Growth Opportunities in BRIC Countries

October 29, 2011

aiinsight

Growth opportunities in BRIC countries

The quickly emerging BRIC countries — Brazil, Russia, India and China — provide significant opportunities for restaurant chains looking to grow internationally, provided those companies tailor their menus to local tastes.

Chicago-based industry research firm Technomic Inc. said striking a balance between maintaining brand identity and building country-specific menu innovations can allow restaurant brands to gain a foothold in these growing markets. Menu items like chicken and coffee will be growth areas for BRIC countries.

“[U.S. restaurant chains] can take advantage of the worldwide recognition they’ve established, but in order to gain loyal customers in new markets, they need to innovate on the menu and introduce items specifically adapted for local consumer preferences,” Darren Tristano, Technomic executive vice president, said. “Chains are also leveraging their international experience and applying lessons learned to improve domestic operations and innovation.”

Some of the largest U.S. restaurant brands have already begun rolling out such products, sometimes by importing them from the United States or other foreign markets, Technomic said.

Brazil
McDonald’s recently launched a Chicken Bacon Onion sandwich in Brazil, which was originally developed for its European division. The sandwich combines a breaded chicken breast with bacon, bacon-spiked cheese and bacon-flavored sauce on a bun dotted with sesame seeds and bacon bits.

Restaurant securities analyst Mark Kalinowski of Janney Capital Markets noted this summer after meeting with McDonald’s chief financial officer Pete Bensen that market-to-market menu sharing would become more common for McDonald’s. Not only could popular items overseas show up in U.S. McDonald’s restaurants, but domestic sales drivers, like McCafé Real Fruit Smoothies, could soon appear on menus in Brazil and beyond.

Burger King has also announced growth plans in Brazil, Technomic said, with a master franchise agreement with an affiliate of private-equity firm Vinci Partners in a joint-venture deal. Burger King currently has 110 franchised locations in Brazil.

Additionally, Wendy’s said it’s renewing its international growth push, with Brazil and China as key targets. The quick-service chain currently has only a few hundred international units, but projects a potential 8,000 overseas restaurants.

China
Companies including Yum! Brands Inc. and McDonald’s Corp. see China, with a population of more than a billion people, as the top prize in international expansion.

In the first half of the fiscal year, Yum generated an operating profit of $397 million from its nearly 4,000 Chinese restaurant locations, or 48.4 percent of its total $820 million operating profit. While McDonald’s generates only 3 percent of its total operating profit from its 1,400 China restaurants, the brand increased its same-store sales there by 14 percent in the second quarter. McDonald’s plans to open 175 to 200 units in China this year.

Yum is also planning to expand in China with native concept Little Sheep, which specializes in “hot pots,” Technomic said. Yum already owned 27 percent of Little Sheep before making an $863.5 million offer for the rest of the brand this summer.

Russia
In Russia, Yum made a similar move by taking over its Rostik’s-KFC joint-venture in 2010 from Rostik Group, which controls Russia’s largest restaurant chain, Rosinter.

Chicken will be a huge market in Russia in the coming years, Technomic noted. One of the country’s largest poultry processors, Cherkizovo, has broken ground on a new production facility that can process 500,000 metric tons of live poultry per year, a significant upgrade from Russia’s total current capacity of 15,000 to 20,000 metric tons annually, Technomic research showed.

India
In India, coffee will have a large potential for foodservice brands, based on the growth of the country’s largest native coffee chain, Café Coffee Day. That brand, with more than 1,100 locations, is beginning to spin off brands, including Coffee Day Lounge, which it hopes to grow from 19 current units to 100 by the spring of 2013.

India has 1,200 restaurant franchisors, about 25 percent of which are from outside India, according to the U.S. Department of Commerce’s Commercial Service. The service valued India’s current restaurant franchise market at $3.3 billion across all sectors, and pegs its potential to reach $20 billion by 2020.

Baskin-Robbins, Pizza Hut, KFC, Papa John’s Pizza, Ruby Tuesday, Pizza Hut, Subway, McDonald’s and Domino’s Pizza all have a presence in India. Domino’s Indian master franchisee, Jubilant Foodworks, had 339 restaurants across 79 cities at the end of 2010 and planned to open 70 units there in 2011. Jubilant’s same-store sales growth has averaged 18 percent over the past five years.

View the full article on Nation’s Restaurant News


The beat goes on: Music can make or break customer experience

October 29, 2011

Beat Goes On

The beat goes on: Music can make or break customer experience

Restaurant operators strive to create an environment that pleases the senses – taste, sight, smell. What some may overlook, however, is sound.

Background music is common in the restaurant industry. But many brands are now veering from homogeneous, elevator-type tunes in favor of customized playlists meant to optimize the brand, as well as customer and staff experiences.

David Rahn, president of Custom Channels, and Bradley Newberger, founder of Ambiance Radio, have both seen a big uptick in restaurant music customization.

“There is a growing number of brand managers and concept developers taking a hard look at what music they’re playing and making it a part of the overall theme and environment. Music is becoming part of the brand; it’s become more than just something playing in the background,” Rahn said.

Evaluating your playlists

Music has enough power to set the tone for an entire dining experience, Newberger said.

“If a restaurant was dirty, if the food was bad or smelled bad, you probably wouldn’t go back. The same applies to music. It’s a mood driver. Even if the food was right, if the music wasn’t right or too loud, the customer will remember,” he said.

To avoid creating unpleasant auditory experiences, Rahn suggests undergoing a “playlist evaluation,” offering such tips as:

•Mix it up and play a variety. Give your playlist depth and avoid being overly predictable or boring.
•Play music consistent with a restaurant’s energy, theme and atmosphere. What works for happy hour, might not work during breakfast.
•Be consistent. Customers expect consistency with food, service, atmosphere, etc. Why wouldn’t they with music?
•Make sure the music playing has high audio quality.
•Choose music that is hip and reflective of your target audience, but avoid anything that is borderline offensive. “Even if your target audience is young males, always assume a family will walk in at any time,” Rahn said.
Don’t forget about the staff

It’s also important to diversity the playlists. For example, Ambiance Radio’s system changes up the songs every hour of every day for every location. If the playlist never changes, it may not matter much to a customer who is in and out within a half hour, but it will matter to employees working 8-hour shifts.

“When employees are happier, they do better things and they treat your customers better. Music is something that can really help with employee satisfaction,” Newberger said.

This philosophy is the reason the former restaurant operator created Ambiance Radio in the first place.

“Everyday at 2 p.m., I knew exactly what song was going to play. It drove us all crazy. If you talk to any employee in any service area and the music is repetitive, it will affect their morale and attitudes,” he said.

Music moves into the foreground

The right playlist can also be used to boost brands beyond restaurant walls. Industry experts agree that Starbucks is the perfect example a brand that of incorporates music into its DNA.

In 2006, Starbucks really proved its music credibility when it partnered with Apple to collaborate on selling music. A year later, the coffee chain began selling digital downloads through iTunes, something it continues today. The retail aspect complements the in-store music that has always existed at the chain. According to Starbucks’ website, music is what makes a great coffeehouse: “We’re just as passionate about music as we are about coffee. That’s why we handpick all the tunes you hear in our stores.”

Starbucks is a big reason in-store music has moved from the background to the foreground, and similitude has made way for variety.

“Starbucks was definitely a leader in this trend. They took a real approach of making music a part of the entire brand experience. And it is a good way to keep their brand contemporary. Others – like Chipotle and Qdoba – have caught on and are doing the same,” Rahn said.

In fact, Chipotle hosted its first “Cultivate Chicago” festival last weekend to “celebrate food, music and ideas.” Founder Steve Ells said the festival is a celebration of the things Chipotle stands for.

Appropriate for all segments

The fast casual segment has embraced the concept of brand soundtracking, but the concept is applicable across the industry, including drive-thru-heavy QSR.

“There is a lot of potential for QSR, especially as we’re seeing more effort put into interiors and creating comfortable environments by McDonald’s and other brands,” said Darren Tristano, executive vice president at research firm Technomic. “Maybe those flatscreen TVs are important to add, but I think the music will impact the customer more and, importantly, have a positive impact on the staff.”

Tristano said one of the best examples of a brand embracing the musical experience is Yard House, a full-service chain based out of Southern California. Its website includes a music request page, where customers can ask that specific songs be incorporated at specific locations.

“By getting that direct reinforcement from the customer, Yard House is getting the most out of its ambience,” Tristano said. “The model is ideal. It’s not as important to have the right music as it is not to have the wrong music, and they know exactly what their customers are looking for.”

Getting the customer to return

Restaurants that use Internet streaming providers such as Trusonic or Custom Channels, or Ambiance Radio, which delivers feeds based on data pulled from proprietary software, are paying to offer music that has been researched specifically to fit a brand, according to Rahn.

“We’ll do a lot of research and ask a lot of questions about the brand, and what their demographics look like at different times of the day. And we’re able to reshuffle and continuously update songs based on that research. There is a science, a psychology behind this,” Rahn said.

And, although difficult to quantify, Tristano believes that finding the right musical personality can subtly boost a brand and maybe even its bottom line.

“It’s not going to be an obvious ROI, but it’s a key factor in a customer’s intent to return,” he said. “You can destroy that intent with the wrong music.”

View the full article on Fast Casual