Asia's eating up American fast food

September 10, 1994|By Martin C. Evans | Martin C. Evans,Orange County Register

It is a holiday Tuesday night in fashionable Shinjuku in Tokyo, but there are only two Americans at the Shakey's Pizza shop.

Another bad night for an American company trying to make it in Japan?

Hardly. The place is packed mostly with young affluent Japanese -- every one of them gobbling away.

In many respects, their numbers are a wordless tribute to the success U.S. fast-food companies are having marketing themselves in Asia.

While the major chains have been in Japan for 25 years, even smaller players are showing up in droves, parlaying profits from the status-symbol image of American tastes.

"It's clearly our fastest growing region," said KFC spokesman Steve Provost.

McDonald's has been so successful in Japan that it has more than 1,000 restaurants there; the company's biggest store is in Beijing, China.

KFC is so enamored of China that it has a restaurant at the base of the Great Wall.

And that's just the start. The world's largest fried-chicken chain plans to spend $200 million in China and increase its number of restaurants there eightfold in the next four years.

Cleanliness, novelty and growth prospects are among the reasons that American restaurant chains have enjoyed much success in the region, industry analysts say.

In China, where poor nutrition, hepatitis and other maladies are still common because of bad diets and unclean food handling, the reputation for wholesomeness enjoyed by U.S. franchises has strong appeal.

The U.S. fast-food market is virtually saturated -- some intersections have a drive-in on each corner -- but huge populations in Asia and growing incomes represent a vast, untapped frontier.

For the most part, U.S. companies have not abandoned the menu mainstays that have earned them their appeal back home.

The french fries served at the McDonald's in Hong Kong, for instance, look and taste exactly like ones sold in the United States.

U.S. companies generally get established in Asia either through licensing arrangements or joint ventures.

Many deals are typical of one signed last week between the parent of Love's Enterprises Inc. of Costa Mesa, Calif., and PT Transpacific Ekagraha of Jakarta, Indonesia. Under the agreement, Transpacific will operate at least eight Love's restaurants in China, Indonesia, Hong Kong, Singapore, Malaysia and Taiwan.

Transpacific will pay an undisclosed fee for the right to develop its restaurants, a fee every time it opens a Love's restaurant, and royalties ranging from 5 percent to 8.75 percent of gross sales.

In return, Love's will provide operating know-how, management training, menus, recipes and other services.

McDonald's takes a wholly different tack, forming joint ventures rather than granting territory rights.

By doing so, the hamburger giant gains hands-on control over store locations, operations and food quality, while tapping local investors to share the risk, handle governmental relations and provide familiarity with local eating habits and traditions.

McDonald's credits its Japanese partnership with securing government approval for shipping Australian beef into import-leery Japan.

But a Harvard Business School study of KFC's Asia expansion shows that the secret to success is more than just turning on the fryer and handing out napkins.

Tensions broke out between KFC's U.S. headquarters and joint-venture partners in Japan when the Japanese shops wanted to include yogurt and fish on the menu in the early 1980s, but turned up their noses at crispy chicken.

"Just because they introduced crispy chicken in the United States, they thought we should, too," said Loy Weston, KFC's Asia director during the study, in a report. "It bombed. Finally, I had to remind them they couldn't do this. We are a joint venture, not a wholly owned subsidiary."

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