International Imports: Overseas Chains Look to U.S. for Growth

September 7, 2012

Note: This post originally appeared as a Technomic white paper. Download .pdf file.

In Japan’s busy city centers, the line for McDonald’s queues out the door. The Sphinx sees KFC as it looks across the desert. Restaurant chains are a prime export for the United States, as companies see an escape from the crowded domestic market.

But at the same time U.S.-based chains look to global markets for growth, many chains from outside our borders are finding ample opportunity to expand their concepts and compete in our homeland.

U.S. operators ignore these international imports at their peril. In their effort to stay ahead of the competition, operators must identify and monitor their competition—both domestic chains and global concepts—examining performance data, menu and marketing updates, and expansion plans.

Growing List of Imports
Over the years, as Technomic has been building its intelligence on international markets—now including Canada, the U.K., Brazil, France, Germany, Italy, Spain, Australia and Mexico—and the restaurant brands that lead those markets, it continues to uncover concepts that are looking at the United States for expansion opportunities. Chains such as Tim Hortons, Le Pain Quotidian and, more recently, Red Mango have led the way for a growing list of contenders eyeing the U.S.

What they see when they examine the U.S. market is a consumer who spends almost half their food budget at restaurants, and one who is eager to try new ethnic flavors. U.S. consumers are also ethnically diverse themselves, and many are well-traveled and already familiar with global foodservice brands.

Overseas operators also see large cities and small, some of which may look a lot like the markets in which they successfully operate at home. The real-estate experts in this group will spot the many good locations left by domestic operators and other businesses that couldn’t make it through the economic downturn and slow recovery.

Challenges and Opportunities
There are certainly challenges to overcome to opening in a new country, especially one as saturated as the United States. Beyond the usual complexities of offering a compelling point of differentiation at what consumers feel is the correct price point and keeping up with their busy and demanding lives, an overseas operator is at a disadvantage simply by being located outside the country. A new country’s supply chain methods, legal and governmental regulations, and human resource issues have to be understood and addressed. This means the operator must find partners, franchisors or trusted employees to handle Stateside business and operations.

But there are also opportunities for concepts that feed consumer needs, stay ahead of food and dining trends and manage unit economics. Those with a strong brand and niche, well-defined menu and value proposition have a chance of capturing the attention—and eating-out dollars—of American consumers.

Concepts to Watch
Following are profiles of 10 concepts in varying stages of expansion within the United States. We didn’t select them based on size or seniority. They are merely a diverse group of concepts from around the world that offer something different that gives them the potential to thrive in America. Some have achieved success through the authentic cuisine of their homeland, but others are making leaps with models that they believe are primed for success with U.S. consumers.
What they have in common is attention to consumer trends, such as better-for-you cuisine, a convenient and flexible format, or focus on authentic or innovative flavors.

AFRICA
Nando’s Peri-Peri, formed in Johannesburg, South Africa, in 1987, is a quick-casual chain specializing in peri-peri chicken, a Portuguese-style preparation of poultry basted with a spicy, vinegary sauce that gets its heat from the African Bird’s Eye chile. Portuguese beers and wines provide an authentic accompaniment. Units, averaging 3,800 square feet, operate primarily in high-visibility sites that often have multiple levels. Nando’s restaurants are uniquely constructed and designed, often reflecting the country in which they operate. Interior design elements typically include natural materials such as marble and antique oak, bold African artwork and large potted plants. Nando’s has entered numerous international markets and made its U.S. debut in Washington, DC, in 2008.

Why it’s worth watching: Nando’s pleases flavor-seekers and has strong global brand awareness, operating in three dozen countries on five continents.

ASIA
Gyu-Kaku, founded in 1995 in Tokyo, is a chain of contemporary casual-dining restaurants offering Japanese-style barbecue. It specializes in yakiniku (Japanese for “grilled meat”), in which guests cook their own marinated bite-sized meats, seafood and vegetables over individual smokeless braziers. Averaging 3,500–4,000 square feet, units are located in urban and suburban areas with heavy foot traffic such as shopping malls and lifestyle centers. Interiors are modern and characterized by Japanese-influenced artwork, dark woods, exposed brick and sheer fabrics. Large dark tables provide communal and private seating. Six years after its Tokyo debut, the chain entered the U.S. market with the 2001 opening of a West Los Angeles location.

Why it’s worth watching: Japanese barbecue is underrepresented in the U.S., and Gyu-Kaku gives it a distinct spin with its cook-it-yourself platform and social element.

Little Sheep Mongolian Hot Pot, established in Baotou, Inner Mongolia, China, in 1999, is a casual-dining restaurant chain with an interactive, cook-it-yourself Mongolian-food focus. Customers dip meat, seafood and vegetarian dishes into hot broth at their table to cook them. Signature items range from lamb shoulder, to shrimp meatballs, to mussels and clams. Units occupy at least 4,000 square feet and feature lustrous and contemporary décor with Mongolian murals, calligraphy and bamboo. After launching in Baotou, the chain expanded further into China as well as Taiwan, Japan and Canada. The first U.S. Little Sheep restaurant opened in 2006 in Union City, CA.

Why it’s worth watching: Yum! Brands Inc. owns a portion of the chain and is looking to acquire a majority stake in the company via a $573 million takeover bid.

AUSTRALIA
Guzman Y Gomez, launched in Australia in 2006, is a fast-casual Mexican taqueria that prides itself on being one of the first concepts to bring authentic Mexican food and Latin culture to Australia. The chain celebrates all things Latin: the region’s music, art, personality and especially the food. It specializes in burritos, mini burritos, tacos and bowls prepared with a choice of meat or vegetables and various toppings. It operates both small walk-up operations in food courts and lifestyle centers and larger units, which have TVs, foosball tables and billiards, and a bold décor heavily incorporating the brand’s yellow-and-black color scheme. Units also typically feature exposed brick, framed black-and-white photos and potted cactus plants. Since its founding, Guzman Y Gomez has expanded across eastern Australia.

Why it’s worth watching: Guzman Y Gomez has carved out a niche in Australia as one of the only chains offering authentic, made-to-order Mexican fare, and aims to compete against fast-casual Mexican leaders.

Pie Face, started in 2003 by an American living in Sydney, is a quick-service bakery-café chain known for its freshly baked sweet and savory pies marked with smiley-face designs on the crust. Popular varieties include chunky steak and Thai chicken curry. Stores are counter-service operations that occupy as little as 160 square feet. Whenever possible, they stay open 24 hours a day. Rows of pies and other pastries are showcased in glass cases, and red and black menu boards list the brand’s offerings. After getting under way in Sydney, the chain opened stores throughout Australia and began franchising in 2009. In early 2012, the chain made its U.S. debut, opening a unit in New York City—the first of many planned for the Big Apple.

Why it’s worth watching: Pie Face is bringing Aussie-style handheld, savory meat pies to American consumers, who may be open to this portable and inexpensive meal option.

EUROPE
PAUL, which traces its roots all the way back to 1889 in Croix, France, is a chain of fast-casual French-style bakery-cafés. The concept is designed to evoke a traditional French bakery, where patrons grab a quick bite to go or sit and relax with friends. Units, typically inline shops located along the high street, feature rustic French décor with the look and feel of a village bakery. Design elements include signature black storefronts, exposed interior brickwork and sculptured woodwork. In its present-day form, PAUL opened in 1963 in France. It eventually expanded into a number of countries before it opened its first U.S. unit in Washington, D.C., in May 2011.

Why it’s worth watching: The bakery-café segment continues to perform well, and PAUL differentiates itself with French-inspired décor and traditional French baguettes.

Pret A Manger, founded in London in 1986, is a grab-and-go sandwich concept emphasizing convenience and speed. Pret A Manger, French for “ready to eat,” specializes in prepackaged sandwiches, soups, salads, sushi and breakfast pastries. Food is made daily in-house with natural ingredients and then stocked in stainless-steel, temperature-controlled cases. Any food that is not sold by the end of the day is donated to local charities. Restaurants seat 20–30 customers, measure about 1,500 square feet and feature a bright, modern décor. Units reflect and preserve their European roots with staff members from Europe and from each unit’s host country. Pret A Manger expanded abroad with the 2000 opening of a unit in the Wall Street area of New York City.

Why it’s worth watching: The chain is in the midst of developing what it calls “Pret Local,” an interpretation of the original concept that offers more of a fast-casual positioning in a suburban setting.

YO! Sushi, which debuted in London in 1997, is a conveyor-belt sushi concept (known as “kaiten” in Japan) that aims to make Japanese food accessible and affordable. Freshly made sashimi, sushi maki rolls and nigiri circulate on a moving conveyor belt, and customers grab their dishes right off the belt. They may also order off the menu. Food is served on color-coded plates, each of which corresponds to a different price point; a staff member counts the plates to tally the bill. Store locations range from urban business districts to high-end department stores and airports. YO! Sushi made its U.S. debut in mid-2012 in Washington, D.C.’s Union Station and is planning 30 additional U.S. locations.

Why it’s worth watching: YO! Sushi’s interactive platform, combined with its exhibition sushi preparation, make for a unique and fun dining experience.

NORTH AMERICA
Freshii, founded in Toronto in 2005, is a healthy fast-casual concept that offers salads, wraps, bowls and burritos in signature as well as build-your-own varieties. The concept also stands out with eco-friendly initiatives in packaging and paperless marketing. Averaging 150–1,500 square feet, units are in high-traffic urban areas and feature contemporary décor, shelves lined with packaged snacks, and grab-and-go cases stocked with bottled beverages. Rapid expansion began in 2009 with a master franchise deal for the Chicago market. Eventually the chain expanded across Canada and the U.S. before entering Europe and the Middle East. Long-term expansion plans call for 1,000 units by 2015.

Why it’s worth watching: Freshii fills a dual niche within the rapidly growing fast-casual segment: an eco-conscious chain specializing in healthy, fresh fare.

SOUTH AMERICA
Giraffas, established in Brazil in 1981, is a limited-service chain specializing in Brazilian favorites. The family-owned chain’s signature item is a create-your-own burger with a choice of filet mignon, chicken, ground beef or meat substitute, and a selection of sauce and toppings. The concept goes beyond burger-joint fare to offer traditional Brazilian steak and meat entrées at moderate price points. Units vary in size from 750–3,000 square feet and in location from kiosk to freestanding restaurant. Interiors are contemporary and evoke the feeling of an African safari with tufted rugs and giraffe murals. In mid-2011, Giraffas opened its first international unit, a U.S. store in North Miami.

Why it’s worth watching: Giraffas, already well-established with some 350 stores in its native Brazil, has firmly set its sights on U.S. expansion, calling for additional locations to open over the coming months.

Conclusion
Like many industries, restaurant operators have become global in nature. Just as American chains have found fertile ground around the world in which to grow, internationally based chains are looking at the United States as a market to expand their brand and further develop a platform for growth. U.S. operators should view these new entries not as “flash in the pan” concepts but as true contenders challenging them for traffic and dollars.

Technomic currently tracks major chain operators and menu trends in 10 countries including the U.S., Canada, Mexico, U.K., France, Germany, Spain, Italy, Brazil and Australia. Market intelligence for these countries is available through our industry leading online Digital Resource Library and MenuMonitor.


Amici’s Pizzeria Adds Far East to its Chain

January 24, 2012

Amici's

Amici’s Pizzeria Adds Far East to its Chain

Sophie Lo is convinced the burgeoning middle class of China’s largest city has a craving for upscale Bay Area pizza and pasta.

The Menlo Park businesswoman and her brother, developer Jimmy Lo, are working with officials of Amici’s East Coast Pizzeria Inc. to open the first restaurant of the San Mateo-based chain in Shanghai on Jan. 5. The 7,500-square-foot restaurant in the city’s upscale Huaihai Road shopping district will be Amici’s first location outside the Bay Area, where it operates 12 restaurants, including in San Jose, Cupertino, Mountain View, Menlo Park and San Mateo.

Lo says Amici’s is typical of many businesses on this side of the Pacific looking to expand into China, where the culture has become increasingly affluent, savvy and American friendly. There is a strong appetite for American products.

The wealthy city of Shanghai, the world’s largest city, has 23 million residents, including four million expatriates from the U.S. and other nations.

“Chinese people enjoy good food,” said Lo, citing the Chinese proverb, “To the ruler, the people are heaven; to the people, food is heaven.”

But she added, the Chinese tend to eat smaller portions of food at meals than do Americans and believes that customers there will appreciate the small and thin-crust pizzas Amici’s offers.

Lo said it will cost $1.5 million to open the first Amici’s in Shanghai. Her brother is handling store development in Asia. They and Amici’s owner Peter Cooperstein hope to open at least 200 Amici’s locations around China over the next decade or so. Expansion into neighboring Asian countries is possible.

“Shanghai is very westernized and young people in particular really admire everything about U.S. culture, including the food,” she said.

Strong roots in Asia

A native of Hong Kong with deep family ties in Shanghai, Lo has spent much of her career helping North American and European businesses tap into Chinese markets. The world’s largest nation has 1.3 billion people and an economy growing at 9.5 percent annually.

Most of her clients have been bigger than Amici’s, which projects 2011 sales of $32 million. Her resume compiled through her family’s company, Sun Lee Holdings, includes work with Exxon Mobil Corp., Royal Dutch Shell plc and Bayer AG, along with Nova Chemicals Corp. and Mitsui Chemicals Inc.

Lo moved to the Bay Area initially in 1986, earning a bachelor’s degree in international marketing from San Francisco State University. She returned to Asia to work with Sun Lee Holdings, but came back to the Bay Area in 1994 to found Sound Perfection. The company designs and installs audio, video and home theater systems.

She continued to keep an eye out for potential Chinese success stories among companies from the United States and other western countries. A loyal Amici’s customer, she met Cooperstein when she became the landlord of his Menlo Park location in 2009.

The pair realized the Chinese are no strangers to pizza. Its availability ranges from versions served in fine-dining establishments to the country’s 560 Pizza Hut locations.

She also convinced Cooperstein that the cost of doing business in China isn’t prohibitive, and the profits could be healthy, too.

“Rents in Shanghai can be three or four times more expensive than in the Bay Area, but labor costs are 25 percent of what they are here,” Cooperstein said. “Our target audience will be the locals in Shanghai who have a taste for upscale products and American food.”

Cooperstein said he estimates his company’s first Shanghai eatery could generate about $5 million in annual sales.

Darren Tristano, executive vice president at Technomic Inc., a Chicago food industry research and consulting firm, gives Amici’s a reasonable shot at Asian success.

“This is the time to get into China,” he said. “The economy is growing and it has a huge population. As long as American companies adapt to Chinese culture and tastes, they can be successful. Not as much money is being invested in restaurants (in the U.S.) because the economy is still terrible. I expect to see a lot more interest in China.”

View the full article on Silicon Valley/San Jose Business Journal


Technomic develops newsletter for international growth markets

November 8, 2011

BRIC Newsletter
Technomic develops newsletter for international growth markets

Food and beverage industry research firm Technomic has created a new newsletter, BRIC, which focuses on the growing international markets of Brazil, Russia, India and China.

The launch coincides with the acceleration of U.S.-based restaurant chains’ evolution into global brands, reaching emerging markets where less industry saturation and competition exists. As chains seek to establish footholds in these relatively untapped markets, they are challenged to strike a balance between maintaining their brand identities while tailoring menu items and service formats to local preferences.

“These brands 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,” said Technomic EVP Darren Tristano. “Chains are also leveraging their international experience and applying lessons learned to improve domestic operations and innovation.”

The newsletter was specifically created to keep foodservice executives up to speed on food-and-beverage developments within the fast growing markets of Brazil, Russia, India and China.

Features from the premier issue include:
•McDonald’s Brazil recently rolled out the CBO (Chicken Bacon Onion) sandwich, which was originally developed for the European market. The premium sandwich features breaded chicken, bacon, bacon-spiked cheese and spicy bacon-flavored sauce on a bun dotted with sesame seeds and bacon bits.
•Cherkizovo, one of Russia’s leading poultry processors, has broken ground on a new poultry production complex. The facility in the Lipetsk region is expected to begin operations in 2013 and operate at full capacity by 2015. At full production, the complex will be able to produce about 500,000 metric tons of live poultry per year. Most of the country’s current plants are only able to produce between 15,000-20,000 metric tons annually, so the foodservice implications could be significant.
•Cafe Coffee Day, India’s largest coffee chain with more than 1,100 locations, is rolling out spinoff brands to meet growing consumer demand. The chain’s new Coffee Day Lounge is a concept geared towards young professionals and is expected to grow from its current 19 units to 100 by spring of 2013.
•Burger King and its new master franchisee for Brazil are planning major expansions in the country. Burger King recently awarded its franchising business to an affiliate of private equity firm Vinci Partners as part of a joint-venture deal. The chain currently has about 110 franchised units located in Brazil.
•Yum! Brands Inc. has offered to purchase a majority stake in Little Sheep, the Chinese hot-pot chain. The deal values the chain at $863.5 million, or about $.83 per share. Yum! Brands currently owns about 27 percent of the chain.
BRIC is a quarterly newsletter that covers major restaurant news in those four emerging markets, with an emphasis on both local chains and U.S.-based brands. Each issue of BRIC will feature an in-depth profile of a leading chain for each of the four countries.

To request a complimentary premier issue contact Robert Hicks at 312-506-3860 or rhicks@technomic.com.

View the full article on QSR Web


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