Growth | February 2010 | By Deborah L. Cohen

‘The International Plan’

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Wing Zone’s Matt Friedman, Adam Scott, Casey McEwen, and Hair Parra.
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“One of the big things that surprised me,” McEwen says, “was how a national brand here reinvents itself down there. You have to blend with the eating habits of the people.”

The initial stores in each market would have high visibility, crucial to creating brand recognition, and would call for the most dramatic change—double the footprint to 2,000 square feet. The new space would accommodate seating for 50–60 patrons who would be offered table service, as well as beer and wine. Delivery would remain an essential component, with stores housing a fleet of on-site motor scooters, in keeping with the local custom.

“Every location may not be cookie-cutter the same,” says McEwen, noting that some subsequent units might be designed as take out and delivery only.

Wing Zone’s domestic marketing strategies, which rely heavily on tactics such as door hangers and direct mail, are expected to transfer easily to Panama, McEwen says. He was working with the Atlanta team to have some of the chain’s standard templates translated. “One of the ways we market is feet on the street,” he says.

Meanwhile, throughout much of the year, Scott kept his international focus on the contractual details necessary to hammer out the deals, spending time coordinating legal documents between attorneys in the states and those abroad. The process was often frustrating and frequently required more time than had been allotted.

“If you don’t have the correct legal documents, that entire process taken care of, you really can’t do anything,” he says. “You’ve got to have the teeth in your agreement to make sure everything stays on track.”

Scott stresses the importance of laying the ground work, noting that Wing Zone had secured trademarks in 10 countries long before it began expansion plans in earnest.

Preparation was a pervasive theme. Even as the reality of the Panama deal loomed closer, Parra continued to pursue potential area-developer candidates as they arose, including prospects in El Salvador, Guatemala, Trinidad and Tobago, and later in the year, Mexico and Brazil. If the concept really was going to work in these markets, it would require economies of scale. Relationships are everything, and they take time to develop, he says.

“You will have at least three meetings with these people before you even sign the contract,” says Parra of any new area developers. “Before they open we take a team 10 days before the store opens and then we stay 10 days after. And they will come here for training, which could be between three to six weeks.”

Bridging cultural gaps is one of his strengths. For final negotiations with the Panama group, which was selected from three final candidates, Parra planned to stay at the home of one of the principals, a scenario not unusual when doing business in this part of the world. Once deals reach the final stages, candidates often bring additional members of their family into the meetings. A lack of awareness of these customs could threaten to derail an otherwise solid agreement.

“One of the things that will get people really upset is if you don’t have respect for their family,” Parra says.

In October, he disclosed somewhat cautiously in an interview with QSR that several hopeful markets—Venezuela, Honduras, and Nicaragua—had been put on hold due to the tenuous political environments in those countries and concern that relations with the U.S. could erode. Politics and economic stability must be carefully weighed. “Right now a lot of companies are leaving because they don’t feel stable,” Parra says.

Meanwhile some other, more hopeful, curve balls were thrown at the management team. As traction in Central America was building, Wing Zone was approached by a private investment firm adept at taking American brands into the prized Japanese market, where they frequently experience significantly higher unit sales. Reacting to what they viewed as an opportunity they could not pass up, the management team hammered out a 50-store deal with San Francisco–based Pacific Rim Partners.

“Japan is a very difficult country to penetrate,” says Scott, who along with the rest of the team discussed the plans with QSR in October after Wing Zone had secured a signed letter of intent. “If you don’t have the right partner or the right people on the ground, it can be very difficult to get started. We’re optimistic we have a great partner.”

In contrast to the Central America model, Pacific Rim would become a master franchisee, giving it rights to run its own restaurants as well as sell off additional franchises in the market. They would split franchise and royalty fees 50-50. Because real estate in cities such as Tokyo is at a premium, smaller-scale stores were being planned in a bid to cash in on Japan’s preferences for take out and delivery.

About that same time, another deal with longer-term international potential was finalized. AAFES, the Army & Air Force Exchange Service, an agency of the Department of Defense that franchises concepts on behalf of the U.S. military, signed on with Wing Zone to develop 10 initial stores on domestic military bases.

“It secures us a place not only domestically but also internationally,” says McEwen, who was confident that AAFES would eventually bring Wing Zone to some of its overseas bases, giving the brand additional toeholds in foreign markets.

The new opportunities seemed like a lot to digest, but the team appeared willing to juggle multiple projects. In late November, they turned their attention squarely back to Panama after Wing Zone and the selected area developers inked the final contract, securing the chain’s first international deal.

“We think there’s a lot of potential in the market,” says Diqueos Tagaropulos, who heads the area-developer group and is its largest stakeholder. “It’s an amazing product.” His group will develop at least five stores in the Panama City area within the first five years. With some luck and additional financing, they’ll also move into El Salvador and Guatemala for a projected total of 25 stores. Both sides seemed hopeful that with shorter build-out cycles than in the U.S., the first restaurant would open its doors within the first three months of 2010.

By the time of QSR’s last interview with the brand, Friedman and Scott were busy running through final numbers, weighing time and investment against expectations for the region. Through November they had spent some $300,000 on the expansion efforts, including salary, travel, and legal costs, slightly above projections. The final tally would be even higher, as the Atlanta executives would make repeated visits throughout the year to check on Panama’s progress.

While they expected food costs to be roughly even with those in the U.S., the company would catch a significant break on labor in the new stores, allowing for margins that could double those of its domestic units. At the end of 2009, executives were betting the initial restaurants would exceed $900,000 in average unit volumes, far surpassing U.S. averages, which in 2008 tracked at $585,000. With the numbers looking good and the time frame on track, the team appeared satisfied with the progress of their new venture.

“It’s been a very well-thought-out plan,” Friedman says in the most-recent interview. “It’s takes capital. It takes planning. It takes good people. We believe we’ve got it completely covered.”

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