Growth | February 2013 | By Mary Avant

The Global 30

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The hot markets

Many operators and experts agree that two markets stand out above the rest in today’s international scene: the Middle East and Asia.

Dozens of U.S.-based quick-serve brands have already staked claims in the Middle East, as the region’s growing sophistication, wealth, and interest in Western brands creates an environment ripe with opportunity.

“There’s a good deal of money in those markets, so people are sophisticated, they’ve traveled around the world, and they want an international standard in their shopping malls,” a main social gathering place for consumers in Middle Eastern markets, CBTL’s Kaufman says.

‘There’s a great opportunity for all kinds of brands in those markets, because it’s a market that’s trying to provide the best of the world’s retail.”

With more than 850 Dunkin’ Donuts and Baskin-Robbins locations in the Middle East—largely concentrated in Saudi Arabia, the United Arab Emirates, Lebanon, and Qatar—the region is one of Dunkin’ Brands’ largest international markets. Domino’s, meanwhile, recently opened its 200th store in the Middle East with its local master franchisee, Alamar Foods.

Because alcohol is largely shunned in the Middle East, the area provides an added bonus for beverage brands like CBTL, which operates in countries like Kuwait, Oman, and Egypt.

“The need for places to hang out is the same everywhere around the world. So if [consumers] are not going to hang out in a bar, they’re probably going to hang out in a coffee shop,” Kaufman says. “These are specific opportunities for our brand, in addition to the fact that those markets in particular are very receptive to internationally known and established brands.”

The other hot market today, Asia, has been similarly capitalized on by many quick serves. “[Asians] definitely love American brands,” Fran-Systems’ Spencer says. “There are more government restrictions in Asia, and I think that it’s not as easy of an entry, but they can’t ignore it because the number of requests to go there is just too high.”

Dunkin’s Vitaro says Asia is the largest international region for its brands, with a major focus on nations including South Korea, Japan, Thailand, and Indonesia. Domino’s Allison says his brand is growing strongly in Malaysia, Japan, and India.

While the rest of the world is struggling economically, many Asian economies are booming, giving Asian consumers more buying power than ever.

“When the economies are booming, [Asian consumers] have to work harder. And when they have to work harder, they just have less time,” says Wan Kim, global CEO of Smoothie King, a beverage brand with more than 130 stores in Korea and a growing presence in other Asian nations. This gives quick-service brands an opportunity to play an important role in consumers’ lives, Kim says, by offering fast, convenient service.

The China strategy

One Asian nation in particular has been the leading international hot spot for several years running: China. With the world’s largest population—surpassing 1.34 billion people in 2012, according to World Bank—China is one country most brands dream of taking a crack at.

But it may not be all it’s cracked up to be. Challenging government regulations, cultural barriers, labor and immigration issues, and staunch competition for consumers and real estate are all hurdles brands must clear to be successful in China.

“China is an enormous market full of opportunity,” Solomon says. “But China only makes sense if you really can take advantage of that economy of scale.” If brands don’t have the ability to open several units, China may not be worth the trouble, she adds.

For Yum! Brands’ KFC, the rewards are certainly worth the risk. With more than 4,000 locations in China alone, the fried-chicken chain pulls in almost half of its global revenue from the Asian superpower.

Because China is such a large and powerful market for limited-service brands, CBTL’s Kaufman says companies must flesh out specific plans for each region. “You can’t just say, ‘I want a China strategy,’” he says. “You need to understand what your Beijing strategy is versus your Shanghai strategy versus your airport strategy in China. You have to really understand the specific market you’re going into.”

Kim says Smoothie King is looking into markets like Shanghai, but will stick to company-owned stores in the nation, largely due to a lingering concern over sanitation.

“The sanitation awareness is not high yet [in China],” he says. “We want to make sure we only open company-owned stores and try to convince Chinese customers that we care about sanitation, we really care about our ingredients, we care about our products, so it’s safe.”

Not every brand is sold on China. Though the country presents a huge opportunity for chicken-wing concept Wingstop, the brand is instead aiming to expand in other Asian countries, including the Philippines, South Korea, and Vietnam.

“It’s a very difficult market to work in,” CEO and president Charlie Morrison says. “There’s less structure to how franchises are put in place in the country. There’s not a lot of structure and rules and security for the franchisor.”

To exercise caution when testing the waters in China, Vitaro says Dunkin’ isn’t rushing development. The company has almost 60 Dunkin’ Donuts units in the country, in addition to the more than 90 Baskin-Robbins locations, and is “focused on disciplined growth by finding the right partners for the right cities,” he says.

 

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