Why do successful food brands fail in international markets?

Burger King; Wendy’s; ChicFilA; Taco Bell; McDonald’s; Dunkin Donut; Starbucks; Baskin Robbins – to name a few, all share something in common … they’ve all failed at expanding into various international markets. The question must be … why … how?

My theory as to “how” and “why”, based on 30 odd years in the food industry, is this. In the 80’s and early 90’s as a young restauranteur myself, I watched many incredible, highly successful South African restaurant operators try develop restaurants in the USA and U.K. – they all failed! Not one made it. Millions of dollars of investment and pride lie in ‘restaurant cemeteries’ across the USA. I realised the “we will teach them how to run restaurants” ideology, was flawed. Confidence was one thing, arrogance something totally different. Superb operating ability simply wasn’t enough either.

But then a strange thing occurred. ChicFila came to South Africa and they bombed in our market. This was followed by Burger King and Wendy’s. These are massively successful brands yet they failed in South Africa (SA) just as South Africa’s finest failed in the USA & the U.K. So it wasn’t just something South Africans (my home country at that time) did wrong, it seemed a universal problem. And so this failure became an obsession with me – I had to research and find out more. What I learned amazed me. Many well financed, well managed food brands were failing to transplant a winning formula in various markets around the globe.

Knowing all this I still took my own concept to the USA in 2001, and actually made a go of it. But not without issues. I still had “stuff” to learn – soft openings; extensive pre-opening staff training and free meals in return for feedback. Plus the usual administrative and legal stuff. We didn’t do soft openings in my country, ‘opening kinks’ happened and as long as they weren’t a train-smash, customers came back and give it a second go. Americans are the opposite, if you open your door and take money – you’d better be ready. Competition is stiff, if it’s not right, Americans move on. And they’re actually right!

In my case, I didn’t want to do bottomless coffee because we made each cup of coffee fresh in the Italian style (not drip coffee). And I assumed that as American diners paid for each coffee at a Starbucks, so they would in my concept. I also wanted to sell Coca Cola products in the small bottles – I personally think it tastes better than syrup dispensing systems and looked cool, I charged for each bottle. I was wrong on both decisions! And by not doing a soft opening, I found out the hard way!! Our opening month went bang busters, we ran queues but then sales began to drop off. Nobody was complaining – they just weren’t returning as frequently. We knew customers loved the food, feedback had been exceptional, but Americans don’t really complain unless it’s a big issue – they just don’t come back. Ours wasn’t an issue they felt comfortable complaining about – they knew we were foreigners, and saw our error as CULTURAL – not the system or the product, but it was enough to put them off. And then one fortuitous day, a lady came up to me and told me personally – “best meal I’ve had in ages, but I will not be back”! I obviously enquired why – was it service, the wait perhaps, too few options, calling fries ‘chips’? “No she said, nothing wrong with any of that, I refuse to pay for a second coke or coffee …, we were three diners and were charged for 6 cokes and 5 coffees – it’s robbery”! I quickly refunded her drinks as a courtesy and realised I had a problem.

‘When in Rome … do as the Romans do’. My intentions were good – offer a better quality, and my logic sound – they did it at Starbucks. But the reality is – in the USA soft drinks and coffee are part of the pricing structure and meal offer, customers budget for cheap one off unit pricing. Plus Americans drink a lot more soft drinks than any other country I’ve been to, at each sitting. A small bottle of coke for us was enough – Americans want a 20 oz. ‘Bucket’ of the stuff plus a to-go refill as they leave. A Starbucks coffee is the entire ‘meal experience’, not a part of it, so they’ll pay per item. It’s a subtle difference, but a difference none the less. I got the bookings book and randomly called past customers who’d booked and left contact details. The feedback amazed me.

I quickly called a South African mate who owned a string of American franchised restaurants and asked him to pop in. He came and went over numbers with me – what’s your projected first year revenue based on month one sales – 1.4 million I said. What’s the cost of bottomless coke and coffee vs. charging. I did the calculation and said 30 000 dollars per annum give or take. “It’s a no brainer” he replied. Charge for one coffee and one soft drink and give bottomless – take the hit! Obviously he was right. I called my suppliers and arranged for a Coca Cola syrup machine and drip coffee unit to be installed. In the meantime we charged once only but gave bottomless. Within 4 days I had the installations done.

I made the other two adjustments from customer feedback too – remove the tablecloths and reprice your appetiser under $10 and entree under $20, removed the one dish priced at $49.95 (and it was a loss leader) as it earmarked me as an expensive fine dining operation, especially as I had white tablecloths. That way the customers could pigeon hole my operation. These are minuscule tweaks to a three quarters of a million dollar restaurant investment. And yet they almost caused my demise.

I immediately reprinted the menu and offered EITHER bottomless drip coffee and soft drinks OR bottles of soft drinks priced per bottle or freshly ground coffee priced per cup. I don’t think I sold 30 bottles of soft drinks in a year. Coffee was a bit better – but nothing compared to bottomless. A lesson learned. We never looked back.

So why do I share this anecdote? I think it goes to the heart of international chain restaurant failure, and a good general business lesson.

1) Understand the local culture as a priority. E.G. – American menus are banded – under $5; under $10; under $20 etc.;

2)learn to adapt and think on your feet;

3) No business model can be so rigid it breaks you;

4) Customer feedback is easier to obtain and more honest and reliable if they’re in a comfortable unthreatening familiar environment (home);

5) customers should not be subject to demands or peer pressure, ridicule or embarrassment, even for good reasons, from management – NOBODY wants to complain publicly about the price of a coffee in front of guests!!; and

6) For restaurant managers and owners, (or any staff in front line customer interface), always remember why you’re there and why the customer is there. In a restaurant the customer wants to relax and enjoy his friends / family – he’s not looking for hassles or confrontation. My next researched point is perhaps the most significant.

A restaurants life usually starts with an entrepreneurial mindset and a good product or two. It has energy and passion and requires thinking on the job and a high work ethic. It’s a tough, relentless industry and the general public unpredictable to serve. But by harnessing all of those qualities, the founder/s get the various parts together into one cohesive machine, make a go of it, and open the doors to the public. They do well.

They tweak recipes and find better systems and suppliers and eventually write a manual. They decide to open a second location and staff up. They put energy into training staff and remain hands on. But with a second unit comes three distinct changes:

1) The restaurant is now more of a business than a restaurant. Note: A great question to ask yourself – are you a restauranteur or a businessman – if you answer that question honestly, and act accordingly, you stand a far better chance of success either way;

2) The owners have to train and trust staff and cannot be in two places at the same time. Systems become the key!; and

3) The owners find running two units irrationally harder than running one unit. So many food concepts fall at this hurdle. Overheads jump incrementally off the charts. My rule of thumb is the first unit is easier than numbers two, three and four, but from 5 onwards it gets progressively easier again. You’ve got decent infrastructure and support at 5 stores! NOTE: International growth problems from 1 to 5 units is magnified ten-fold. Or starting with 5 units has overheads that cripple the project. Unit planting to try look impressive by growing units quickly; starting with a franchisee rather than company owned or making short term decisions are a no-no internationally.

Start internationally, as you began initially!

But they persevere with No. 2 and the operating systems become the ‘holy grail’ – the system takes control of the restaurants and the owners tackle and grapple with running the business. They grow to five outlets and have been going for 4 to 5 years.

In growing a restaurant brand two things stand out for success: finding the right staff and training them well AND the ‘holy grail’ – the operating system. It MUST be in writing and valued above all else. The corporate motto is – “ you can mess with my wife, but NOT the restaurant system!”

Let’s touch on those 2 issues for a second. Training – when you impart knowledge – it’s like that game “broken telephones” (or Chinese Whispers). If the owners teach the first managers the restaurant ropes (even with a written manual), they at best take in about 80-85% of the stuff and are about 15% less proficient than the owners. Firstly they’re working for someone, they’re not entrepreneurial owners. Secondly they interpret according to EQ; culture and environment. They in turn train the next wave of managers – who become 70–80% of the trained trainers, the percentage level of absorption and quality dissipates. It’s unavoidable! (Obviously exceptions exist – I think of people like Fred Turner from McDonalds).

The only thing that can arrest this gradual dissipation in intensity and quality is the operating systems … flowcharts, stock takes, order lists, check lists, product photographs, food recipes, customer greeting protocol; booking systems; gratuity allocations; front of house meetings; toilet cleaning Rotas; supplier contact systems; breakdown protocols; store opening and closing schedules …. It’s endless, tedious mind numbingly boring – but essential. The mantra becomes – Unit 1 must be the same as Unit 37 or 73!

10 years or more pass, the original owners are taking things a little easier, they’ve got management in place and their function is now unit oversight; administrative controls to ensure margins and profitability and a more brand ambassadorial role. They’ve grown into 10 States and begin looking further afield so they take the decision to open internationally and pick London. My research has yet to uncover the science of why a place for international expansion is chosen. But it’s usually totally random. They speak English; the food there is lousy; I’ve always loved England; my ancestors come from England … etc. This is where brands tend to lose it! Obviously the founders cannot go, they’re running the original cash cow and have also kicked back a bit and taking a well earned lifestyle upgrade, so they select a proxy … a top manager to spearhead the project – a big honour. They invest in thousands of hours of planning – not in the chosen country, but at Group HQ. So pointless!! What primary skills are they looking for in this manager? Two key skills jump out to most owners – definitely NOT a maverick and definitely someone who knows, understands and operates the now well oiled corporate system, strictly.

Big mistake! And everybody makes it. What you want, are the characteristics that started the venture. Entrepreneurs – not a systems driven, corporate ‘yes’ man who struggles to think on his feet! Top system managers are seldom entrepreneurial and vice versa. You need that maverick who has a love / hate relationship with the systems but knows them. A person who can change from bottled Coca Cola to bottomless syrup in a flash and not point to the systems manual and say, it’s not in the manual. A high energy person, and not always an internal pick.

I’ve told several large brands to open a local new concept every so often as a training exercise first, and don’t make it easy – give too little cash or too tight a time line, even an impossible concept that just shouldn’t work. Create an international division (it can be 2 guys) and give them the keys to that castle. Let them sink or swim. Either way, the core brand wins. The new venture is either a success and they make some money or it fails but the management learn a great deal from mistakes. I wish I had a dollar for every brand owner who told me while discussing international development – why should I focus energy and resources on a new concept when the original concept is not fully developed yet? And the answer is always – it’s not about the core concept, that’s running smoothly … it’s about problem solving. Rather make local mistakes that don’t matter than international ones that cost a lot more and damage the core brand!

Send that lead manager to live in the new market for 6 months before spending a dime. Best investment ever! Not visit … live. Understand the local flavour profiles and learn local knowledge and culture. Don’t bring products from existing home suppliers – find local ones. In my opinion ChicFila failed in South Africa because it’s overall product offer is too sweet for the SA palate, especially the sandwich buns, and they have no spicy option either (well they didn’t then). They saw themselves as premium and priced accordingly. They aren’t! Because of a few small hiccups and an inability to adapt they lost millions. Failure is most often not falling at a big hurdle, but rather a few minor stumbles at a few small hurdles.

In short, everything that led the original concept to succeed, can easily create the platform for the international expansions demise.

I have purposely not touched on legal; HR; supply chain management ; financing etc. in this article as it would become a novel! But essentially, positive cash flow eradicates a mountain of mistakes. Get the mechanics right and bums on seats, the rest will follow and sort itself out. Restaurant concepts will grow globally – that’s a certainty as holiday destinations expand and people want to continue eating food they had on holiday. World wide average food dollar spend was 25% or less in restaurants (of a total family food budget) back in the 50’s, but its steadily grown to 50% by the end of 2010 – split equally with grocery stores – however in 2017, Americans spent approximately $822.4b in bars and restaurants and $819.5b on groceries. More than 14 meals a week (out of the 21 mealtimes we have) are now eaten out of the home in the USA. The rest of the world is going the same way.

Diversity and growth is speeding up – Saudi; India and China achieve now in a decade, what the USA and Europe took 5 decades to establish! Food brands will expand internationally, they have to continue producing shareholder value in vastly mature home markets. Sadly many struggling national brands see international growth as a band-aid … what a mistake! I hope the graveyards don’t keep getting bigger!

Good luck to all those hospitality brands struggling under Covid -19, I wish for you a double dose of fortitude and perseverance as you navigate these choppy times!

B

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