The U.S. foodservice industry looks abroad

Food Review, May-August, 1996 by Charlene C. Price

Foreign firms are also gaining ground in U.S. markets by purchasing U.S. foodservice firms. Burger King, once U.S.-owned, is now a foreign-owned chain.

Investment Abroad Has Grown Dramatically for U.S. Restaurant Chains

In 1993, the latest year for which industry-wide data are available, there were 10 U.S. foodservice firms with 76 foreign affiliates. These affiliates had sales of $9 billion, 7 percent above 1992 sales. Foreign affiliates are defined as entities in which a foreign parent firm holds at least a 10-percent ownership interest and no other firm has as large a share. The Commerce Department's Bureau of Economic Analysis data were used to report affiliate information. Trade data were used to compile foodservice information at the firm and chain level.

Twenty-nine of the top 50 U.S. restaurant chains operated 17,038 units in other countries in 1994 (table 1). Most of these units were franchise arrangements, not true foreign affiliates. Under a franchise arrangement, the franchisor provides menus, recipes, and advertising support, but ownership and operation rests with the franchisee. At the beginning of the 1970's, only 900 U.S. franchised units operated outside the United States.

Seven U.S. restaurant chains accounted for 15,472, or 91 percent, of those units operating abroad in 1994 (table 2). Asian/Pacific countries such as Australia, Japan, Hong Kong, and New Zealand accounted for the largest share of these units (37 percent). Twenty-nine percent operated in European, African, or Middle Eastern countries. Canada accounted for 24 percent of the units, and Latin American countries, 10 percent.

Hamburger, chicken, and pizza chains dominate the international market. U.S. foodservice companies generally offer their U.S. menus in their foreign franchises. However, adjustments are made to match the cultural needs of foreign customers. For example, in India, where the cow is sacred among the majority Hindu population, U.S. companies are experimenting with lamb burgers and chicken pepperoni. The rice burger has been a big success for U.S.-based companies in Japan. Foodservice companies with foreign operations generally use local labor and food supplies. However, there are exceptions, such as McDonald's worldwide use of Idaho potatoes for its french fries (see "Processed Foods Trade Benefits U.S. Agriculture and Consumers," elsewhere in this issue).

According to Technomic, a food industry consulting firm, the number of units of U.S. firms operating abroad increased more than 100 percent between 1987 and 1994. By the end of 1994, the top 100 restaurant chains in the United States operated more than 16 percent of their units outside the United States. McDonald's and KFC generate a large percentage of their profits outside the country.

[TABULAR DATA FOR TABLE 1 OMITTED]

McDonald's, the largest foodservice organization in the world, operated 15,205 units worldwide in 1994, with sales amounting to nearly $26 billion. McDonald's operates 5,461 units in 79 countries outside the United States, with foreign sales of $11 billion in 1994. Foreign sales account for about 43 percent of McDonald's sales. Thirty-six percent of McDonald's units operated outside the United States in 1994, compared with 34 percent in 1993. Most of McDonald's units are franchised. Major markets for McDonald's units include Japan, Canada, Germany, England, Australia, and France.

In 1994, McDonald's opened its first restaurants in Bulgaria, Bahrain, Kuwait, Latvia, Oman, United Arab Emirates, New Caledonia, Romania, Egypt, Trinidad, and Saudi Arabia. McDonald's expects to open 900 to 1,200 restaurants around the world in each of the next several years, with two-thirds of those being outside the United States. England, France, and Germany will be popular locations.

The McDonald's chain not only operates traditional restaurant units but satellite stores as well - smaller units such as kiosks or mobile carts - which offer simpler menus. McDonald's opened about 1,000 satellites around the world in 1995; [TABULAR DATA FOR TABLE 2 OMITTED] about two-thirds of these were outside the United States. McDonald's says the key to aggressive satellite programs is alliances with retailers and oil companies that operate convenience stores. In 1994, McDonald's satellite units operated in 377 Wal-Mart's throughout the United States, Canada, Mexico, and Puerto Rico. McDonald's are now located in selected service stations in the United States, Finland, Denmark, and Italy.

KFC, a division of PepsiCo, Inc., has the second-largest number of units outside the United States - 4,258 in 73 countries. KFC's $3.6 billion in sales outside the United States accounted for 51 percent of their sales in 1994. Forty-five percent of all KFC units are located overseas. One fourth of KFC's foreign units are in Japan, 11 percent in Australia, and 8 percent in Great Britain. Of the six largest restaurant chains, only KFC and Pizza Hut own units in Africa.

Pizza Hut, also a division of Pepsico, Inc., has 11,546 units operating in 82 countries. Twenty-five percent, or 2,928 units, are located outside the United States, with sales of $1.9 billion. Pizza Hut chains are located primarily in Australia, France, Spain, the United Kingdom, and Trinidad.