VF Franchise Consulting

Restaurant chains look to Southeast Asia for growth

Jul 23, 2013

U.S. restaurant brands this week announced new development agreements in Southeast Asia, once again highlighting the region’s strength as a growing market for American-based brands.

Seattle-based Starbucks Corp. said Thursday it plans to add 100 new units in Indonesia over the next three years and 100 new locations in the Philippines over the next four years. Richardson, Texas-based Wingstop Restaurants Inc. said Wednesday it would make its first foray into the region with a 20-unit agreement with Singapore-based Abaavo Group Private Limited.

“That’s a booming and amazing market,” said Aaron Allen, founder of Orlando, Fla.-based Aaron Allen & Associates LLC, a global restaurant consultancy, during an interview from Saudi Arabia. “U.S. restaurant growth is slowing, typically growing at the rate of inflation each year.”

U.S. inflation in 2012 was 1.7 percent.

“Emerging markets, particularly in the Middle East and Southeast Asia, are having a booming population growth,” Allen said, “and that equals demand and a population density. There’s also an amazing thirst for American and Western brands.”

Allen said the U.S. restaurant industry is very sophisticated. “The competition in America is such that operators here have become much more sophisticated and have more fully expressed — and formalized — standard operating procedures,” he said. “Consumers in emerging markets don’t view chain restaurants with the same stigma as we have come to view them in the States. In fact, they welcome and are flocking to them for all the obvious reasons, but also because they are often starved for the higher standards of consistency, service, safety, sanitation, and novelty the Western chains are bringing along with the cache of being an American brand.”

Starbucks’ reaffirmation to accelerate growth in Southeast Asia came Thursday after chairman, president and chief executive Howard Schultz returned from a market visit to Indonesia and the Philippines.

“With a population of more than 600 million people, an emerging middle class that is driving strong consumption, and a robust and resilient economy, Southeast Asia presents a compelling growth opportunity for Starbucks,” Schultz said in a statement Thursday.

Starbucks first entered Southeast Asia in 1996 with a unit in Singapore. The company now operates more than 700 locations across six countries, including Indonesia, Malaysia, the Philippines, Singapore, Thailand and, most recently, Vietnam.

However, Starbucks has a long history in the region that precedes its first unit, with the company sourcing coffee beans there since 1971. The company continues to source beans in Indonesia (Sumatra), the Philippines, Thailand and Vietnam.

Wingstop, which is starting to expand abroad, is a newer player in the region.

“Singapore represents the first country Wingstop will enter in Southeast Asia and will serve as a model as we continue to expand overseas,” Wingstop chief development officer Dave Vernon said. Wingstop currently has 550 restaurants in the United States and Mexico, and recently signed a 50-unit franchise deal for Russia.

Singapore has positioned itself as the gateway to Asia, Aaron Allen & Associates’ Allen said. “They have invested a lot into getting that message out around the world,” he added. “It’s also a culinary capital of the world. It’s the crown jewel of the foodie market.”

Singapore remains a prime landing spot of U.S. brands wanting to enter the Southeast Asian market, he added.

“Food companies are positioning themselves and establishing footholds in Singapore,” Allen said. “Kuala Lumpur is a large and sophisticated market. The Philippines economy has really started to roar lately and is an approachable spot for Western brands, along with Malaysia and Indonesia. Business operates a lot more like the States than, say, China, South Korea or Japan.”

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