Worldwide expansion: Where to go and who to know

| by Stephen Dutton
Worldwide expansion: Where to go and who to know

As ubiquitous as chained foodservice brands are in major markets, they are still only a relatively small portion of the overall global foodservice industry. But, saturated conditions and limited growth potential in developed markets — where most of the largest chains are concentrated — now forces operators in the U.S. to expand abroad to hit business growth targets. 

As a key business strategy today, international expansion plans have shifted to accommodate the needs and preferences of a more modern global consumer. To become more relevant, global operators are decentralizing control and relying on local franchisees to present the best version of their brands to the consumers they hope to reach.

Here then, are three major trends to remember when planning for expansion outside of the U.S.:  

1. Asia Pacific holds the bulk of untapped foodservice potential.
Even as Asia's high-growth markets mature and the pace of growth slows in certain markets, there is still no question that there is much untapped growth potential for restaurants across this region. Looking ahead to the next five years, the expected growth in absolute terms is essentially untapped potential for foodservice operators.

In China, for example, the restaurant industry is expected to grow an absolute $118 billion in U.S. dollars by 2021 at current 2016 prices. That's more than any other single market, which means there is still plenty of room for international operators to develop long-term growth strategies in this country. 

"The principles learned from the Chinese market also provide great guidance for restaurant brands seeking to expand to any international market. "

In markets with many developed and highly saturated foodservice markets, like North America and western Europe, growth potential is limited and open only to those players that can steal share from competitors.

This is a real challenge for some of the world's largest foodservice companies, based and mostly concentrated in highly developed countries. In fact, each of the top 10 global foodservice companies by value — except Japan-based Seven & I Holdings Co. Ltd. — is based in North America. As a result, most publicly traded global foodservice companies that need to find ways to grow top-line value have created long-term growth strategies that incorporate opportunities in Asia's high-growth markets.

2. A traditionally independent playing field yields room for chains.
The good news for chains is that the global foodservice landscape is still highly fragmented, especially in emerging markets where independent operators remain dominant. This means there is plenty of opportunity to develop long-term brand strategies in the highest growth markets where chained concepts are growing fast.

There are few truly global operators. Those few that do exist benefit from both the comparative financial advantage and name recognition needed to influence the way the landscape unfolds in changing markets. 

Source: Euromonitor International

3. Master franchising remains central to modern expansion strategies.
Chains must be flexible in order to grow in new markets. Today, more are looking to franchisees and building out master franchise structures to accomplish this. These master agreements work by allowing global restaurant brands to franchise their concepts to large local companies, which then control development strategies for the brand in that specific area. 

The master franchisee acts as a trusted geographic corporate node. They may sub-franchise the brand, for instance, to encourage expansion. Master franchisees are best-positioned to identify suitable real estate, navigate legal barriers to entry, develop supply chains and generally ensure quality control and brand consistency.

Master franchisees have the freedom to tailor brands to best suit local preferences. In fact, they may "localize" the brand's format, as well as its menu offerings and pricing structure for the greatest appeal and impact with that area's consumers. 

The master franchise model hinges on the ability for another company to actively promote the best version of any particular brand in whichever market the company seeks to enter. It gives master franchisees the capability to use their authority as "locals" themselves, to build the brand in that specific area.

By handing over brand control — while providing limited guidance to ensure the original concept's integrity —foodservice operators like Domino's are enjoying rapid growth in certain areas with that capacity. They are accomplishing these desirable goals simply because their growth strategies are being developed and navigated on the ground, so to speak.

The future of chains worldwide
In this new global environment great potential exists for concepts that adapt to fluctuating conditions. In China, for instance, there are stark differences between urban and rural areas. Likewise, first-tier cities in this mammoth nation often differ from the country's many second-, third-, and fourth-tier cities. Taste preferences, ingredients and cuisines change drastically across regions. Above all, consumer preferences are evolving and competition is growing.

Global operators still can, and should, look to China for growth, but they must rely on the local expertise of franchisees to develop those long-term growth strategies for maximum potential. The principles learned from the Chinese market also provide great guidance for restaurant brands seeking to expand to any international market. 

Photo: iStock

Topics: Business Strategy and Profitability, Customer Service / Experience, Franchising & Growth, Operations Management

Companies: Domino's

Stephen Dutton

As a Consumer Foodservice Analyst at Euromonitor, Stephen Dutton analyses the global foodservice industry, providing insight on key trends and markets, competitive landscape and growth opportunities to help companies make informed business decisions.

wwwView Stephen Dutton's profile on LinkedIn

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