What is in this article?:
Nation's Restaurant News was treated to exclusive access to Herfy, a Saudi Arabia-based quick-service chain with 195 units in the Middle East. This article originally appeared in the Nov. 26 issue of Nation's Restaurant News. Subscribe here.
'A competitive edge'
“As the best-known brand in QSRs in Saudi Arabia and the first Saudi Arabian QSR brandto the marketplace,” Saeed said, “we believe we are able to bring new products to the market faster, to select premium real estate and to have a price and value advantage the others don’t have.”
Saeed noted that Herfy has been able to hold the line on restaurant prices since 2010 despite commodities headwinds. Herfy’s combination meals range from 15 to 18 Saudi riyals, or $4 to $4.80.
“We have the competitive edge,” Saeed said, “because we own our own bakery, meat processing plant, commissary and distribution facility. All of these contribute to our lower costs and premium-quality products. In addition, this ensures we have a smooth, safe and secure supply chain.”
That has given Herfy wide berth in pricing power, analysts said.
“We believe Herfy could easily raise its menu prices, especially given that it has not increased prices in the past two years,” EFGHermes analysts said.
Much of that pricing power is a credit to “the vertical integration of their supply chain,” said Oliver Brown, a restaurant consultant based in Live Oak, Fla., who is familiar with Herfy. Brown, a veteran of the Burger King system, was brought in with another U.S. advisor by Alwaleed in 1993 to work with the Herfy organization.
“The prince’s concern was whether Herfy could compete successfully with Burger King and McDonald’s, which had just entered the kingdom,” Brown recalled. “The reason they hired me was their menu was a close knockoff of Burger King, except they had bone-in .”
Brown said his analysis found Herfy was strong.
“We looked at their cost structure, we looked at their real estate, we looked at their management structure, and we decided that with some minor changes, Herfy could be very successful,” Brown said. “There was also a halo effect of being Saudi-owned.”
Brown said one problem was trade dress, which was varied among the units because of the long supply chain, with most of the furniture and equipment sourced from the United States.
“It really was mix and match, but we got that straightened out,” he said.
In addition, the Saudi market had special issues, such as the requirements of the Muslim faith for halal meat and the division of genders within the restaurants.
“You have to have a separate dining area for the women and children to separate them from the males,” he said. Herfy and other public eateries, including the wide variety of U.S. brands already open in Saudi Arabia, must provide designated areas for women and families, including booths with curtains that can be pulled closed so the women can remove the veil of the traditional black abaya covering to dine.
Such hurdles have not kept U.S. chains from scouting out Saudi Arabia, which boasts a large population of expatriates and a culture of shopping and eating out.
Still, Herfy has a number of advantages over franchised U.S. brands, including a lower cost of doing business, Brown said.
“Their competitors have to pay 4 or 5 percent royalty on the top just for the use of the brand, but Herfy has built its own brand and doesn’t have that cost disadvantage,” he said.
Herfy also is adept at winning prime real estate locations. The company owns about 20 percent of its locations in the kingdom and leases the remainder. Units can range from 2,500 square feet to as much as 4,800 square feet.
Ahmed Abdullateif Al Shbeky, Herfy’s vice president, said the company “is always looking for distinctive restaurant sites. … We will negotiate directly with the site owners to obtain the best costs, whether we are buying or leasing the site. The reputation and long history of Herfy has allowed us to select the best locations in Saudi Arabia and to negotiate excellent competitive pricing for these sites.”