US Restaurant Firm Brinker International Pens Deal to Develop 25 Eateries in Russia

Brinker International, Inc. has entered into a development agreement to bring their popular Chili’s Grill & Bar concept to Russia. The first Chili’s will open in November 2010 in Moscow, with 25 total restaurants planned for expansion in the Russian Federation per the terms of the agreement.

John Reale, president of global business development for Brinker International said, “Russia offers vast potential for the Chili’s brand, and we look forward to sharing our unique bold flavors and dining experience with guests throughout the country.”

Brinker International currently owns, operates or franchises 203 international locations in 29 countries and two territories outside the United States. As part of the company’s goal to become the globally dominant casual dining portfolio company, Brinker International plans to have 500 restaurants open outside the United States by 2014.

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American Franchisors Aim at the Markets of Brazil, Central and Eastern Europe

 Such prominent franchisors as McDonald’s and Subway plan to enter the markets with a steadily augmenting portion of middle class customers (including Chinese and Indian markets).

Stagnant economic situations in the USA hamper business development in the country. Therefore, most franchisors choose to expand their businesses abroad. For instance, Curves (a fitness franchise) and Subway (a chain of sandwich restaurants) significantly increased the number of their foreign partners over the last year. The key player in the fast food industry – McDonald’s – also preferred to open new restaurants abroad rather than in the United States. In 2009 only 53 restaurants were opened in US cities and towns while other countries of the world welcomed 286 new restaurants. It’s noteworthy that in 2008 the proportion was equal.

In 2009 American franchisors aim mainly at the markets of Brazil, Central and Eastern Europe. The scope of their interest also includes such countries as India and China with the increasing portion of middle class customers.

Active overseas growth of American franchises is also influenced by the difference in financing structure. As a rule, American companies that sell their trade mark abroad help their foreign partners to acquire the necessary funding or finance them. At the same time their domestic partners have to develop the business based on their own resources or bank loans. That is why the development of franchising networks in the USA naturally slowed down in 2008 with the unfolding of the credit crunch. 

Foreign investors consider partnership with famous American franchisors to be very lucrative as American companies offer a well-known brand and proven business models. “We offer low expenses and very simple operation techniques”, says Subway’s Development Director Don Fertman. “This is the type of business everybody can participate in”. Beginning from January 2008 Subway has opened 1,432 overseas and 1,230 domestic restaurants. During the last five years the chain doubled its presence in the foreign countries and now has 8,817 restaurants outside the USA.   

The development strategy of Curves is similar to that of Subway. Beginning from this February 612 new fitness clubs have been opened abroad and only 19 clubs in the USA. Curves’ major market is Japan where the company has 744 fitness clubs opened. In May 2009 Curves came to China and plans to enter the Indian market this autumn. “With our concept of fitness clubs exclusively for women we bring something truly foreign to these markets”, points out the company’s CEO Jim Johnson. This concept can be especially successful in Muslim countries where due to religious customs men and women traditionally have separate rooms for any public activity.     

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European franchising continues to impress, bolstering the increasing popularity of the franchise business model.  International franchises like McDonald’s and Burger King are leading the way but there are also strong European franchises expanding eastward, dominated by French, Spanish and Italian franchise opportunities as well as a few franchising businesses from the United States.

Central and Eastern Europe are now beginning to make an impact on the franchise sector, with the Hungarian retail bakery chain, Fornetti, developing at an outstanding pace. The pastry franchise operates a wide franchise system with over 450 outlets.

It estimates a further expansion, as another 250 franchises are to be added by the end of the year. Furthermore, the company has indicated it would spend about 6 million euros for the establishment of a manufacturing facility in Bulgaria. The company was set up in 2001 and is based in Timisoara.

 These ventures are continuing to rise and more franchises are sweeping into the Eastern European sector, as well as Russia.  Franchise owners in the U.S. should take note, as the only thing that may keep them from turning profits in these fertile markets is other foreign brands beating them to it.

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Poland Enjoys Economic Prosperity After 20 Years Since Free Elections

Free elections 20 years ago this week in Poland marked the unraveling of the Soviet bloc of Eastern European nations and the beginning of market reforms.

Shipyard workers hold Solidarity trade union flags on the anniversary of free elections in Poland.

 The events of June 1989 also marked the turning point for companies like KGHM, which has grown into a global player in the world’s copper market and one of Poland’s largest companies with 18,000 employees.

“A lot of changes have happened since that moment, since 1989,” said Zbigniew Klich, a development engineer who has worked at a company copper smelter near Lubin for more than 30 years.

“This is the Poland of my dreams,” Klich said. “Even though I will probably retire in the next few months I feel so fortunate to have seen the last 20 years in my professional career.”

The financial crisis has had minimal impact on the company so far. “In comparison to other sectors of the Polish economy, the commodity business has been doing quite well,” said Jarek Romanowski, sales director of KGHM.

Poland’s export prowess has led the nation to become one of the great success stories of former communist bloc economies. In 2008, it ranked 22nd in the world with more than $190 billion in exports, ahead of Australia and India, according to the CIA Factbook.

The country’s economy has grown every year since 1992, and bucked the recessionary trend of other European Union nations by expanding its economy by just under 1 percent in the first quarter of this year.

“Poland is not an island and we are very much linked to other EU countries so a lot depends on the performance of the German economy,” said Dominik Radziwill, Poland’s deputy finance minister. “But even with the current forecasts which are really pessimistic for the German economy, we still think Poland should be doing relatively OK.”

Leszek Balcerowicz was the country’s first Finance Minister after the fall of communism and initiated Poland’s free market reforms. “Socialism (was) a very bad system and everybody knew that it was a bad system without any hope for a better life,” he said. “Transition to a better system is sometimes difficult but you have to overcome these difficulties on the way to a better regime.”

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Popularity: 5% [?]

CKE Resturants to expand its brands in Eastern Europe CKE Restaurants Inc, a USA based company that owns quick-service restaurant chains Carl’s Jr. and Hardee’s, is set to expand these brands into Kazakhstan. Americana Group, which has been franchising with CKE Restaurants for 30 years, has gained the franchise rights to open Carl’s Jr. and Hardee’s outlets in Kazakhstan. The company already owns and operates brands owned by CKE Restaurants throughout the Middle East and Eastern Europe.

Andrew F. Puzder, President and CEO of CKE Restaurants, said: “We have a successful history with the Americana Group and are confident that they will continue to demonstrate their knowledge, expertise and passion for the CKE brands as they expand in new and existing markets. International expansion remains a key strategic focus at CKE.”

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Because of the economic downturn we are currently experiencing, there has been a heightened interest in business opportunities and franchises that have the right stuff to weather and potentially thrive during this stormy environment. Recession proof franchise opportunities are businesses that traditionally offer products and services that consumers and business owners just can’t (or wont) live with out. The demand for these types of non-discretionary products and services is fairly consistent because they are considered necessary to run a household or successful business regardless of the current economic climate.

Below are a few franchise business categories and industries that are traditionally considered the most secure, typically garnering the term ‘recession proof’ most often:

Automotive Services:
When consumers hold back on making new car purchases during tough economic times, the repair and maintenance of their current vehicles generally becomes the priority. Auto service businesses and franchises such as car repair, oil & lube, and even tire centers tend to do well, and in many cases thrive, during recessionary times because of this market dynamic.

Financial Assistance Services:
Well you know the old adage about the certainty of death and taxes. We may be in a recession, but regardless we still have to pay our taxes every year. Tax preparation franchise opportunities actively promote their business model as a recession proof businesses, as do Debt Consolidation services, Credit Coaches and Financial Advisors. I can’t argue with that claim or the continued growth of this industry even during a recession.

Senior Care & Home Health:
With life expectancy on the rise and the advent of approximately 70 million baby boomers set to retire in the next 2 decades, the senior health care looks industry like a safe bet for very strong growth going forward. Dozens of senior care related franchise opportunities have emerged to service this niche already, and it seems likely that an even a severe economic downturn will not deter families from providing care for their loved ones.

Beauty, Spa & Hair Care:
Getting your hair cut by a professional at a low cost “no appointment style” hair salon franchise like Great Clips or Fantastic Sams has always been an affordable convenience that most consumers will continue to use even during a recession. Plus it has been stated and validated many times that keeping up appearances regardless of the state of the economy is not an option for many consumers.

Disaster Restoration Services:
This is another industry that traditionally holds up very well during a recession because it is a non-discretionary and vital emergency service that home and business owners may need because of damage created by a fire or flood.

Popularity: 5% [?]

The United Kingdom often seems the logical place for overseas franchisors from English-speaking countries to begin their European expansion. The language is similar. There is a well-developed franchising community that is supported by the lending banks. There are an array of experienced legal and practical advisors, and a wide choice of franchise and small business magazines and exhibitions in which to promote the opportunity. Once established in the UK, the business then has a natural springboard into Eastern Europe.

One of the first questions to be answered is what should be the entry strategy? Naturally most franchisors will eventually be looking to duplicate what they do in their home market - that is, set up a network of sub-franchisees, which will often be recruited and managed by a master franchisee. Of course, there are other structures available. For example, the franchisor can set up an owned subsidiary to also become the franchisor within the new country/market. Alternatively, the franchisor can appoint an area developer who only opens and operates owned units. But master franchising with sub-franchisees is often the preferred option for most businesses who franchise in their home country.

An increasing trend involving international franchisors, from countries that are much larger geographically than the UK, is to appoint regional master franchisees, who in turn subfranchise or appoint actual operating franchisees. Whilst there is no reason why this strategy shouldn’t work in practice in the UK [if it works in the home country], there are problems - not least with the approach taken by The British Franchise Association (BFA).

Unlike many national franchise associations, the BFA have strict membership criteria for applicant franchisors. In instances where a number of different entities are going to recruit franchisees into a system the BFA requires them all to individually meet those criteria. Furthermore, if one does not qualify, or chooses not to apply, then none can be BFA members. This will cause problems as nearly all the lenders and franchising media recommend that potential franchisees only consider those businesses that are members of the BFA. Local advice on how best to structure your entry to the UK is therefore important.

Whatever the chosen structure, the proposed network will be much better received by the UK franchising community if it is properly pilot-tested and proven before sub-franchisees are appointed. Overseas franchisors are often surprised by the conservative and cautious attitude displayed by potential UK franchisees. They will look for a proven business format, for which some credible market research has been undertaken, and which is professionally presented. English people are not generally as entrepreneurial and willing to take a gamble as is often imagined and will take a long time to examine an opportunity before deciding to go ahead. However, once committed they will give it all they’ve got to make it succeed.

The good news is that the UK has no pre-contract disclosure laws. Indeed there is no specific franchise legislation whatsoever. Joining the British Franchise Association requires submitting to a detailed accreditation process as does exhibiting at any of the British franchise exhibitions. Both organisations are keen to raise the standard and quality of franchisors rather then simply go for large numbers.

One of the most surprising things for businesses with premises-based franchises when they first come to the UK is the cost of real estate and the difficulty and time involved in actually securing the lease to premises. As a general rule expect sites to be a lot smaller, rents to be considerably higher and for it to take a lot longer to secure occupation rights. Taxation and labour laws will also be different and all these things have a bearing on how successful the transfer of the business format is likely to be. When the move is made into Eastern Europe everything will change again - often in each country!

The most frequently asked question is “how much can we charge for upfront and ongoing fees? As usual, there is no “right” answer and it depends how badly you want to be here, how much you want that franchisee, or how much that franchisee wants your brand and system. Establishing the fee structure which is right for a particular business in a particular market is one area where local professional guidance is invaluable.

One area of franchise development where the UK led (and probably still leads) the world is the presence in nearly all the major banks of dedicated franchising sections which keep tabs on all the operating franchisors. Banks here love lending to franchisees because it is proven to be a much safer form of small business lending for them - providing of course the franchise has been properly set-up and structured in the first place or, if it is an incoming system, that the appropriate research has been done. There’s that good old UK conservatism again.

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Opportunities in Poland
Poland is one of the fastest growing economies in Europe which is confirmed by various market indicators such as Gross Domestic Product, Consumer Price Index, structure of the labor market, competitive wages, and dynamic foreign trade exchange. With GDP growth of 6% for the second quarter of 2007 (3.2 % in 2006), Poland is developing much faster than the Euro zone (1.3%) and higher than the average of all 25 EU members.

According to a major survey in 2007, the main reason for investors to enter Poland is cost and time effectiveness. Costs of conducting business in Poland are significantly lower than in Western Europe. Also the labor costs are very optimistic for foreign investors. Since 2001, wages in Poland have been increasing slowly due to marginal unemployment. As a result, the wage level in the Czech Republic and Hungary is now higher than in Poland. (Average monthly wages in the enterprise sector in Poland was €490). According to Cushman & Wakefield Cities Monitor, Warsaw is the best capital city in Europe in terms of payroll costs for workplace staffing. Also, the time required to start up a company is much shorter than in other countries. According to the World Bank, the estimated time required to start a business in Poland is 31 days, in Hungary it is 38 days and 40 days in Czech Republic.

Franchisors have found fertile ground in the Polish markets, having surpassed neighboring countries in the favorable factors that attract such new business ventures. Poland’s capital, Warsaw, is among the choicest epicenters for growth in quick service restaurants, clothing, ’street’ food and production/manufacturing.

“Any franchise ignoring the prosperity available for expansion into Poland is just throwing money away,” says one EU franchise consultant, “It’s just one of those opportunities you can’t pass up.” While most consumers are more than delighted at the influx of new offerings popping up in Poland, they are eager for the greater stability in the job market, and simply greater diversity in the jobs available. Learn More >>

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The world’s biggest retailer doesn’t give up the idea to enter Russia
Wal-Mart has officially admitted that it doesn’t give up the idea to enter the Russian market. Furthermore, the world’s biggest retail group still thinks that the best way to do it is by taking over major national retailers in Russia. For example, the retail chain Lenta.

Interviewed last Thursday by Bloomberg Wal-Mart’s finance director Charles Holley said the company still considers an opportunity to enter the Russian market.

At the beginning of April one of the major Russian business newspapers Kommersant announced that Wal-Mart was negotiating a deal with the Russian retail chain Lenta. Wal-Mart was willing to acquire 51% of the company’s stock after it was revealed that Lenta’s founder Oleg Zherebtsov decided to sell his 35% stock share. Originally, Wal-Mart wanted to buy his shares but then decided to do it only together with any other deal of the same kind in order to obtain the controlling stock. The deal failed as other Lenta’s co-owners refused to sell their stocks.

Charles Holley comments on the situation: “Russia is a growing market and it is still not packed with well-organized retailers. We can apply all our potential here in terms of merchandising, pricing and saving customers’ money. It will allow us to feel comfortable in the market.”

Wal-Mart has to look for new markets because the areas of its traditional presence have ceased to grow. According to the company’s recent report, from the beginning of February till the end of April the world sales for Wal-Mart shrank by 11% down to $21.3 billion. The losses were caused by the exchange difference. If not for the strong dollar, Wal-Mart’s gain would have increased by 9.1%.

New markets are absolutely essential to the company. And one of the higher-priority regions is Russia. “We do not deny that Russia is still of a big interest to us,” says Mr. Holley repeating Wal-Mart’s previous statements. “In the broad sense of the word the company looks for further expansion both in the areas of its presence and in new markets.” Lenta’s spokesperson refused to comment on the situation.

UBS analyst Neil Currie reported that Wal-Mart can be first of all interested in a well-known brand and customers’ loyalty. And Lenta can provide both. Obtaining a major national retailer’s controlling stock falls in line with the Wal-Mart’s development strategy. For the last years Wal-Mart preferred to invest into other retail chains abroad rather than establish its own stores from scratch, emphasizes Mr. Currie.

Wal-Mart’s entering the Russian market has been widely announced in mass media. But none of the rumors about the results of the retailer’s expansion have turned out to be true so far.

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