Analyst uncovers 3 keys to global growth
Chained foodservice still makes up a small portion of the global market, but saturated conditions and limited growth potential in the developed markets where most of the largest chains are concentrated have forced operators to expand abroad to maintain growth targets.
International expansion is a key component of current corporate strategies, but the strategies themselves 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. Below are three trends to keep in mind when strategizing growing outside of the US.
1. Asia Pacific holds 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 in foodservice across the region. Looking ahead to the next five years, the expected growth in absolute terms is essentially untapped potential for foodservice operators. Foodservice in China, for example, is expected to grow an absolute US$118 billion by 2021 at current 2016 prices, more than any other single market, which means there is still plenty of room for international operators to develop long-term growth strategies in that market.
In regions with many developed, and highly saturated foodservice markets, such as North America and Western Europe, the potential for growth is limited and open only to those companies that can steal share from competitors.
This is a real challenge for some of the world's largest foodservice companies based, and largely concentrated, in highly developed countries. In fact, each of the top 10 global foodservice companies by value, with the exception of Japan-based Seven & I Holdings Co Ltd, are based in North America. Most publically-traded global foodservice companies, therefore, that need to find ways to grow top line value, have naturally developed 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 in which chained concepts are growing fast.
There are few truly global operators, and those few that do exist benefit from a comparative financial advantage and the name recognition to influence the way foodservice unfolds in markets where the foodservice landscape is changing.
Source: Euromonitor International
3. Master franchising at the heart of modern expansion strategies
Chains must be flexible in order to grow in new markets, and more are looking to franchisees, and building out master franchise structures, to accomplish this. In a master franchise arrangement, global foodservice companies franchise the brand to a large, local company that controls that brand's local development strategies.
The master franchisee acts as a trusted, geographic corporate node, and may sub-franchise the brand in order 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 the brand to best suit local preferences, and may "localize" the format, menu offerings and pricing structure to maximise appeal.
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, and to do so with the authority of being locals themselves. By handing over brand control and providing limited guidance to preserve the integrity of the original concept, certain foodservice operators, such as Domino's Pizza Inc, have enjoyed rapid growth in certain high-growth regions, simply because growth strategies were being developed, and local markets were being navigated, "on the ground," so to speak.
The way ahead for chained foodservice operators
In this new global environment, potential remains for foodservice operators that can effectively adapt. In China, there are stark differences between urban and rural areas, and first-tier cities differ from the market'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 will need to rely on the local expertise of franchisees to develop those long-term growth strategies that maximise their ability to grow. The principles needed for growth in China will serve operators looking to grow in any international market.
Cover photo: iStock
Topics: Trends / Statistics
Companies: Euromonitor International
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.www