Going International: What to Consider

Some basics on the challenges of international expansion.

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While Technomic reported more international chains are making their way to the United States, domestic brands are continuing to expand overseas, particularly in non-Chinese, "newer" markets like Central and South America, Australia and untapped parts of Europe.

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In fact, Mintel has reported, many restaurant chains are using international markets to test new menu concepts and other products before they introduce them domestically. The research firm noted that international expansion is a trend that will likely continue in 2012 and beyond. The allure of less competition and the opportunity for significant growth in a less mature market could certainly account for that trend.

That said, simply opening up shop in another land isn't that easy. Depending on the country, foodservice operators need to take into account a variety of considerations that can affect the restaurant's prototype, use of space, equipment selection, menu development, training and more. Here's a look at some of those considerations.

Know the Culture.

This is a no-brainer right? Actually, it's easy to overlook cultural differences that can have a huge impact on operations and menu. Take an example from Tom Galvin, FCSI, president of Galvin Design Group, Inc., in Orlando. One of his chain clients wanted to expand into Dubai, not realizing at first that in the Middle East alcohol cannot be served in a freestanding restaurant without a hotel connection. While this certainly had an impact on the drink menu, it also affected some of the food items.

"There was a scampi dish on the menu with white wine in it," Galvin says. "I worked with the chef to develop other ideas and finally said can we use white grape juice instead. With a little tweaking, it worked. This is a great example of how you have to really know the rules wherever you're going." In other words, you can't just simply apply the concept's business model or prototype that's been so successful in the United States.

In Puerto Rico, where Jacksonville, Fla.-based Firehouse Subs expanded two months ago, cultural and language differences had to be to take into consideration, particularly when translating the menu, says Don Fox, CEO of the 465-unit chain. This was the case even though Puerto Rico is a U.S. Commonwealth.

"Hiring a great translator is key," Fox says. "It's too easy to stumble over translation of branded names and products and then you can end up not sending the right message." In Firehouse Subs' case, going with a blend of English and Spanish words in the menu made sense because some English words couldn't be translated closely into Spanish. Training manuals, marketing collateral, websites and other communication materials also need proper translation. Even English to English translation occurs because British English has many grammatical and word differences from American English.

"The biggest mistake is to think your brand is going to be able to be exactly duplicated in another country," Fox says.

Hire Right.

It's important to make sure the restaurant has a great team in place to work in the international arena, Fox says. Again, great translators are key, but so are staff trainers, real estate agents and legal professionals.

In Firehouse Subs' case, the team was smart to not only have secured trademarks in other countries years ago with the idea they may expand, but the chain was also lucky to have a uniquely qualified developer approach them about the Puerto Rico expansion, Fox says. The developer has signed an agreement to open 26 stores, but Fox says the island has the capability to support 50 to 60 Firehouse Subs units.

In the United States, Firehouse Subs works on a system where area representatives simply service and support their franchisees, but they don't run any stores. In this case, the developer demonstrated they had the financial resources and, most importantly, the talent to both build and run the stores. "They were so uniquely qualified that if it weren't for this relationship, we wouldn't be there," Fox says.

"If we ever thought to do this ourselves we would made some mistakes, for sure," he continues. "You need to either rely heavily on the developers in your country or bring on the expertise within your own organization. My advice for those looking to go international is to take a step back and really make sure you have the right expertise and resources lined up back at headquarters. Conventional wisdom is to double headquarters resources to be able to expand in international markets successfully."

Consider Distribution, Shipping and Transportation issues.

Just as Firehouse Subs counted on the fact they had an exceptionally talented developer team for their Puerto Rico expansion, they were also lucky that the Puerto Rican team also ran its own distribution system.

"They are in a unique position to not only operate but also handle all the logistics," Fox says. While shipping taxes for both food product and equipment isn't as much of a concern considering Puerto Rico is a U.S. territory, the costs of repeated shipments could pose a concern. Since the developer has its own distribution center, products and equipment can be shipped in bulk to the center and then distributed from there. Firehouse Subs works with D.J. Pearl in Kansas City to ship the equipment orders in bulk through the port of Jacksonville to the central distribution center in Puerto Rico.

"If we didn't have that capacity, frankly, I don't think we would have expanded because of the shipping costs alone," Fox says. Shipping product one by one to the different units in Puerto Rico would have posed a world of a challenges, he says.

That said, chains considering international expansion must determine if the costs for shipping and logistics outweigh the potential profits.

Understand Power and Space Differences.

Energy capabilities can differ greatly from country to country. Traditionally, the United States runs on 60-cycle power and Europe on 50-cycle, but "nowadays, a lot of electrical can be switched or run on both," Galvin says.

Costs for power as well as water, waste removal and other utilities also need to be considered first in order to determine proper equipment selection and design. For example, water costs may run higher in certain countries so water-saving equipment or design strategies might be more desirable for that location.

Space is also an important matter in terms of international expansion. "We recently worked on an expansion project in Mexico, where spaces are getting smaller and smaller and kitchens need to be more efficient," Galvin says. "We had to figure out how to take 30 percent out of the kitchen, so we looked at labor, energy and figuring out a 30 percent reduction in space as well."

That meant the use of more multi-use equipment, but also vertical shelving for added storage off the floor's footprint. "What people need to remember is not only the floor space, but also the wall space," he says. "We have to be horizontal as well as vertical designers." Even tiered shelving comes with its own set of details – as you move up the wall, each shelf must extend out slightly farther than the one below it so workers can easily reach items. And you can't go clear to the ceiling if there is a sprinkler system in place.

Consider Major Differences in Equipment Brands and Needs.

Selecting equipment goes beyond just choosing on American, European or other brands.

For example, Galvin says, "When we do work abroad we have a series of questions we ask, such as what type of pan sizes do you use? Are you on the metric system? What kind of beer system do you embrace? What is your soda system like?"

In the UK, Galvin explains, the beer tap system differs significantly from the American version because English drinkers like their beer slightly cooler than room temperature. In the U.S., a keg goes into a cooler and the system is designed to maintain that cold temperature, but in the UK, their system brings the temperature down a bit. They also use different taps and dispensing systems. When it comes to soda, the English and other Europeans don't use ice, so the beverages have to again be flash-chilled before serving.

"Even though I am an equipment consultant, I also have to understand purchasing and systems," Galvin says.

It's also important to fit the type of equipment with the type of space you're expanding into. That said, consider whether the kitchen is a closed-off one, an open one, or has a blend of both. Aesthetically-pleasing European equipment might be selected for any open areas and counters, while the durable American equipment takes over the back of the house.

Beyond American vs. European or other brand equipment, there are language differences here too. Certain pieces of foodservice equipment are called different things in different countries and across different companies, according to Galvin. In the U.S., we say "walk-in" coolers, but they're referred to as cold storage in Europe. One major chain restaurant brand may call their dishwashing room the dishwashing "ring" while another one calls it the "dish pit." "You have to learn the terminology of the country as well as of the company," he says.

International expansion projects can be rewarding for both operator and consultant. But it's nothing like duplicating stores domestically, nor is it cut and dry. Considerations must be taken in terms of culture and consumer demand, menu, logistics, equipment, space, power and more.

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