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Asian segment provides untapped QSR niche
June 2, 2009 - Christa Hoyland
The Asian segment in the United States has long been dominated by full-service restaurants, many of them independently owned. Foodservice industry consultant Technomic estimates there are 40,000 Asian/Chinese restaurants nationwide.
In quick-service, however, Asian is an under-realized category due to the predominance of full-service Chinese restaurants, said Darren Tristano, executive vice president with Technomic. "It hasn't been as attractive a segment for major investment."
According to Technomic's recent Top 500 Chain Restaurant Report, QSR brands enter the segment below the $100 million annual sales level, leaving ample room for growth. In contrast, the leading limited-service chain is Panda Express, a hybrid fast casual/QSR, with $1 billion in annual sales.
Yet, the segment is rife with opportunity, especially with its variety of menu platforms and Americans' trend toward bolder, "more international flavor profiles," Tristano said.
Many of those platforms could succeed as a QSR brand, from Japanese sushi to Chinese concepts, because of the inherent versatility of Asian menus.
"You have the ability to create different (menu) items very easily — different flavors, different sauces," he said. "You're starting with a base product you can shift in different flavor directions."
Adapting for the location
Despite Americans' adventuresome palate, authentic Asian foods will likely not succeed on U.S. quick-service restaurant menus, cautioned Joel Silverstein, president of East West Hospitality Group based in Hong Kong.
For example, Asian brands that import their concepts to the United States typically adapt the menu to American tastes, just as Western brands do when entering Asia. Those that don't adapt probably won't succeed, he said.
"The more authentic the Asian brand, then the more limited the market in the USA," Silverstein said in an e-mail.
Kazutaka Kato, president and CEO of the Organization to Promote Japanese Restaurants Abroad (JRO), attended the recent National Restaurant Association Restaurant, Hotel-Motel Show to share the story of the growing popularity of Japanese flavors in the United States.
Kato said that Americans do crave authentic flavors, such as umami, described as the fifth taste and translated from Japanese as "delicious." Asian-based brands do tend to rely on local vegetables and meats in the United States rather than importing them, adapting recipes to U.S. products — with imported, authentic Asian spices.
An example of the popularity of an authentic Japanese-menu brand is the U.S. success of Tokyo-based Yoshinoya. Based primarily in California with a few locations in Nevada and New York, the beef bowl concept experienced a 1.9 percent sales growth in 2008 over the prior year at $82.5 million, according to Technomic.
The chain has more than 1,300 locations worldwide and, after opening its first U.S. store in 1979, now has 88 units across the country.
Kato said that Yoshinoya's California customers are mainly of Asian or Hispanic descent, but the chain is gaining other American customers as well. He considers the chain's units in Nevada and in New York as examples of its potential for further U.S. expansion.
Another Japanese format Kato sees has having potential in the U.S. QSR market is the sushi concept, which is a popular fast-food platform in Japan. Such chains in that country often use a revolving serving device to allow customers to choose inexpensive, prepared specialties.
Tristano said there is no large U.S. QSR sushi chain, but a few regional chains are seeing some success with Japanese menus.
"Japanese has a bigger opportunity to grow and succeed, but Chinese is still a huge favorite," Tristano said.
Food court options
Manchu Wok is another leading QSR brand in the Asian segment. Like many QSRs in that segment, the cafeteria-style Chinese-menu chain is based in food courts.
While many mall-based chains have been impacted by declining retail traffic, Chinese concepts continue to do fairly well in the downturn. Their menus have high value perception with meals that are "very filling and create customer satisfaction through quantity at a very low price," Tristano said.
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"Historically, I think the Western palate has been more familiar with Szechuan food, but now people realize that there are other regional foods from Canton, from Beijing and so on," he said.
Chen said the chain has seen a drop in traffic in many of its U.S. locations. But the company was able to minimize that impact because it closed several underperforming stores prior to the recession.
According to Technomic, Manchu Wok's U.S. sales fell 5 percent in 2008 from the prior year, with an estimated $57 million, and closed 21 stores. The company is owned by Hong Kong-based Cafe de Coral.
Having slightly less than half of the its 170 units based in Canada, where the economic impact has lagged behind that of the United States, has benefited the company, Chen said. "So, it has given us a stronger performance and more opportunities than we otherwise would have seen."
Before the downturn, Manchu Work had planned to open about 20 stores in 2009. Now, the chain is looking into expanding in the Northeast, where it can either take advantage of a buyer-friendly real estate market or explore buying a regional chain, Chen said.
The chain has improved its service model and other processes and begun reimaging its stores, resulting in sales improvements of 19-24 percent at test locations. It also is testing an inline store to see if the concept is viable outside a food court.
"Being in a cash (based) business, we are in a good position to grow," Chen said. "The question really is just coming across the right opportunities."
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