they said no, even though the economy had crashed,” says Sorgdrager, who is now driving a school bus. When he tried to sell the business for $200,000 after learning he needed a liver transplant, the company rejected the buyer. In November, it was taken away. Even so, he understands that the Yum chief’s choices have been good for some. “I think he’s managed the company well for shareholders,” he says. “I just don’t think he’s managed the brand well.”
Some owners do say they’ve seen a new spirit of cooperation since John Cywinski became president of KFC’s U.S. business in November 2011. Larry Starkey, who owns seven KFCs in New England, met Novak at a workshop organized by Cywinski and found himself inspired. “John has really tried hard to work with us,” he says. Cywinski says new initiatives are coming that will have people “talking about KFC in a whole new way” within three to six months.
Tensions between Yum and franchisees worsened after the company’s nationwide “Unthink KFC” ad campaign in 2009. Franchisees felt a slogan aimed at promoting grilled chicken undermined the brand, and they sued Yum for marketing control. A judge ruled last year that the two sides had to compromise and get along, and Novak is again talking about a new unity of purpose. He admits that “we’re not as reliable as we should be,” but he also projects the aura of a man who feels he has been dealt a bum hand. Not only is Novak stuck with a patchwork of cramped, aging outlets in second-tier locations, he also has to deal with franchise owners whose interests may be at odds with his own. Some have long-standing rural outlets that rarely stray beyond fried chicken; others are urban outlets that bear the legacy of a failed co-branding exercise Novak launched several years ago, combining Taco Bells, Pizza Huts, and KFCs into one Franken-fast-food joint, satirized in the filmYoung Adult as the “Kentacohut.” (The move was related to his 2002 purchase of Long John Silver’s and A&W, which were sold last year.)
John Gordon of Pacific Management Consulting Group, a restaurant advisory group in San Diego, argues that Novak has “gotten a free pass because of China.” In his view, Yum has essentially given up on the market, choosing to squeeze out costs and sell off its assets instead of fixing the problem. Andrew Selden, an attorney at Briggs & Morgan in Minneapolis who represents the independent Association of Kentucky Fried Chicken Franchisees, accuses Novak of chasing easy growth instead of promoting KFC as a place for a quality group meal. “Anyone can build stores on virgin territory,” asserts Selden, who wishes the company put more emphasis on the home front. “Meanwhile, there’s this priceless asset Yum doesn’t value.”
Franchise consultant Michael Seid of MSA Worldwide says, “You can’t go to franchisees and tell them your big idea is a $10 Sunday bucket.” Even McDonald’s, which has three times as many U.S. restaurants as KFC, has managed to achieve steady sales growth in recent years through healthier menu choices, smart advertising, and investments in new concepts such as its McCafé drinks. While the hamburger chain plans to open 250 outlets in China this year, it’s also spending big to open and upgrade restaurants at home. KFC, in contrast, has imposed costs onto franchisees, and, Cywinski admits, “not had as many innovative products as we’d like.” One West Coast franchisee complains that he couldn’t even get permission to sell iced tea because of the tight PepsiCo contract. As a result, he says, only 6 percent of his falling sales come from beverages, while the McDonald’s down the street gets a quarter of its business from high-margin items such as sodas, peppermint mochas, and smoothies.
It’s not like Americans don’t enjoy chicken. Per capita consumption, according to the U.S. Department of Agriculture, rose more than 10 percent from 2001 to 2011. “The idea that Americans no longer want fried chicken is a myth,” says Cheryl Bachelder, CEO of AFC Enterprises (AFCE) and president of the Popeyes Louisiana Kitchen brand. “They just want it in a range of forms that taste good, and they want to know what they’re getting when they walk through your door.” Bachelder has increased market share, profits, and the number of stores across the U.S. to 1,627 last year. From 2001 to 2003, she worked alongside Novak as president of KFC’s U.S. operations. While she declines to comment on Novak directly, she’s taken potshots at KFC through ads and taste tests, and contends that any brand that’s shrinking just isn’t trying.
The most important person in Bachelder’s universe is not the consumer but the franchisee. “If someone is putting all of their capital to work on behalf of your brand, your No. 1 job is to make them successful,” she says. That doesn’t mean she’s not also drawn to the lure of international markets; Popeyes has built more than 400 restaurants abroad. Like Novak, that’s where she expects rapid growth to be. “No one has ever given KFC a run for their money in these markets,” she says.
On earnings calls, Novak barely speaks of KFC’s U.S. business. Some believe he would like to boost the U.S. operation to sell it off and exit the market. “It all comes down to one thing: winning,” he says. “You go where you can get results.”
While Novak acknowledges that things aren’t where he wants them to be in the U.S., he thinks 2012 will be a better year. “[Management writer] Jim Collins always talks about the magic in the ‘and,’ ” he says at KFC headquarters, surrounded by the rubber chickens, windup teeth, and other reminders of the recognition culture he’s built. “That’s what we’re trying to work on: We want to go after all this explosive global growth andgrow KFC in the U.S.”
Novak contends that he answers to investors. “You can’t win without driving shareholder value,” he says. “If CEOs say they don’t worry about their share price, they’re either not very smart or they’re lying to you.” By that measure, Novak is a hero. “One reason people think I’m a decent CEO inside this company is that our share price is going up,” Novak says. “I promise you, if our share price was going the wrong way for three years, there would be people questioning if I should be in this job.”
While investors have rewarded Novak, some are starting to worry about the domestic brand. The strategy for winning in emerging markets, for all the excitement and high growth they offer, needs a brand that’s popular at home, too. Udo Schlentrich, director of the Rosenberg International Franchise Center, warns that “if you expand overseas at the expense of generating excitement at home, you risk harming brand equity.” KFC has always been about more than fried chicken. In the same way that Mercedes-Benz (DAI) anchors its brand in German engineering, KFC is selling the rest of the world a taste of the American dream.
Novak, however, seems determined that what is working now will continue to work. “If you have the capability to be a global company, you should be a global company,” he says. “That’s a choice we’ve made, and I feel pretty good about how we’ve built the business.”
Rollin’ Along: Krispy Kreme, Dunkin’ Donuts in Russia
Police officers ‘on the job’ from Warsaw to Minsk will now be able to not only carry on a time-honored tradition, but expand their waistlines, as well with the news of Krispy Kreme’s efforts to offer franchises in Russia and Eastern Europe.
The North Carolina-based company said that it’s offering franchises throughout the region at between $1 million and $2 million a piece.
According to sources, Krispy Kreme is concentrating its initial efforts in Moscow, which currently ranks third on the Top 10 list of most attractive cross-border retail destination
Fluent In OPIC – Financing & Protecting your International Franchise Expansion
This webinar occurs several times. Please register for the date and time that works best for you.
A comprehensive “beyond the website” look on how to effectively utilize little known programs offered by the Overseas Private Investment Corporation (OPIC) – a US Government Agency – to finance international franchise expansion transactions and insure royalties.
The workshop will address the application process, Franchise deal structures, sponsor requirements and commitments, approval procedure, realistic time frame estimates, costs, fees, legal and developmental issues. The workshop will also examine various options for protecting royalties and investment through effective use of political risk insurance.
ALEXANDER GORDIN, FOUNDER of FLUENT IN FOREIGN BUSINESS
An international merchant banking professional with over 25 years experience providing cross-border strategic advisory services in the areas of export finance, international project finance, risk mitigation and business development. Clients include foreign governments and state enterprises. Transactional and negotiations experience in over thirty-five countries. Author of the critically acclaimed “Fluent in Foreign Business” book. Published and featured in numerous publications including: The Wall Street Journal, … for more ….http://wp.me/P1iIhX-I
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