They knew it wouldn’t be easy. Being the first U.S. quick serve to enter a foreign country always comes with a share of challenges.
But for Cinnabon’s executives, becoming the first U.S. franchise to open in Libya didn’t just include dealing with training and supply-chain difficulties. The brand also faced political instability that eventually resulted in a revolution.
“It took us some time to get comfortable doing business there, and then, just about the time we were ready to start, that is when the revolution broke out,” says Mike Shattuck, president of Focus Brands International, Cinnabon’s parent company.
Despite the complications, Cinnabon opened its doors in Libya in July 2012. Since then, the brand has enjoyed success in the African nation, and has several additional Libyan locations planned for the coming years.
But Cinnabon isn’t stopping with Libya. With plans to develop throughout Africa—Kenya, Uganda, and Botswana are next on the list—Cinnabon hopes to grow in a continent that has largely been avoided by Western brands.
Until now, that is. While the Middle East and BRIC nations (Brazil, Russia, India, China) have long been the hot spots for international quick-service development, many experts believe Africa could become the next desired market.
Just ask Tapan Vaidya, a native African and head of Jawad Business Group, a Middle Eastern and Asian restaurant business group that includes brands such as Papa John’s, Dairy Queen, and Burger King in its portfolio.
“I believe the Middle Eastern market will soon see a saturation point, with all major brands already having entered markets over the last 30-plus years,” Vaidya writes in an e-mail interview. “It is time American brands start to conquer Africa, which is truly proving to be the next economic powerhouse globally.”
Jaco Maritz, publisher of the online pan-African business publication How We Made It in Africa, also says Africa is the new place to be.
“Africa is the last frontier, and therefore, it is a natural region to invest in,” Maritz writes in an e-mail to QSR.
There are numbers to back up their claims. The International Monetary Fund stated in May that output in sub-Saharan Africa grew 5 percent in 2011, and that it was projected to grow 5.5 percent in 2012. Global management consulting firm
McKinsey & Company projected in its October report that African consumer-facing industries will grow by more than $400 billion by 2020.
McKinsey also projected that more than half of African households will have discretionary income by 2020, rising to 130 million households from 85 million today. Some 84 percent of Africans, the firm’s report states, believe they will be better off economically in two years than today.
Cinnabon’s Shattuck says Africa’s abundance of natural resources and young population make it “one of the leading, emerging market opportunities.” But outside South Africa, Egypt, and Morocco, which have some of the highest nominal GDP rates in the continent, most U.S. brands have steered clear of Africa.
Vaidya and Maritz believe this can be attributed to a number of barriers.
“Inadequate incentives from stable political leaderships are not helping major brands move in,” Vaidya says. “Lack of quality infrastructure—this is a major reason for big brands not making major commitments. [With] lack of adequate and consistent supply of electricity, gas, and other utilities, it is rather difficult to run successful restaurants.”
Maritz adds, “Markets such as China and India have provided enough growth opportunities that there was no need to invest in a perceived risky environment such as sub-Saharan Africa.”
The two also say Africa faces a perception problem. American brands, they say, perceive Africa to be rife with political risk and instability and a lack of spending power. “Lower per capita disposable income in most African markets has made Africa not exactly a low-hanging fruit,” Vaidya says.
Despite these limitations, he says, Africa offers plenty of growth potential for quick-service restaurants. He points out that the large population centers available in Africa are just as big as those in the Middle East, if not bigger; cities like Johannesburg, Cairo, and Lagos have more than 5 million residents.
While those cities are already inhabited by quick-serve brands, the ability to stake a claim early in other large cities can be hugely beneficial for a brand.
Shattuck says that because Cinnabon is the first U.S. franchise in Libya, it has earned a loyal following, which gives it an edge over other brands that enter the market. “We are seeing that allegiance develop that happens when you can come in and be a pioneer brand,” he says.
Along with Cinnabon, KFC is one U.S. brand that understands Africa’s potential. With nearly 900 individual outlets throughout Egypt, South Africa, Swaziland, Nigeria, Lesotho, Morocco, Mauritius, Mozambique, Kenya, Ghana, Angola, Botswana, Namibia, Malawi, and Zambia, as well as plans for restaurants in Zimbabwe, Uganda, and Tanzania by the end of this year and long-term development plans for the Democratic Republic of Congo, Senegal, and Ethiopia, KFC is easily the biggest U.S. quick-serve chain in the region.
“KFC has been active in the Southern African Development Community for over 20 years and has had a presence in Egypt and Morocco for some time, too,” says Bruce Layzell, general manager of New African Markets for Yum! Restaurants International. “We have had our eye on the rest of the continent for many years, but in 2008, we realized that we needed to push the boat out so that we could get in at the ground floor of Africa’s imminent boom.”
Chicken is the most significant source of protein on the continent, Vaidya says, which might help explain KFC’s success. But Layzell believes its achievements can be attributed to its efficient growth strategy.
“Our experiences in many other developing economies have taught us many valuable lessons that we have been able to apply on this continent,” Layzell says.
Of course, developing in Africa still comes with a handful of challenges, he says. “We have had to find and develop suppliers willing to invest ahead of our growth and apply world-class standards to businesses that have not previously had to meet such rigor,” Layzell says. “Real estate and construction costs are significantly more expensive [in less developed countries] than in South Africa, for example, and we have had to put generators and water-treatment facilities in most restaurants.”