Web Exclusive | June 2015 | By Paul Gereffi

Viva Cuba?

Now that restrictions against Cuba have loosened, could it be the next great territory for quick-service growth?
QSR brands could expand into Cuba after diplomatic relations improve.
El Guajiro, a Cuban restaurant in a beach town outside Havana, serves traditional pork and chicken dishes with rice and beans. image used with permission.

When the Obama administration announced on December 17 that the U.S. and Cuba were taking steps to normalize relations, those anxious to tap into the business potential of the largest island in the Caribbean began to stir. With a population of 11 million and a land area two-thirds the size of Florida, Cuba could be fertile grounds for American businesses and provide new jobs for the Cuban people.

And quick-service restaurants could be some of the first to enter the market.

Due to new guidelines and a loosening of travel restrictions for U.S. citizens, visits by Americans are increasing, and they join a plethora of Canadian and European tourists who have been visiting Cuba for years to experience a destination that is unique, exotic, and, for many years, forbidden.

Many Cubans are excited to see U.S. businesses take root. Jesse Aguilar, a 35-year-old tour guide from Havana, Cuba’s capital, says that, like many of his countrymen, he has never been out of Cuba. But he feels that a connection with the U.S. and an influx of American businesses will provide a chance for a better life for Cubans.

“We in Cuba hope for that day,” he says, adding that many Cubans have only seen an American-style hamburger in pictures.

With exit visas to leave the island expensive and difficult to obtain for residents, the arrival of American quick-service brands might be the best chance for Cubans to experience a bit of Americana. Today, however, the Helms-Burton Act restricts U.S. citizens from doing business in or with Cuba. There is pressure in Congress to lift or loosen the ban. Restoring full diplomatic relations could happen soon, and, once completed, it won’t take long for American enterprise to follow.

Charter flights to Cuba are available several times a day, mostly from South Florida. The flight is only 40 minutes from takeoff in Miami to touchdown at Havana’s Jose Marti International Airport.

“In Cuba, the people are excited for quick-service brands. In a way, that will be considered a portent of changes in the entire society, a step toward the future.”

The starkest aspect of arriving in Havana is what is missing. There is an almost total absence of American influence. There are no restaurant chains or other retailers familiar to Americans. Most of the recognizable foodservice brands in restaurants and shops, such as Tabasco sauce or M&M candies, are imported from Mexico. Soft drinks and beers have brand names endemic to Cuba.

Changes that allow a taste of capitalism are already under way in Communist Cuba to tap into an ingrained entrepreneurial spirit in its people. In 2011, President Raul Castro announced a number of reforms that made it possible for Cubans to buy their own homes, offer accommodations to tourists in their houses, and operate restaurants out of their homes, among other things. These restaurants, or paladares, offer traditional Cuban cuisine to tourists and locals who can afford it. The menu usually includes fish, lobster, chicken, and pork, in addition to the staple side items of rice and beans and platanos, or fried bananas. Dessert follows, along with the famous Cuban coffee.

For an industry in which the number of restaurant competitors within a one-mile radius is of common concern for expansion, the idea of a region with virtually no competition is intriguing. In the past, the migration of quick-service brands into new markets has generally been met with enormous success. Popular destinations for American quick-service brands, like China and the Middle East, could offer a blueprint for growth into Cuba.

“In Cuba, the people are [excited] for quick-service brands,” says Dr. Jose Oro, head of research for Thomas J. Herzfeld Advisors, an investment firm specializing in the Caribbean region. “In a way, that will be considered a portent of changes in the entire society, a step toward the future.”

In Cuba, Oro says, the island-bound people want improvement. Today, the only quick-service brands representing the industry in Cuba are at Guantanamo Naval Base, which hosts McDonald’s, Subway, and KFC.

“These are out of the reach for the Cuban people,” Oro says. “For many Cubans, mainly young people, quick-service brands will be very attractive, some kind of a celebration to go there and enjoy a good time.”

Offering menu items at a price point that most Cubans can afford will be a challenge, he adds, but the population seems ready and willing to indulge when they can.

“Cubans have a low per capita income, but every shop of the most diverse kind existing today in the country is full of patrons,” Oro says. “For buying a hamburger, or a cup of coffee and a doughnut, they will have the money.”

Key to business development in Cuba is the new provision that will facilitate U.S. financial institutions’ ability to enroll merchants and process credit and debit card transactions. Currently, no U.S. credit or debit cards are accepted on the island, and it is necessary to convert American dollars to the CUC, or Cuban convertible peso, and pay for purchases in cash.

The lifting of the embargo, of course, will be the impetus for American and other global businesses to tap the Cuban market, and restaurant brands could lead the charge. Skeptics questioning the growth and acceptance of fast food in other regions of the world have been consistently proven wrong, says Darren Tristano, executive vice president of Technomic, a foodservice research and consulting firm.

“When the floodgates open, it’s going to be a sprint to get there,” Tristano says. “There is demand for it, and I think it will become quickly ingrained in their culture. The doors are wide open.”

Other concerns for quick-service brands entering the Cuban market include property rights, obtaining long-term leases, and improving the country’s infrastructure. But with Cuban people very aware of American brands through increased access to some American TV broadcasts, the Internet, and information from relatives in the U.S., the interest would be there to overcome any challenge, says John Price, managing director of America’s Market Intelligence in Miami.

“There already exists a cultural acceptance, and I think many brands would enjoy quick success there,” Price says.

Most Cubans anxiously await the changes that improved relations with their neighbor to the north will bring and are optimistic about the potential, Aguilar says.

“These restaurants won’t even have to advertise. We will find them,” he says. “When these businesses come here, they will discover the same thing as Christopher Columbus in 1492. It’s virgin territory.”


Can't wait to see it!!!!!, that will be nice

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