A number of quick-service concepts have expanded their growth opportunities by expanding internationally in the last couple of years. Their successes — and failures — provided a number of lessons for attendees of a Monday session on international expansion conducted by Planet Retail, a London-based international retail analyst firm, at the NRA Show 2010 inChicago.
Panelists made the case for international expansion, beginning with the risk of maintaining a high dependence on a few markets, including theUnited States, trend watcher Ilaria Guandalini said. The biggest brands have been focused on fast-growing countries. For example, Yum! Brands' lagging 2009 comps and sales were slightly mitigated by aggressive expansion inChina. Starbucks is pursuing this country as well, besidesIndiaandVietnam, of late.
The overall prescription for international expansion, according to session panelists Guandalini and Beth Miles, is to find a quick-growing economy and population. Then find a demand that your concept can meet – but make sure you conduct business in a way that caters to local culture and tastes. Often, it is useful to pair with a local master franchisor to help navigate tricky local customs and laws.
If those last prescriptions seem rudimentary, the presenters offered case studies of national companies that have learned valuable lessons to the contrary. Including:
A strong local partnership can mean the difference between success and failure
The first time Yum! tried to crack the Russian market with its KFC brand, it failed. It had underestimated the local fried chicken competitor, Rostik's, which was more approachable to locals. The American company's second attempt was much more successful; after establishing a joint venture with Rostik's — which allowed it to gain local expertise and benefit from its local structure and supply chain — Yum! bought out its local partner and is now a leading player in the Russian market.
Pursue obscure opportunities and serendipitous matches
Domino's has experienced rapid growth inTurkeyby seeking out unforeseen opportunities. The increasingly urbanized country is the gateway between the Middle East andEurope, and thus has proved a valuable gateway test market. The taste profile of pizza also matches well with local tastes, though still has exotic appeal – and many of the ingredients can be sourced locally for cheap. These attributes have allowed the company to grow over 25 percent since its entry in the market in 1996.
Adapt your entire business model to fit the local market
This goes without saying, but many short-change the step. The total experience of your concept must fit a foreign market, including the dining occasion and segment. For example, in many foreign countries, American QSR brands operate more like casual dining, as locals see them as an occasional treat. InIndia, for example, McDonald's is considered a luxury to its growing target middle classs.
Localization pertains to menu, of course, as well: 70 percent of the food inIndia's McDonald's is India-specific, and there is no beef on the menu. Vegetarian options abound.