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THE FAST FOOD CRAZE
A Page report on food franchises
By Syed M. Aslam
Jun 07 - 13, 1999
Variety is the spice of life. It also explains something about the mushrooming of food franchises in Pakistan, particularly Karachi which has become the home of major foreign as well as local food franchises.
Few years back names of some such foreign food franchises like McDonalds, Pizza Hut and Kentucky Fried Chicken were not heard in Pakistan. But, today these names are very common even among the kids. Many more foreign food franchises are in the process of launching while many of those, already operating in Pakistan, are planning to open more branches in other big cities.
For many Pakistanis, eating out is one of the major forms of entertainment. Eating out is an event that families look forward to in Pakistan. Long lines of customers on the opening days, anxious to take a bite of Kentucky Fried Chicken or taste a BigMac is enough to prove the point.
Why do people prefer to go out to eat? Is it the change that drives people to eat out? What does this signify? the change for food or atmosphere or both, particularly when the housewife or mother is also a good cook to serve tasty food at home? Or is it the status symbol associated with eating out? In Pakistan it could be any or a combination above factors. Whatever could be the reason, trends suggest that Pakistanis are eating out more often at present than ever before in the past.
A number of foreign food franchises of all types waiter served full dining facilities like Pizza Hut or fast food franchises like McDonalds and Kentucky Fried Chicken have sprung up in Karachi and Lahore.
Pizza Hut started its operations in 1994. Presently it has a total of six outlets in the country four in Karachi and two in Lahore. It is about to open three more branches soon one in Karachi at Hydri Market to be opened on the 10th of this month, one in Hyderabad scheduled to be opened on June 30 and a third branch to be opened in Lahore in the first week of July.
Pizza Hut, a fully foreign full-service franchise, has plans to open a total of 25 branches in Pakistan by year 2002. This means that the company has to open 16 new outlets in next 42 months or one outlet every two-and-half months. It is planning to add atleast one more branch in Karachi besides first-ever branches in other cities including Islamabad, Rawalpindi, Peshawar, Multan, Faisalabad and Quetta.
Talking to PAGE the Assistant Marketing Manager, Syed Nasiruddin, said that during the last five years of operations Pizza Hut sales have grown at a rate of 22-25 per cent per annum. Talking about other foreign food franchises, he said that though Pizza Hut, being a full service set up, does not face any competition from other foreign franchises.
The entrance of Pizza Hut in Pakistan, he mentioned, has changed the trend in food service industry in many ways. As a result of which the four and five-star hotels are worried about their restaurant business as Pizza Hut offers a choice for the people to try out quality food in a full service restaurant with an ambiance. It also made many local fast food chains to completely renovate their premises to improve their eating atmosphere, he added.
Pizza Hut is fully owned by Tricon which has franchise rights for the whole of Pakistan and employs over 500 people at all levels. PAGE was informed that dining-in contributes 60 per cent to Pizza Huts revenues while take-away and deliveries make up 27 per cent and 13 per cent of the revenue respectively. All Pizza Hut outlets deliver and serve both lunch and dinner between 12 noon to 12 midnight except the one in the financial district, I.I. Chundrigar Road Karachi which opens from 11 am to 6 pm.
Refusing to provide any information on the volume of investment or annual sales Nasiruddin said that Pizza Hut is satisfied with return on its investment.
While Pizza Hut also serves other varieties of Italian food it is primarily identified with a single dish, as its name suggests Pizza. Strictly complying to the strict hygienic and quality standards of its Principal Tricon, the governing body of its organizer which has the final say in the approval of every single ingredient and toppings, Pizza Hut has added local ingredients to maintain the local taste. Apart from regular toppings Pizza Hut has added many local toppings such as chicken tikka in addition to local vegetables such as locally grown mushroom in summer imported canned mushrooms are used when local substitute is out of season.
The majority of ingredients including the basic flour, mozzarella cheese, tomato concentrated, beef and beef pepperoni are all imported to maintain the strict quality standard set by the Tricon.
Kentucky Fried Chicken opened its first outlet in Karachi in 1997. KFC is franchised to the Artal Group through its subsidiary Artal Restaurants International. Today KFC has eleven outlets operating in Pakistan, eight in Karachi and three in Lahore
Talking to PAGE the chief operating officer of Artal Foods, Kamran Khan said that Pakistan with a population of 140 million offers a huge potential for the KFC to grow. "If India can have 180 KFC outlets to cater a population of 960 million, we hardly need any market research to assume that Pakistan can easily absorb 60 KFC outlets as purchasing power in Pakistan is double than that of India.
He said that KFC enjoys a distinct advantage over other foreign fast food restaurants as chicken, the basic ingredient of all KFC meals, is a meat of choice of most Pakistanis and "We are the chicken experts." "The fact that 69 per cent of the total sales of McDonalds come from McChicken, a chicken burger, is enough to prove this point," he claimed.
Secondly, he said, the huge Pakistani market still much remains a virgin market as none of the foreign food franchises has yet been able to tap just a fraction of its real potential. For instance, apart from Karachi and Lahore none of the major foreign food chains yet has a presence in the federal capital, Islamabad, not to talk of other major cities of the country, he added.
He disclosed that in spite of the world-wide recession and the economic sanctions imposed on Pakistan after it used its nuclear option in May last year, the national economy showed no signs of contracting at least for KFC. This was primarily due to the fact that eating out with the family is the major form of entertainment in Pakistan, he added. His views were shared by Nasiruddin of Pizza Hut who has separately told PAGE that the food industry business continued unchanged after the nuclear blasts.
Like Pizza Hut, KFC has also made many changes in its menu to give it a local touch. Apart from the origin recipe KFC now also serves hot and spicy version to cater to the local taste buds. "While KFC is not cheap it is certainly much less expensive than the other foreign fine dining franchises to provide quality and value to the customers by offering family oriented food at an affordable price," Kamran added.
Artal is raising its own chicken in Pakistan and has a plant in Lahore to not only meet the requirements of KFC but it is also selling the product in the local market. The M-Artal poultry plant follows a strict standard for chicken farming as it has fixed a standard weight of its chicken at exact 1.4 kilogram when cut. It also has a bread plant to manufacture Harrys brand of loaf bread whose products are used in KFC as well as marketed in the local market. However, bakery products supplied to KFC by Harrys have a different recipe. KFC buys some products, in case it runs short, from Unilever Pakistan and, Akram said, except for French Fries and cups the KFC does not import anything from outside.
He said that the induction of foreign food franchises has changed the eating-out scenario in the country in many ways the most particular of which is that the people in the cities are eating out more often at present than anytime in the past. It has also started a chain reaction as there are many me-too entrepreneurs coming up to open a new outlet or adding an extra outlet. Trends also show, he added, that it has also resulted in changing the attitude of people towards eating out eating out, particularly in a foreign food franchise is no more seen as a status symbol but rather as just plain eating outside the confines of having an ordinary meal at home.
The interest and the addition of branches of the foreign food outlets have also resulted in a competition as these chains have become more and more efficient to offer quality food with quality service to their customers. KFC has a distinct edge over its competitors, primarily McDonalds and local quick-service broast restaurants, as it doesnt want to project itself as an expensive ultra-modern found chain aiming to cater to only a certain high income group. "Rather, we at KFC want customers to feel that it is for everyone and the opening of our first branch in the middle-income area of Gulshan-e-Iqbal in Karachi just goes to prove our point," Kamran added.
McDonalds is one of the largest and best-known fast food restaurant in the world. There are nearly 25,000 McDonalds restaurants in some 115 countries nearly half of them outside the US, its base.
SIZA Food (Pvt) Limited has the franchise right for McDonalds in Pakistan since it opened its door in September last year with one outlet each in Karachi and Lahore. It added another branch in Karachi recently.
McDonalds has a 50/50 equity investment with the local partners. Its entry into the local market has changed the face of fast food industry in Pakistan by making burger a household name in the country to attract the burger-eating enthusiasts, many for the first time.
While McDonalds have plans to invest in cattle-farming to grow its own beef locally, it is presently heavily dependent on imported raw materials as well as accessories.
Attempts to talk to the Chief Executive of McDonalds in Pakistan, Amin Lakhani, made by PAGE remained futile as it received just one line form replies to three of total eleven questions.
Declining to answer questions related to the volume of investment, ongoing operation, future plans and strategy for expansion; cutting the dependence on imported raw materials a faxed reply by Amir Ali of SIZA Food only said that "McDonalds main competitors are all major international and local quick-service restaurants. McDonalds is targeting all those people who want great quality food at a great affordable price." And that "McDonalds did not face any socio-economic challenges. Since McDonalds is a customer-oriented company which offers great quality food at very affordable prices and gives the most efficient and friendly service in the cleanest environment in a world class restaurant."
TGIF AND PIZZA EXPRESS
Thank God Its Friday (TGIF) first opened its doors in Karachi. The franchise for the casual dining chain in Pakistan is held by Cupola Group which also has the franchise for another international chain, the Pizza Express. Both the outlets are housed in a 40,000 square feet complex on famous Zamzama Boulevard in the affluent defence area.
TGIF has created a comfortable and relaxing environment and the decor, music, lights, air-conditioning and housekeeping aspects are all designed carefully to serve the purpose.
Pizza Express serves the authentic Italian Pizza and updates its menu every month to ensure that the taste buds never get tired of the scrumptious pizzas and other appetizers. Once a week the restaurant hosts a local band to play music. The restaurant prides itself in differing from the mainstream pizza market by offering an atmosphere which is closer to a full service restaurant rather than a pizza parlour.
While the concept of donut shop is something new for most Pakistanis, many a frequent travelling Pakistanis know that they offer a quick snack for the people on the go. Many more will have an opportunity to bite their first donut over a cup of coffee when the first donut franchise will open its door this week in Defence area in Karachi.
Talking to PAGE the brand manger of Dunkin Donuts, Faraz Haider told that the 100 per cent locally owned franchise has plans to open a total of 10 outlets in Karachi in next three years. Apart from donuts, muffins and coffee the outlet will serve a variety of soups and sandwiches from 6:30 in the morning to 12:30 at night.
Founded in 1950 in the US, Dunkin Donuts today has over 3,000 outlets in about 38 countries including North America. Dunkin Donuts has plans to open either combo donut and ice-cream outlets or exclusive ice cream outlets as the local investor also has the franchise for Baskin Robbins 31 Ice Cream which is a sister company of Dunkin Donuts. The final decision will be taken later, Faraz added.
He said that Dunkin Donuts will be using 100 per cent 'halal' lawful as per Islamic conjunctions ingredients which will be the same as those used in its other outlets in Saudi Arabia and UAE.
He said that the timing is just right for the introduction of donut and coffee outlet in Pakistan as the market has also seen and experienced food by many food franchises. He expressed hope that being the pioneer to introduce the concept of donut and coffee in Pakistan and having no competition as no other outlet offers a similar meal which even closely resembles its products. "We dont intend to take business away from anyone but rather to make a niche for our particular products which has no competition," he added.
Dunkin Donuts strategy to capture a niche is based on a simple concept of serving a nice cup of coffee with bakery products to attract the sweet teeth at reasonable prices. We will be highly strict about the products we serve all the bakery products will be thrown out at the end of the two daily shifts while the coffee will be thrown after 18 minutes it is made, he added.
While Dunkin Donuts is heavily dependent on imported raw material wheat, dairy products, coffee and serving materials Faraz said that the restaurant intends to reduce the dependence by localizing of ingredients once it gets the nod from its US principal, Allied Domecq Retailing International (ADRI) which has franchising rights for both Dunkin Donuts and Baskin Robbins 31 Ice Cream.
The director and general manager of Dunkin Donuts, M. Rafi Bhatti told PAGE that his franchise has funded a research at Agriculture University Faisalabad for the cultivation of wheat variety suitable for its products.
Not long ago eating out at a fancy foreign food restaurant was limited to a number of Chinese restaurants, outlets housed in five and four-star hotels and a small number of outlets serving local food. The increasing flow of foreign food franchises have changed the atmosphere altogether. Today it is common to see families coming to dine at fast food chains and overnight the phenomenon has forced the local quick-service restaurant to improve on the quality of their food due to an unconscious competition from the foreign food restaurants. Many of the local outlets serving burgers were forced to completely renovate their premises to make it more attractive to the people whose demand for quality and service has increased from exposure to foreign outlets. The big lines witnessed on the opening days of all foreign food franchises have also made the local counterparts realize not only the untapped potential they were yet sitting on but also the fact that people are ready to pay the price for quality and value in as clean a premises. In short, the influx of foreign food franchises has helped improve the overall quality of service, attention to customer satisfaction and the value for money.
However, almost all foreign food franchises expressed concerns over the inequitable imposition of taxes on food in Sindh and Punjab. While all meals served at any of the many foreign food outlets in Karachi are subjected to 12.5 per cent Central Excise Duty, in Punjab it is subjected to a 22.5 per cent taxation including 12.5 per cent duty and 10 per cent provincial tax.
In general the foreign food franchises are dependent not only on basic and raw ingredients but also on such things as wrapping papers, napkins and food boxes. The fact that the local investors have to get the final nod from their foreign principals to add a local ingredient to their recipe also helps slow down the local indigenisation. Some franchises have been able to increase the local ingredients while many still have to go a long way to localization.