Article
QSRs gain ground in Asia
Personalization, unique experiences draw droves of customers.
March 3, 2008
In Japan, Lee Knowlton's company has experienced queues of Disneyland proportions, with 50 to 100 people waiting in line. But they are not waiting to ride a roller coaster or to have a photograph taken with the world's most famous mouse. They're waiting for ice cream.
Scottsdale, Ariz.-based Cold Stone Creamery debuted in Asia less than two-and-a-half years ago, opening a store in Tokyo in November 2005. The concept proved to be an immediate success in Japan, where stores routinely churn out three to four times the volume of U.S. stores.
Among U.S.-headquartered QSRs, KFC and McDonald's continue to dominate, but others are on the move.
One reason for Cold Stone's warm reception is that the concept simply struck a chord with consumers, said Knowlton, who is president of international operations for the ice-cream chain.
"(At Cold Stone Creamery) you can actually choose your mix-ins, create your own creations," he said. "Whereas in really all the other ice-cream concepts, you walk in, you pick a flavor — maybe it has mint chocolate chips or something — but you pick a flavor, put it in a cone or a cup and you walk out the door."
Perhaps equally important is what Knowlton calls the chain's "X-factor."
"We like to sing and have fun in the stores, flip spades and interact with the customer, and really ensure that our service level matches the quality of the ice cream," he said. "And the experience has, frankly, blown away a lot of our customers, especially in Japan, South Korea, China, where that experience just doesn't exist."
In fact, perhaps because of that interaction, Cold Stone locations in Asia tend to be a common date-night destination or gathering spot for friends.
Bolstered by success in Japan, Cold Stone decided to continue expansion in Asia, opening outlets and signing agreements in Taiwan, South Korea, China, Indonesia, Singapore, Malaysia and Vietnam. Approximately 55 stores are operating in the region, and another 70 are scheduled to open in 2008.
Solid ground for expansion
Restaurant growth in Asia shows no signs of slowing.
Yum! Brands, which operates approximately 2,000 KFCs in China as well as locations in 13 other Asian countries, has announced plans to open another 310 KFCs in mainland China in 2008.
McDonald's, with more than 800 restaurants in China, plans to ramp up operations in that country by opening 120 units in 2008 and 150 in 2009. The chain also is testing home delivery in Shanghai. The burger powerhouse posted a five-fold increase in 2007 net profit in Japan, where 130 units will open in 2008. And, according to Nation's Restaurant News, McDonald's India — which opened its first restaurant in 1996 — operates 105 outlets.
With 661 restaurants in the Asia-Pacific region, including Australia and New Zealand, as of Dec. 31, 2007, Burger King lags behind its competitors in terms of unit count in China, Japan and Taiwan, said corporate spokesman Keva Silversmith. But despite its slow beginning, Burger King has made recent strides and acknowledges the significant growth potential in Asia.
"In the last two years, the company has entered Japan and Indonesia, continued company restaurant growth in China, signed development agreements with a franchisee in Hong Kong and refranchised the Philippines," Silversmith said.
The region seems to be enticing to QSRs for a number of reasons, with population density and rise of the average income at the top of the list. As a whole, the Asian continent is home to roughly 60 percent of the world's population, or 4 billion people. China alone has approximately 1.3 billion inhabitants, followed closely by India with 1.1 billion. Both countries boast a rising middle class with increasing average incomes and a hunger for Western culture.
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Cold Stone Creamery in Japan draws lines of customers, churning three to four times the volume of U.S. locations. |
When Knowlton was planning Cold Stone Creamery's expansion, he compared 50 to 75 countries using 20 different metrics, including populations, average income, demographics and U.S. brand success. Japan emerged as No. 1, propelled to the top by its population density and higher incomes; China, Taiwan and South Korea all were in the top 10.
The strategy of considering those metrics seems to be holding up rather well. In addition to Japan's record volumes, "Our South Korea, China, Taiwan markets are doing almost twice the sales that we do here in the U.S., so it speaks very well to how they're being received," Knowlton said.
Fitting in, without being followers
But expansion in the Far East hasn't been without hiccups, and a backlash against Western companies operating in Asia could have very real consequences. Last year, public outcry led to the closure of a Starbucks location in Beijing's Forbidden City. Critics had charged that the coffee shop, which opened in 2000, was an insult to Chinese culture. The outlet was replaced by a café serving coffee and Chinese tea.
A newspaper in the city of Guangzhou accused KFC and Pizza Hut, along with McDonald's, of underpaying workers by as much as 40 percent below the legal minimum wage. Although labor officials later cleared the companies of wrongdoing, saying the workers in question were part-timers and, therefore, not covered under minimum-wage rules, the Chinese newspaper Kuai Xin Bao accused Yum and McDonald's of exploiting loopholes in China's labor laws at the expense of workers. And just this week, former McDonald's managers in Japan announced plans to sue the chain for unpaid overtime.
Last fall, an editorial in the Shanghai Daily newspaper compared the spread of Western companies such as KFC and Pizza Hut to the influence wielded by foreign powers in China in the 1800s and early 1900s. The editorial decried the fact that in a land famed for its diverse cuisine, the largest restaurant chains are KFC and Pizza Hut.
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When Dunkin' Donuts opens its first location in Shanghai in spring 2008 — one of 100 franchise shops expected to open in the city over a 10-year period — it will offer a complete menu of coffee, espresso, teas, frozen beverages, donuts, bagels and baked goods. However, Tony Pavese, chief operating officer for Dunkin' Donuts International, said the shop also will serve items designed to suit local taste preferences, such as green tea and honeydew melon donuts and mochi rings, which are cake donuts indigenous to the region.
Burger King customers can order a spicy Whopper sandwich in China, shrimp burgers in Korea and dark meat chicken throughout Asia. But Silversmith says the company also has a number of core products that are present on every menu.
And though Cold Stone Creamery indulges local appetites by responding to customer demand for smaller sizes and more fruit-flavored ice creams and fresh fruit mix-ins, the chain purposefully avoided distinctly native flavors in order to differentiate itself from the pack of competitors. For example, almost every ice-cream concept in Japan offers green tea ice cream, an item that is noticeably absent from Cold Stone's menu.
"I didn't want to be like everybody else," Knowlton said. "I wanted to offer cake batter or bubble gum or cotton candy or another unique flavor that other ice-cream concepts didn't offer, then when the customer came in, they'd go, ‘Wow, this is truly different,' not, ‘Oh, yeah, they've got green tea, they've got herbal tea. This place isn't that different.'"
The same holds true for a restaurant's structure and atmosphere. While Burger King locations have adapted to Asia in that few have drive-thrus, the restaurants are not built with a distinct Asian architectural style.
"We follow the BK restaurant build to maintain a common brand identity," Silversmith said. "Restaurant décor includes some '60s-style Americana design, or the updated contemporary design."
Knowlton also has tried to keep Cold Stone Creamery's identity intact as it crosses the oceans.
"My goal has been to pick up a store in Scottsdale or in Kentucky and plop it down in Tokyo, so that you get that true Cold Stone experience," he said.
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