For more than a decade, U.S. restaurant companies have cast their expansion gaze toward the so-called BRIC nations of Brazil, Russia, India and China. And more recently, the Middle East has sparked intense development interest.
Now a new acronym is entering the lexicon of expansion-minded operators: CIVETS.
From fast food to casual dining, operators are looking to stake their territory in the emerging markets of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. The common lure is large, youthful populations with growing disposable income, diversifying economic bases, political stability and relatively sophisticated financial systems.
Just in August, CKE Restaurants Inc. opened the first Carl’s Jr. units in the Indonesian capital of Jakarta.
“We are determined to make Carl’s Jr. the leading QSR brand in Jakarta and have aggressive growth plans for Indonesia,” said Henry Kwan of developer PT Fortune Food International, a subsidiary of the PT Aneka Makmur Sejahtera holding company.
“We have an aggressive development plan to open 25 Carl’s Jr. restaurants and are excited to launch Carl’s Jr. in Indonesia with our great partner, CKE Restaurants.”
The development deal in Indonesia is part of CKE Restaurants’ strategic plan to accelerate franchise development throughout Asia. “We are confident that we will have a bright future in the market,” said Andrew F. Puzder, chief executive of CKE Restaurants Inc. of Carpinteria, Calif.
CKE has also signed a development agreement with Mesa Asia Pacific Trading Services Co. to open 25 Carl’s Jr. restaurants in Vietnam over the next six years, having opened its first unit there in May.
Vietnam, also home to some Yum! Brands Inc. concepts, led a list of emerging markets beyond BRIC that was produced in a report prepared this year by The Economist Intelligence Unit, the business information arm of The Economist Group, publisher of The Economist.
The report, which surveyed 523 global companies about what emerging markets they were considering, found about 71 percent of those firms agreed that emerging markets beyond BRIC were offering opportunities too big to ignore.
Titled “Great Expectations: Doing Business in Emerging Markets,” the report found, “In general, the CIVETS economic fundamentals look robust, and the countries largely proved fairly resilient during the recent global economic crisis.”
In addition, it said “the political baseline also looks supportive: There are risks, but all these countries have a good chance of remaining stable. Colombia’s long-running guerrilla conflict has held the country back, but security has improved in recent years.”
Overall, the report “expects the CIVETS to post very healthy average annual GDP growth of 4.7 percent over the next decade — below the 5.6 percent average projected for the BRICs, but well above the G-7’s likely rate of just 1.8 percent.”
The countries represented in the Group of Seven nations are Canada, France, Germany, Great Britain, Italy, Japan and the United States.
The six CIVETS nations, the report added, have large and rather young populations, diversified economies not excessively reliant on commodities, and reasonably sophisticated financial systems.
Collectively, CIVETS was forecasted to account for up to 20 percent of the G-7’s total GDP, making the nations significant global markets in their own rights, the report said.
That kind of potential opportunity is leading companies like Quiznos Corp. of Denver to explore new international markets, including Vietnam. Its top three international markets now are Central America, where 60 restaurants are open and 17 are in development; South Korea, with 28 restaurants; and Saudi Arabia, with 22 restaurants.
Aaron D. Allen of the Quantified Marketing Group LLC, a global restaurant consulting firm based in Lake Mary, Fla., said, “Power is shifting East.”
Allen remains bullish on the Middle Eastern markets — such as Dubai, Kuwait and Saudi Arabia — for U.S. restaurant brands and is currently doing work there. Beyond BRIC nations, “there are other untold stories of emerging markets foodservice executives should be considering,” Allen said.
The more densely populated nations are attractive, he noted.
“It is natural that big-budget Western brands will go in like an invading army and win not just a share of the growth in these markets, but also claw away share of the existing market — edging out less sophisticated and well-funded incumbent enterprises,” Allen said.
Regarding the so-called CIVETS nations, he offered these observations:
Colombia: “This market is improving in stability, but it still lacks the growth in population and prosperity to make it a top destination for U.S. restaurant companies looking internationally,” Allen said. Colombia has about 53,000 restaurants.
Indonesia: Convenience stores selling fast food reported the biggest jump in growth last year at nearly 33 percent, said Allen, who recently visited Bali. “Indonesia is a predominantly Muslim nation, and operators entering this market must do so with eyes wide open as to Muslim law, traditions and eating habits,” he advised. “Few American chain menus can be exactly duplicated here and will require concentrated effort in making adaptations to menu offerings, supply chain considerations and pricing strategy.”
Vietnam: This Southeast Asian nation has about 530,000 foodservice establishments, but 430,000 of them are street stalls, Allen said. The largest chain is a coffee company, Trung Nguyen, with more than 1,000 units. And the No. 2 chain is Highland Coffee. “It is therefore natural we will hear of Starbucks being one of the first to go after this market aggressively,” he said. KFC, a division of Yum! Brands Inc. of Louisville, Ky., has been in Vietnam for a decade and is ranked as one of the top five chains in the nation with nearly 100 units.
Egypt: By some estimates, the full-service casual-dining segment grew by as much as 24 percent last year, Allen said. Chili’s Grill & Bar and T.G.I. Friday’s have long had presences in the market, especially in Cairo. “The incomes continue to rise here due to a general boom in the Middle East markets, increases in tourism, etc.,” Allen said. And Egyptian consumers flock to branded foodservice operations, he said.
Turkey: The main cities of Istanbul and Ankara continue to draw interest from U.S. restaurant companies. Of the six CIVETS nations, Turkey has the highest gross domestic product per person — $12,740 — and a population of about 75 million.
South Africa: One drawback for this nation is that unemployment is about 24 percent, compared with 6 percent worldwide, Allen said. “The chain to watch here is Nando’s. [It is] one of the biggest restaurant chains that no one [in the United States] has ever heard of. Their corporate culture is remarkable; they are 900-plus restaurants strong; and their last untapped market is the USA.” South Africa is investing significantly and wisely in attracting new foreign companies, he added.
Contact Ron Ruggless at [email protected].