Foodservice Equipment Reports

FER EXCLUSIVE: Goin’ Global

Twenty years ago, global foodservice chains were a big, rare deal. You had McDonald’s. Burger King. KFC. A few casual chains were venturing out into Caribbean vacation areas. In all, maybe 15 or 20 big chains had outgrown U.S. borders, and every step of the way was a strenuous challenge, like blazing a trail with a machete. In many parts of the world, local laws required foreign interests to have a local partner. 

Then about 10 years ago, U.S. domestic growth in the post-9/11 world slowed, and more chains began looking elsewhere for opportunities. Meanwhile, the global mystery was a little less mysterious. The big guys had opened a path and shined a light—at significant effort and risk.

Today, there’s quite a march to the seas and beyond: 173 U.S. chains have gone global, says Darren Tristano, executive v.p. at research and consulting firm Technomic Inc. Those chains’ international store counts number in the tens of thousands. Crossing borders is still a challenge, but less so. Americans are getting more knowledgeable, global consumer tastes are broadening and overseas governments and regulations are evolving, too. The result: Chains, such as Chipotle, Five Guys, Potbelly Sandwich Shop, Pinkberry and Shake Shack, have joined the global club lately. Expansion is happening throughout the developed world, from Latin America to the U.K. and continental Europe to Russia, North Africa, the Middle East, India, China, Southeast Asia and Australia. 

This isn’t to say you can just throw a dart at a map. For starters, nobody “over there” knows you. What—and where—is your brand’s potential? What are the challenges? Start thinking about it now. People with experience figure you have three to five years from the time you start focusing to the time you open your first store in an international market.

Infrastructure First 

“In a broad-brush sense, the U.S. home market should continue to be the best opportunity overall” for many operators, says Bill Hallett, former v.p. of worldwide operations and equipment systems at McDonald’s Corp. and now senior v.p. of strategic accounts at Manitowoc Foodservice. “Whether you’re opening new stores or improving existing ones, you have to take care of the home market,” he points out. 

As for global foodservice growth rates, forecasts can be a little shaky, most of our sources say. Foodservice growth around the world goes up and down based on all kinds of things: global and local economies, political stability or lack of it, exchange rates, etc. That said, North America and Europe are matured markets, and growth potential in the long term is better elsewhere. Brazil, Russia, India and China—often referred to as the BRIC nations—have seen slower growth lately but still are better than many other markets, and the future is positive.

“For large chains, especially, BRIC countries’ growth is still higher than in matured markets,” Hallett says. “And Eastern Europe, areas of southern Africa, the Middle East—to me those are the best potential opportunities.” 

In Latin America, the big opportunities are in Brazil and Mexico, Hallett and others say. There are opportunities elsewhere across Latin America, but they are fewer. Ecuador and Peru are emerging in some areas, Hallett notes, but, in general, limited infrastructure remains a challenge.

For midsize and smaller chains, he says any developed market around the world is worthwhile and possibly easier to start with in a business sense. “Developed” is a key word here: Everyone we spoke with emphasized the importance of getting an accurate gage on development. Is infrastructure in place? The local economy, transportation, communication networks, government, regulatory organizations and financial institutions as well as various facilities, such as utilities, supply chains and architectural and maintenance sites, are all crucial. Big chunks of the planet are still relatively undeveloped.

Hallett points out longer-term potential in quite a few markets that are just now emerging, such as Nigeria, some countries in southern Africa and Vietnam, Cambodia and Myanmar in southern Asia. But he emphasizes the lack of infrastructure in these countries at this point. “You’ve got to be big to make it in emerging markets, and even the big guys will have challenges.” 

Therefore, you’ll need to know the limits of your resources early on in your decision-making process. Be hard-nosed and realistic. “It’s not about planting flags,” as Hallett puts it. “It’s about making a profit.” Being first in a specific market is no substitute for being profitable.

That’s Not Cow, Is It?

So how do you begin sorting options? If you’ve made a list of developed areas that appear to make sense for you, places with substantial population centers, reasonable commerce, etc., then consider some of the cultural issues. 

One of the first questions, obviously, is whether your menu will fit into the host country’s culture. No doubt your menu will be different from what the locals are accustomed. That’s fine. That’s part of the allure of global variety. But you don’t want to run head-on into resistance. “If you’re trying to sell beef in India, you’re going to have an issue,” Hallett says, referring to the role of cows in Hindu beliefs. Beef is served on some menus, he notes, but you might not want to lead with beef when you open your first store in that area. 

In the Middle East, the big issue is pork. You can buy a “pork” flavored product—and the flavor is popular in the regional cultures—but it’ll be made of turkey. Also keep in mind that many parts of the world have religious/cultural rules about dairy and how to handle it, store it and keep it separate from other menu items. In India, operators segregate vegetables and non-vegetables.

As you get further into researching potential markets, you and those you consult with likely will have suggestions about tweaking your offerings in a way that lets you keep your identity while adjusting for local palates. 

“When Bill [Hallett] and I were in Jakarta doing the first McDonald’s in Indonesia, figuring out how to get the brand there, we knew we were catering to the elite,” says Lyall Newby, whose 30-year foodservice career has included 23 years in expanding global markets for McDonald’s and Yum! Brands. Today, he’s senior v.p., business unit global chains, at Electrolux Professional. “We knew the general public couldn’t afford [a typical meal there]. It’s a weekly salary.” Newby says it’s often prudent to go into a new market with a trimmed menu of core products. “As you build awareness and a customer base, you can add ancillary menu items,” he says.

Making Your Move 

Some areas require you to have a local partner. “Local laws might require a joint-venture partner,” Newby says. “China was like that.” But that’s past tense. As Newby and Hallett both note, the world is opening up considerably, and while local laws might allow you to go it alone, it’s not worth the downside.

“What drives your choice is whether you have the resources and your ability to learn about local business development,” Hallett says. “McDonald’s can go into Vietnam with its own team, look for real estate, food suppliers, etc. But a [smaller chain] likely is not able to do that.” Finding equipment and food suppliers, construction companies and other services is just too much for most chains to handle alone. Nobody has the time, money or expertise. 

When you’re ready to make a move, look to U.S. government offices in the locale. If you already know someone in the area, great. Or check with Commerce Department or State Department facilities. “You can go to embassies. The director of commerce can guide you through local laws” in your target market, Newby says.

“Commerce Department people will know who’s who,” agrees Brad Pierce, president, Restaurant Equipment World, which delivers equipment to 110 countries around the world. “They can do a partner search to find someone they already have a relationship with, someone with a vested interest in reputation and ongoing business.” 

Partnerships can take several forms from country to country. You can have a franchisee, a licensee or some other form of shared ownership. Several sources advise getting the majority stake if local laws allow. A master licensee arrangement can be good, but it depends on the individual and legal leverage. As a master licensee grows, control can become a bone of contention.

Sitting in a modern office, you might think there should be a handy database somewhere, some kind of grid that shows you all of the various requirements for doing business in different parts of the world. But you’d be wrong. Europe, Japan and North America are pretty buttoned down. But otherwise, it turns out the world just isn’t that orderly. Even online references go out of date at the speed of light. As soon as you know a local requirement, it changes. You’re much better off knowing people than knowing regulations. And that takes time. So you’re back to looking for a local partner—one that’s been carefully checked out many times. A good partner is worth his weight in gold. A bad one will cost you his weight in gold, unfortunately, and more than a few operators have been burned by picking a bad partner. Do your homework, and then do it 10 more times. 

“From culture to culture, business practices and ethics will be different,” Hallett says. “Duties and regulations on equipment and food will all be different. Clearly, you have matters of labor-force availability, education, sanitation, language, gender issues.” Then there are religious observations, holy days, prayer time. Many nations have labor, compensation, healthcare, guest-worker and visa requirements that differ significantly from those in the U.S., and, in many cases, you need to account for the cost of these requirements in budget considerations. If you have a 10-station staff in the U.S., will you do the same in the host country?

Everyone who has gone global has stories you can learn from, and they’d fill 100 issues of FER. Newby and Hallett both have worked China development firsthand, and neither recommends you jump straight into it. The regulatory and logistical issues are big, and if you’re not a juggernaut, you might be better off expanding elsewhere first. 

Middle East

In the Middle East, some things are consistent, though not many. In the Middle East, you have to be very mindful of gender. You have to hire men because, typically, women won’t serve men. In Saudi Arabia especially, social conventions tend to be rigid. Glass-block structures are a problem because you can see through them at night. 

But it’s important to understand that putting a single label on the Middle East is misleading. It’s not a unified region. Many tribal/familial traditions are strung together. Consequently, regulations vary a lot from country to country, even within urban areas—another reason you need to have local team members. Neighborhood connections are key. People know people, and they get things done.

Pierce, whose company does a lot of work in the Middle East, North Africa and East Asia, spends a lot of time in and around his Dubai facility, and he’s spent many years in the region. “I thought it would take two years to get to really know the market,” Pierce says. “But I didn’t know what I didn’t know.” He says people say it takes five years to really know the ins and outs of a place, and he figures that sounds about right. 

One thing to understand, he says, is that the business class in the Middle East tends to be very westernized. Most businesspeople in the area get their educations in the West, and most of those are educated in the U.S. “They’ve gone to college here. They’ve gone to Denny’s.” And so business contacts tend to be very different from the rural populations in these areas.

Even so, the cultural differences are significant. Supply chains and service support often are limited. In a given area, there may be legal limitations on who can produce chickens, for example. “Saudi Arabia is big on exclusives,” he notes. “You have certain territories because of politics and families.” Operators tend to operate multiple concepts, even competing concepts, and many of them have their own service departments. Again, connections are everything. 

And paperwork is a different world. Pierce tells stories of trying to open bank accounts in Dubai. He got letters of authorization to open accounts. He then was allowed to open accounts but discovered he wasn’t authorized to make withdrawals. Or close accounts. He opened accounts in multiple banks. One bank wanted a translation of his college degree. Another wanted lists of his personal friends. Standardization isn’t big in the region. The culture puts much more emphasis on the human connection, multiple interactions, people knowing people, people handling things for each other. 

Location, Location

Once you’re partnered up, you’ll need to start looking for a location. Generally speaking, you’ll be looking at a market that doesn’t know your brand and isn’t seeking it out. Outside of urban areas, infrastructure very often will be lacking. For myriad reasons, you’ll most likely want to be near a city center with a lot of foot traffic, decent utilities and so on. You’ll be moving into an existing space, not a new strip mall on the edge of town. 

If you can get into an area with international visitors and international money, that’s a plus. International chain hotels are good landmarks. And, speaking of big hotels, they’re also good sources of intel regarding local suppliers. “Go talk to the food and beverage directors,” Newby suggests, to find out about both food and equipment supply chains.

Equipment—And Calendars 

Finally, some thoughts about shipping and timelines: First, you need to look at your equipment package and figure out how much of it needs to ship from the U.S. and how much might be acquired locally. Shipping is expensive and time consuming.

“The cost of getting equipment into the country is big,” says Brad Davis, former director of equipment purchasing at the independent purchasing co-op for Subway franchisees and now an industry consultant. Davis says the team members who handled international expansion routinely talked about the unpredictability of shipping costs. “The pendulum could swing 150% depending on the country,” he says, including ocean freight, duties and “dealing” with local officials. He says Russia in particular is difficult. Others note duties can add up to 35% to the base price of the equipment. Then the trip takes weeks if not months. 

Many chains prioritize, shipping their core equipment from home and then trying local sources for less crucial items.

And then there are the certifying approvals. “Approvals for the equipment are a big challenge—CE marks in Europe, Australian approvals, CCC in China,” says Teresa Asbury, v.p. of The Legacy Companies, which owns equipment manufacturing companies and operates Greenfield World Trade, a division that exports and sets up sales and service in more than 100 countries. “Often chains don’t realize their equipment isn’t cleared for some countries,” she says. “They can send equipment and get it there but can’t use it because it doesn’t have the right approvals.” 

It all adds up to another layer of details to tend to while the clock ticks. One of the main things to understand, all of our sources say, is that everything takes time. Hallett, Newby, Davis, Pierce and Asbury all talked about it. The general consensus: Anything that takes a week stateside will take a month or more on the other side of the world. So build it into your timeline.

Get it all lined up and be patient, attentive to detail and willing to learn, and there’s a whole other world of opportunity out there for you.

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