camels wait outside an Egyptian KFC -- participant in the emerging restaurant markets

Overview of the World’s Emerging Restaurant Markets

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One of the most exciting stories of the global economy is the “emerging restaurant markets”: countries like China, India, Russia, Brazil and many other growing economies that are playing an increasing role in driving economic growth. The restaurant industry is no exception. There are some similarities and surprises when you look at the emerging markets of the global restaurant industry.

Here are a few key trends to watch for – anyone who is interested in finding new growth opportunities in the restaurant industry should keep an eye on these countries.

Power is Shifting East

The restaurant world is growing beyond the usual suspects like Brazil Russian India and China – the “BRICs” get a lot of attention from the media, but there are untold stories of other emerging markets that foodservice executives should be considering.  There are approximately 15 million restaurants in the world and approximately 1/3 of them are in China.  Of course, the majority of those 5 million Chinese restaurants are street stalls, independently owned/operated and/or small chains by American standards.  The number one “chain restaurant” market in the world is still the USA, but the largest population centers in the world are India and China. We can expect that as consumers in China (and India and other emerging markets) continue to grow wealthier and enjoy more buying power, that big-budget Western brands will go in 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.

The Middle East: The Fastest Growing Hospitality Market?

The fastest growing hospitality market in the world may very well be the Middle East.  While China and India show the most long-term potential due to their economies of scale and population density, the Middle East foodservice industry is growing at a faster pace and with untold margins. The oil-producing nations of the Middle East are richer (per capita) than China and India, Middle Eastern labor costs are still remarkably low, and – unlike China and India which have extensive agricultural output – the Middle East has to import nearly all of its food. Most Americans might be surprised to learn this, but consumers in the Middle East are also as hungry as any nation in the world for Western brands.  We are seeing clients and operations there with profit margins roughly four to five times that of U.S. standards – even while shouldering food costs that are nearly double what restaurants pay in the U.S. The Middle East is a tremendously fertile ground for those who are ready to look beyond Dubai.

Looking beyond Dubai

Dubai has become the barometer of Middle East prosperity and development for many Western media, but Dubai is far from being the complete picture.  In Kuwait they are building Madinat al-Hareer (“City of Silk”), a 250 sq km, $94 billion planned city that rivals any project in Dubai.  In Saudi Arabia they are building King Abdullah City which is the largest private investment project in the world – a city three times the size of Manhattan is springing out of the desert.  Who will feed all of these people?  Who will supply all of these new restaurants (also see Saudi Arabia Restaurant Industry)? The Middle East is like the Wild West right now in terms of supply chain and opportunity for established industry suppliers who partner with well-rooted Arab partners (the laws and markets are hospitable to joint ventures with locally-owned partners, rather than “foreign invasions”).

Saudi Arabia

Take Saudi Arabia for instance.  The oil-rich kingdom is tiny compared to China and India, but it’s a young, fast-growing country: the population of Saudi Arabia has gone from 2 million in the 1970s to over 27 million today. No other population in the world is as wealthy with that pace of growth in population.

Another interesting angle for Saudi Arabia is that they love American foodservice brands. Everywhere you look you see Starbucks, KFC, TGI Friday’s, Hardee’s, Krispy Kreme and many others. Saudi Arabia offers huge growth potential for U.S. brands – there is certainly no market in the USA that is growing as fast or bearing the kind of margins as the fertile Kingdom of Saudi Arabia.

Some of the largest chains in Saudi Arabia are direct knock-offs of American brands that had not yet established a presence there. For example, the largest fast food chain in the Middle East is Herfy, whose burgers were inspired by McDonald’s and Burger King – and now McDonald’s is #2 to Herfy in Saudi Arabia.

CIVETS

If you read global economic news, you’ve heard of the BRICs (Brazil, Russia, India and China), but some of the fastest growing economies (and restaurant markets) of the next 10 years are likely to be the CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.

  • Colombia – This market is improving in stability – crime and kidnappings are down, but it still lacks the growth in population and prosperity to make it a top destination for U.S. restaurant companies looking to expand internationally. There are approximately 53,000 restaurants in Colombia, making it roughly the same size market as New York or California, but less economically or politically stable.
  • Indonesia – Convenience stores selling fast food reported the biggest jump in growth last year at nearly 33%. 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. Few American chain menus can be exactly duplicated here and U.S. chains will need to make a concentrated effort in adapting their menu offerings, supply chain considerations and pricing strategy.
  • Vietnam – There are approximately 530,000 foodservice establishments in Vietnam, but approximately 430,000 of them are street stalls.  The largest chain there is a coffee company, Trung Nguyen, with over 1,000 units.  The number two chain there is also a coffee player (Highlands Coffee). I wouldn’t be surprised to hear of Starbucks being one of the first to go after this market aggressively (Starbucks’ CEO has been announcing publicly that Vietnam is a priority growth market for them). KFC is already going strong here and is ranked as one of the top 5 largest chains in the nation.
  • Egypt – The full service casual dining segment grew by some estimates as much as 24% last year.  Incomes continue to rise here (do to general boom in the Middle East markets, increases in tourism, etc.) and as it does, consumers flock to branded foodservice operations with their disposable income. Cairo is the dominant market as it captures the bulk of tourism traffic and commerce, not to mention it has approximately 22 million people (more than most countries in the Middle East have in total population).
  • South Africa – Unemployment in South Africa is around 24% compared to 6% for the world and 9+% in the USA – so this is likely to be a continuing challenge to growth in the restaurant industry. The chain to watch here is Nando’s.  They are one of the biggest restaurant chains that no one in America has ever heard of.  Their corporate culture is remarkable, they are 900+ restaurants strong, and their last untapped market is the USA (they currently have only 4 restaurants in the U.S.). The CEO (Robbie) has his sights on the USA and is the kind of determined and gritty CEO that can do really big things.  The country is investing significantly and wisely in attracting new foreign investment (here is an example ad they are using – “Today I Woke Up” – to help change the perception on the country as a whole – positioning it as a place of hope/optimism and addressing head-on the concerns investors would have in regard to the past strife.

According to research from HSBC, the middle class of the emerging markets is going to grow to 1.2 billion people by 2030 – up from 250 million in the year 2000. The CIVETS nations and these other emerging restaurant markets will be in the center of this growth.

Restaurant chains that are willing to act boldly, work with local partners, and find ways to adapt their brands and menus to local customs and tastes, will be likely to reap big gains from the emerging restaurant markets of the next 10 years.

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