Globalization works both ways. Many American quick service companies are seeing growth from expansion into international markets. Though this is a wonderful growth story, value-minded investors will have to sit out until these firms trade at more reasonable price multiples.
McDonald’s to franchise in Russia
McDonald’s Corporation (NYSE: MCD), which ranks as the number one restaurant globally in terms of sales, is planning to expand its operations deeper into Russia in response its competitors who have ventured into this emerging market. Since 1990 when it first set up in Russia, McDonald’s Corporation (NYSE: MCD) has been operating its outlets single-handedly, but this is set to change after selecting Rosinter, the largest restaurant-holding company in Russia, to be its first franchise outlet.
Franchising will allow McDonald’s Corporation (NYSE: MCD) to penetrate areas deemed to be less economically viable, reducing the risk for the corporation while still capitalizing on the growth opportunity. The holding company plans to open up new outlets in Russia’s major cities by the end of the year while McDonald’s plans to open about 150 self-run outlets in Russia within three years.
After the collapse of the Soviet Union, McDonald’s Corporation (NYSE: MCD) became the first foreign fast food restaurant to set up shop in Russia. Other fast food chains which have expanded into Russia include Yum! Brands, which is planning to open 70 new outlets in Russia and its neighboring countries. Subway and Burger King Holdings, Inc. (NYSE:BKC) are the other internationally recognized fast food chains which have also been rapidly expanding in Russia.
Starbucks entering Vietnam
Starbucks Corporation (NASDAQ: SBUX) announced plans to add hundreds of stores in Vietnam even as it opened its first cafe in Ho Chi Minh City. The company’s President for China and Asia Pacific operations John Culver said, “There is definitely a pent-up demand for Starbucks coming to the country. We will aggressively grow.”
The new 4,000 square-feet (372 square meters) two-story cafe, will have an outdoor patio, sell roast-duck wraps, Asian dolce lattes and other locally inspired items, and will be operated by its licensee for Vietnam – Coffee Concepts (Vietnam) – a subsidiary of Hong Kong Maxim’s Group which already operates stores in Macau and Hong Kong.
Starbucks Corporation (NASDAQ: SBUX) plans to have about 4,000 stores in the Asia Pacific region by the end of this year, as the company expands in Asia to boost sales. The company has more than 18,200 stores worldwide, and although it currently has no location in Laos or Cambodia, Culver said Starbucks Corporation (NASDAQ: SBUX) will eventually move into these markets. Due to Vietnam’s growing economy, with GDP expanding by 4.7% in 2011, Starbucks rival Dunkin’ Brands Group Inc (NASDAQ: DNKN) also announced plans to open Dunkin’ Donuts units in Vietnam, in addition to Baskin-Robbins ice cream stores that are already there.
Stymied expansion into Indonesia
Recent reports indicate that the parent company for popular fast food outlets such as KFC, Pizza Hut and other outlets may have to halt its expansion plans in Indonesia. Yum! Brands, Inc. (NYSE: YUM) stands to lose out on business in a country ranked fourth globally in terms of population. The expansion plans have been hindered by government protectionism policies that favor small enterprises. Yum! Brands, Inc. (NYSE: YUM) is planning open new outlets in overseas markets especially in China and Southeast Asia. The protectionism policy is set to be implemented within the five years and it aims to limit the number of foreign restaurants operating in Indonesia to 250 outlets.