Restaurant chains continue to look overseas for growth

KFC EgyptBIZMOLOGY — Large US-based restaurant chains like KFCIHOP, Domino’s Pizza, and Outback Steakhouse continue to look to international markets for growth opportunities. Restaurant operators are hoping to offset stagnant or slumping domestic sales. Companies are especially looking to China and the Middle East as fertile ground for brand expansion and revenue growth.

China

So far, the Chinese quick-service market has been dominated by KFC and Pizza Hut parent company YUM! Brands and the mighty McDonald’s Corporation. YUM! operates almost 4,400 locations of KFC and about 1,000 Pizza Hut units in China. McDonald’s currently has around 1,500 restaurants open in China.

While the potential for profits in the Chinese market is huge, recent controversies severely impacted KFC’s sales and put a spotlight on the inherent supply chain, marketing, and public relations risks of doing business in foreign markets. YUM!’s China business contributed more than 40% of its overall operating profit in fiscal 2012.

On the higher end, OSI Restaurant Partners‘ brand Outback Steakhouse has been expanding into China as well. The chain has also been adding locations in Hong Kong and South Korea.

The Middle East

At first it might seem surprising how much US-based restaurant operators are looking to markets in the Middle East for growth. Despite the politics, American brands have found remarkable traction in the region. Apparently, in the Gaza Strip a 12-piece bucket of KFC chicken goes for about $27 — more than twice the $11.50 it costs just across the border in Egypt.

Earlier this year DineEquity concept IHOP opened its first location in Kuwait. The outpost follows the successful opening of two locations in Dubai back in September 2012. In the coming years IHOP expects to add a total of 40 restaurants in Bahrain, Egypt, Jordan, Lebanon, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Stimulating Domestic Sales

For Domino’s Pizza international growth has helped stimulate domestic success. Domestic same-store sales have shown single-digit growth in recent quarters after the company posted more than 75 straight quarters of same-store sales growth abroad.

Domino’s has relied heavily on franchises for its international expansion efforts. The company owns about 10% of its units in the US but zero of its foreign outposts.

Staying Focused on the Home Front

Restaurant chains are now a prime export for the US — but operators cannot afford to ignore domestic competition. While US-based chains look to global markets for growth, many chains from outside the country are hoping to expand their concepts and compete more robustly in US markets.

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Photo by Dennis Jarvis used under a Creative Commons license.

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Michael McLellan

Michael McLellan covers the business of restaurants, marketing, media, technology, and more for D&B and Hoover's. He is a graduate of the University of Texas at Austin's Radio-Television-Film program. Follow him on Twitter.

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