Analyst Insight by Michael Schaefer
While US-based chains remain dominant in many markets, competition from local players has grown exponentially over the last five years, with local players across the globe growing in both sales and ambition.
In this article, Euromonitor International examines ten key growth chains to watch, with several well on their way to taking their place as major global players over the next ten years. While booming markets like China, Brazil, and India are well-represented on the list, real innovation is underway on every continent, from Latin America to Western Europe, as local stalwarts combine lessons learned from leading global chains with real advances of their own.
Chicken chains find real traction in emerging markets
Far and away the most popular protein on a global level, it is no surprise that chicken fast food has emerged as a key global growth category, with local chains enjoying strong growth relative to YUM! Brands' omnipresent KFC brand.
- Home Market: South Africa
- Nando's 2010 Sales: US$839 million Click to Tweet
- % Sales Growth 2007/10: 59%
Much-beloved in both its home foodservice market South Africa as well as the UK, Nando's global ambitions have accelerated in recent years, with the grilled chicken chain now present in more than 25 markets, with its first US outlet opening in 2008. Combining a spicy, Portuguese/African chicken recipe with a highly flexible outlet strategy (upscale fast casual mixed with affordable takeaway) and an irreverent, often-controversial brand strategy—a recent advert depicted Zimbabwe president Robert Mugabe reminiscing about happier times with departed dictator “pals” such as Muammar Gaddafi and Idi Amin—the chain continues to profit from consumer demands for more aggressive flavours and a differentiated fast food experience.
- 2010 Sales: US$407 million
- % Sales Growth 2007/10: 416%
- Home Market: China
- 2010 Sales: US$888 million
- % Sales Growth 2007/10: 75%
4. Republic of Chicken
- Home Market: India
- 2010 Sales: US$16 million
- % Sales Growth 2007/10: 568%
While KFC reigns supreme in China, local chains cnHLS and Dico's combined for nearly US$1.3 billion in sales in 2010, with both enjoying strong growth over the last five years through a focus on low prices and expansion in smaller cities and rural areas. While Dico's saw growth slow in 2010 as the chain attempted to make headway in major cities like Beijing, cnHLS pressed on with major outlet expansion in smaller localities, illustrating the growing purchasing power of Chinese consumers outside key cities such as Beijing, Guangzhou, and Shanghai.
In India, meanwhile, food processing conglomerate Alchemist Group has continued to invest in the Republic of Chicken home delivery chain, looking to foodservice as a high-margin, value-added complement to its main poultry processing business. While strong local suppliers remain essential to the global operations of chains like KFC or McDonald's, their ambition is growing—Alchemist Group's foray into foodservice, for instance, coincides with it being named KFC's Best New Supplier in 2010, neatly illustrating the increasingly complicated competitive environment facing chains in many emerging markets.
Local flavour continues to drive strong sales
- Home Market: Brazil
- 2010 Sales: US$706 million
- % Sales Growth 2007/10: 78%
6. Jollibee Corp. brands:
- Home Market: Philippines
- 2010 Sales: US$1.39 billion
- % Sales Growth 2007/10: 34%
Perhaps the greatest advantage for any local player is the ability to leverage its knowledge of the market, serving consumer tastes left untapped by the global giants. Philippines' Jollibee remains a master of this, reinforcing its dominant position in burger fast food through its flagship Jollibee brand with a steady stream of complementary acquisitions, such as Mang Inasal, a chain specialising in low-priced meals featuring a popular local take on barbecued chicken. In each case, Jollibee has hewn to its longtime strategy of focusing on specifically Filipino tastes and preferences, a practice it has carried over into its international expansion, investing heavily in regions with large Filipino communities, such as California in the US or the Middle East, home to more than one million Filipino expatriates.
Brazil's Habib's, by contrast, has prospered by specializing in a once-foreign dish—the sfiha, an open-faced meat pie popular in Syria and Lebanon—which has since become a Brazilian snacking staple following its introduction among Brazil's sizable Middle Eastern community. At the same time, Habib's has maintained a laser-like focus on lower-income consumers through its rock-bottom prices, further illustrating the ability of local chains to take share at price points where global players may be unable or unwilling to compete.
Affordable indulgence in Latin America
- Home Market: Argentina
- 2010 Sales: US$127 million
- % Sales Growth 2007/10: 331%
8. Crepes & Waffles:
- Home Market: Colombia
- 2010 Sales: US$118 million
- % Sales Growth 2007/10: 61%
Dessert chains continue to do a brisk business in Latin America, capitalizing on continued demand for affordable indulgence. Argentine ice cream chain Grido has staked out an enviable position in its home market despite little presence in Buenos Aires—instead, it has taken advantage of lower costs and limited competition in major regional cities such as Cordoba, where parent company Helacor is based, and where Grido outlets are omnipresent.
Likewise, in Colombia Crepes and Waffles has built a strong following with a highly indulgent menu centred on ice cream and the aforementioned crepes and waffles, which posting close to US$120 million in sales from just 62 outlets last year. Already present in markets like Brazil and Mexico, Crepes and Waffles could secure a broader niche with its brand of affordable yet upscale indulgence. At the same time, both Grido and Crepes and Waffles illustrate the appeal of ice cream and related items across Latin America, a fact not lost on chains such as McDonald's and Burger King, both of whom continue to invest in kiosk-style outlets offering affordable treats.
Number two chains try harder in Sweden, Australia
- Home Market: Sweden
- 2010 Sales: US$215 million
- % Sales Growth 2007/10: 68%
10. Eagle Boys Dial-a-Pizza:
- Home Market: Australia
- 2010 Sales: US$193 million
- % Sales Growth 2007/10: 100%
What nearly every chain (save Jollibee, which maintains a dominant position in the Philippines) profiled in this article has done over the last four years has been to carve out a growing, profitable niche in the shadow of titans such as McDonald's, KFC, or Domino's Pizza. While much of the analysis has centred on emerging markets, this process can be seen in more mature markets as well—in Sweden, hamburger chain Max has prospered alongside McDonald's with a focus on local sourcing, health and wellness, and sustainability. The chain proudly promotes its 100% Swedish beef, low-fat and gluten-free items, and publishes the carbon footprint of all of its products, going so far as to note that consumers should consider limiting their consumption of high-carbon beef products in favor of chicken or fish. In the process, the chain has created a strong bond of trust with its Swedish consumer base, who remain among the most environmentally-conscious in the world.
Likewise, the presence of both Domino's Pizza and Pizza Hut in Australia has not prevented the emergence of Eagle Boys Dial-a-Pizza, a local chain which has enjoyed remarkable expansion—sales have doubled in the last four years—largely through a focus on smaller, more isolated towns and rural areas long neglected by major chains. This strategy has helped to build a loyal following and strong sales despite virtually no presence in major cities—the chain operates no outlets in Melbourne, for instance, and only recently opened up in Sydney. While Eagle Boys has shifted its attention in recent years, looking to build a presence in larger cities and looking to capitalize on the “gourmet pizza” trend currently sweeping Australia, its core strategy—value-priced delivery in out of the way locations—remains largely the same.