Atlanta-based Focus Brands recently reached a milestone of 400 international restaurants with its Auntie Anne’s chain, and the multiconcept franchisor plans even more aggressive international targets for the future.
Beyond developing key Asian markets like Thailand and entering countries like Israel, Indonesia and Guatemala, the biggest task on the company’s docket in the near term is re-entering China, where at one point it had 12 locations of Auntie Anne’s that eventually closed.
The parent of Auntie Anne’s, Carvel, Cinnabon, McAlister’s Deli, Moe’s Southwest Grill and Schlotzsky’s plans to go from 1,200 international units to more than 3,200 by 2018, said Mike Shattuck, president of Focus Brands International.
“You can’t do international halfway,” Shattuck said. “You have to be committed to devoting resources to deliver your supply chain and training and to be there to provide that marketing support. You’re not going to walk into international franchising and make money straightaway.”
The company will “make sure we do China right this time,” Shattuck added, noting that Focus has several brands in India, another important market that will grow conservatively over the next few years. Russia will be a more robust growth market, he said, and Brazil possibly could as well, once Focus enters the country with the right franchisee.
Shattuck, who has worked in international franchising for decades, spoke with Nation’s Restaurant News about what it takes to grow and support several brands abroad, not just in the well-known “BRIC” markets but also in emerging countries.
What did Auntie Anne’s and Focus Brands learn from their first experience in China?
The challenges there were that the guys were undercapitalized and didn’t have a local partner, and the supply chain is always a challenge. That led to the unwinding of Auntie Anne’s in China, but it was very amicable. As far as getting back in, it’s in the early stages and China remains a target market, but we’re going to do a lot more homework this time. We’ve done a market study there, and this year primarily we’re working on defining the supply chain. I wouldn’t see us relaunching in China until 2015, frankly.
Would you focus on China’s Tier 1 coastal cities, where operating costs are highest?
We’re looking at that right now. There are some places around the world where a reverse-penetration strategy in Tier 2 cities can work. But in China, we’d look at coming into the primary coastal cities like Shanghai and Guangzhou, and Beijing is one you have to do at some point. We would define a strategy specific to the brands. With Auntie Anne’s, Cinnabon and Carvel, it would be more coastal, because while the real estate is very expensive [in Tier 1 cities], with our snack brands we have the ability to come in with a smaller footprint and a simpler supply chain to put in place.
Our other big push is to get some more diversity in our international portfolio with McAlister’s, Moe’s and Schlotzsky’s. We’re looking to really put a lot of effort behind those three brands and get them out there. It would change the model for us, because those brands typically do three to three-and-a-half times the volume of snack locations. It’s definitely more challenging up front, but when you win that game you start changing the paradigm.
Looking at BRICs and beyond
Focus has restaurants in Brazil, Russia, India and China, but it is growing rapidly in other countries as well. Is the international growth story still one of the BRICs being far ahead of other emerging markets?
Everybody’s still going to look at the BRICs, and so are we, but the reality is they aren’t what they were a few years ago in terms of immediate opportunity. In general, Russia, India and Brazil have slowed considerably and their currencies are taking a beating. There are elections coming up in India and Brazil, which takes a little steam out of those markets in our opinion. When you’re selling master franchises, anywhere you’ve got economic uncertainty or political uncertainty, it’s a little harder to sell into. Russia depends so heavily on oil, and it impacts their entire economy.
There are a lot of opportunities in Asia. We have a good presence for Auntie Anne’s in Japan, Korea and Southeast Asia. In the Philippines, we have a lot of room for center-of-the-plate brands, as well as Cinnabon. In the Americas, Auntie Anne’s is underpenetrated. We’re not in Colombia, but we are in Venezuela, and we think Peru, Chile and Brazil are all good markets. There are big opportunities out there for Moe’s, Schlotzsky’s and McAlister’s Deli, which we just added.
How hard is it to recruit and train the right franchise partners for international expansion?
Finding the right partners is still difficult. We have a couple of approaches. One of the best things for us is working with the U.S. Commercial Service over the past 10 to 15 years. Through their trade missions or Gold Key Matching Service, you take a brand or two to them and brief them on it, and they help you find those target markets. What’s really on the rise but requires sifting are Web-based inquiries.
Training is always a challenge. We look at the true leaders in our franchise community and work to establish training centers in their regions. It’s costly to fly somebody into the U.S. for training, and we’re starting to put more training directors in our regions and building out our regional teams, not just for operations, but also for marketing, training and development services.