January 06, 2014
We hope you read “Goin’ Global” last month, Brian Ward’s excellent exclusive about the challenges of opening restaurants around the world. In it, veteran operators shared lessons they’ve learned and considerations they now weigh before venturing into overseas markets. Those considerations include cultural differences, infrastructure capacity, transportation, communication availability, regulatory issues and more.
An article in the Wall Street Journal (“Burgers Face a Tough Slog in Africa,” Dec. 10) confirmed a lot of points from our article and made me realize how deep the challenges really go, especially beyond E&S.
WSJ reporter Drew Hinshaw confirmed that Nigeria and parts of South Africa are targets for many chains looking to expand to the continent, especially burger concepts, but described what, to me, were some eye-opening hurdles. Many of them are natural in nature. For example, one established pizza- and fried-chicken-brand franchisee had to dig wells and install water-treatment facilities behind each of his restaurants because of drought conditions; the facilities cost $60,000 apiece. For the burger brands, the idea of a supply of “local beef” can be a stretch, with one franchisee spending millions to fund ranches to breed heartier and fatter cattle. African cows tend to be skinny, and European cows are susceptible to local diseases.
Infrastructure absolutely is an issue. Another burger chain franchisee fried his generator and all of his refrigeration equipment because the local power supply was insufficient. Airlifting in new equipment added $15,000 to his opening costs.
The graphic that accompanies the article was the most startling of all, though. It shows a diagram of a burger and compares the U.S. Department of Agriculture wholesale costs for ingredients (per kilogram) in the U.S. with those in Nigeria. For example, the cost of tomatoes per kilogram in the U.S. is $3.45; in Nigeria, $10.73. Cheddar cheese stateside averages $4.12; in Nigeria, $13.88. Ironically, beef has the lowest difference, at $4.17 in the U.S. compared with local beef at $7.57. The upshot: A fast-food single burger with cheese in Nigeria costs customers about $14! I’m not sure how many $14 burgers will sell regularly in a country where the per capita income is about 7% of what it is in the U.S.
At any rate, if your travels take you to exotic locales, tip your hat to any U.S. restaurant you see. It likely took a Herculean effort to get it open. It seems the pioneering spirit is alive and well, but maybe just not profitable everywhere yet.