For this report, we analyse the internationalization process of fast food companies. Specifically, we have chosen three firms in the fast food restoration sector: “Telepizza”, “100 Montaditos” and “McDonald’s”. We are going to analyze the firms’ strategies and the decisions made in their internationalization process. Firms become international to increase sales and profits, to acquire resources, competences and reputation, or to reap economies of scale, sometimes by integrating backwards or forwards in the value chain, or simply by expanding into new markets. There are several strategies that facilitate International Business but they are all accompanied by risks. In the following chapters we are going to analyze the decision making and international strategies of the three aforementioned firms, in terms of how and where they’ve internationalized, and their entry modes into new markets.
Internationalization process of fast food: the case of Telepizza
Telepizza was born in Madrid in 1987 as a family business with a clear impetus for innovation and constant focus on the quality of its products. A pioneer in delivering quality food home. A formula that soon paid off. Telepizza work focuses on irresistible and unique pizzas, made with the utmost attention to detail, a rigorous selection of fresh, natural ingredients, passion for their products and their consumers, a great team of professionals and constant innovation. In 1988 Telepizza opened his first restaurant in Madrid. In 1992, the company opened its first factory and began its international expansion, and now it’s in Chile, Poland, Portugal, Colombia, Guatemala, El Salvador, Peru, Ecuador, Angola, Bolivia, Panama, Russia and the United Arab Emirates. Recently, it has announced the entry into new markets like UK, France, Switzerland, Czech Republic, Malta, Iran and Paraguay.
The franchise and the master franchise are two different forms of relationship with Telepizza. The granting of a master franchise offers the power to the investor to expand the Telepizza brand exclusively in a specific country and also sub-franchise individual stores in that market. The franchise, on the other hand, allows to develop the activity of one or several stores in a population of the Telepizza brand within the already open markets.
Telepizza adapted its products to the foreign market, creating new pizza flavors with indigenous ingredients from these countries, making an adaptation of the product as piquant pizzas, with different types of corn or meat, different complements in each country for example in some countries have wings chicken, other cheese bread or other garlic bread, soups, etc. and even adapts the packaging translating certain slogans and others, but always maintaining its essence adapting to the needs of each area and acting with a customer service and after-sales all around the world, with the same marketing strategy and fresh products as the mass and ingredients, but above all with the "Made In" emphasizing that they are a Spanish company despite dedicating itself to something so Italian as the pizza and innovating as for example with the mobile application or the order through its web.
In 2000, Telepizza and the Pollo Campero Group formed a Joint Venture in Guatemala and El Salvador. Sometimes it’s not possible entering a country otherwise and in this way the risk is shared. In 2010 acquires the first chain of pizzerias in Colombia, Jeno’s Pizza, owning more than 90 stores in Colombian territory. Also to be able to enter in the Chinese market, in Guatemala and in El Salvador had to merge with other companies.
In 2011 Introduced in the air catering sector in Air Europa and in 2012 in Iberia. On flights of more than 2 hours’ duration with some companies you can eat your pizza called “Ready”.
Regarding all this information, we could say that Telepizza has a Transnational strategy, in which there are high pressure for global integration and a high pressure too for local responsiveness. This strategy supports efficiency, compels effectiveness but it’s difficult to configure and prone to performance shortfalls.
Internationalization process of fast food: the case of 100 Montaditos
100 Montaditos was founded in 2000 in the Spanish town Islantilla, in the province of Huelva. Its concept was and has since then been to offer a great variety of simple sandwiches, made from high quality products, and alcoholic beverages for low prices in locales reminiscent of the restaurants southern Andalusian origins.
In 2003 it opened its first restaurant in Madrid, and the following year its owner created the franchising group Restalia, to fast pace its expansion on national level. The same year it opened up 30 new restaurants, making the total number of establishments 99. In 2009 it started its internationalization process, opening up in Portugal and France, and the following year it expanded to the US. The same year 100 Montaditos reached a record of 70 new openings in the US and Europe combined. In 2012 it embarked its expansion in Latin America. Today it has a total number of 500 restaurants worldwide, with 400 in Spain and 100 overseas, the countries being Italy, Portugal, USA, Costa Rica, Mexico, Colombia, Chile and Guatemala.
Internationalization is one of its main business lines and area of development, focusing on rapid global expansion. The business model is that of a franchise, in which partnering up with local operators induces financial benefits and enforces mutual dependency and commitment. The mission of the Restalia Group is “to provide services to franchise holders, enhance value of brand, secure favorable prices and design attractive products”.
100 Montaditos opted for the franchise model simply to be able to expand and grow on a global level. It has proven to be a successful strategy in terms of these goals since the group in only 16 years of operation managed to expand into 11 new markets. The franchise model facilitates enormously the entry into new markets. A new franchisee receives extensive training and preparation from the franchisor before opening up, getting the know-how of running the business, and also the rights to use the brand’s name, instructions on decoration, recipes, etc. The startup fee for the franchisee is around 37,000 Euros, and the annual royalty paid to the franchisor 7%, with a contract duration of 10 years.
The reasons for the firm’s internationalization in countries like Italy, Portugal and France was the geographical and cultural proximity to these countries. US was also an attractive market thanks to its large Hispanic population, high consumer purchasing power, and favorable entry conditions with low requirements. The later expansion in Latin America was probably motivated by cultural and linguistic ties, and the growing economies and middle-classes of this market.
After looking at the firm’s business model and internationalization strategy the deduction is that the firm’s imperative to offer Spanish quality “montaditos” for low prices on a global scale, indicates a transnational strategy. The high pressure for integration, meaning pressure for lowering production costs, is apparent in this case since the franchisor depends on internationalization for growth and benefits from economies of scale with the expansion of more franchisees. The cost of training, management and R&D becomes lower since these activities are centralized. As following their Spanish concept, 100 Montaditos does subtle modifications depending on the region that they operate in, for example offering montaditos with beans, guacamole, or “pico de gallo” in Mexico, and hot dogs in the US. These factors of relatively high pressure for local responsiveness combined with a high pressure for integration, supports a transnational strategy.
Internationalization process of fast food: the case of McDonald’s
McDonald’s is one of the world’s largest chains of fast food restaurants. They operate 32,000 restaurants serving more than 60,000,000 customers daily. The key to rapid and successful international expansion of McDonald’s is the franchise model pioneered by them. The company started in year 1940 by Dick and Mac McDonald in San Bernardino, California, USA. They could able to scale their business by selling a high quality product cheaply and quickly. They have spread across 117 countries. The key to such a rapid and successful international expansion is the business model pioneered by McDonald’s. Ray Kroc realized company can achieve rapid expansion by franchise model.
Today over 70% of McDonald’s restaurants are running on the basis of franchise model. Today McDonald’s global sales were around $22 billion, making it largest fast food Service Company and ranked 107 in Fortune 500 companies in year 2009.
The McDonald’s concept was introduced in San Bernardino, California by Dick and Mac McDonald of Manchester, New Hampshire. Later on, Ray Kroc, one of the business partners, of Oak Park, Illinois, modified and expanded the business. While the company was experiencing rapid growth rate on the US soil, it also went in for international expansion. It all started with the opening of their first restaurant outside the U.S. in Canada on June 1, 1967 in Richmond B.C. Canada today has more than 1,300 restaurants. The reason why the decided to expand to Canada is caused by the small cultural distance and political stability respect to United States. There are a similar trends in food consumption in the U.S. and Canada since people are eating more meals outside their homes actually studies suggest that one out of every 2% meals today is eaten away from home. Furthermore, McDonald’s wanted to achieve a market where they were able to maintain profits while the market provided with target customers that demands high quality and efficient services.
After a few setbacks in the Caribbean and the Netherlands, they tried with customization of their international standardized delivery model in the form of a change menu for local tastes – they realized the fact that what had worked for them in the U.S. may not be replicated elsewhere. McDonald’s opened his first restaurant in Japan on July 20, 1971. On its first day, the restaurant had sales of $3,000.
At the end of 1993, McDonald’s was Japan’s most successful restaurant chain, with some 1,400 restaurants enjoying nearly double the annual sales of its nearest competitor. Similar kind of success stories were also replicated in Germany and Australia in 1971. Germany has more than 1,200 restaurants and Australia has some 700 McDonald’s locations. The company&’s footprint in France and England are also along similar line with 980 restaurants in France and more than 1,200 restaurants in the United Kingdom. These six countries – Canada, Japan, Germany, Australia, France and England – are known as McDonald’s “Big Six” providing about 80 percent of international operating income.
On January 31st, 1990, about 30,000 people gathered in Moscow to visit the new McDonald&’s. This is by far being the maximum number of people ever served by a single restaurant. The Russian McDonald’s was soon serving about 40,000 to 50,000 customers each day.
McDonald’s opened in Beijing, China, on April 23, 1992 attracted more than 40,000 Chinese customers. The joint venture partnership between McDonald’s and the General Corporation of Beijing Agriculture, Industry, and Commerce had been working for five years to establish the network of local farmers, manufacturers, and other suppliers to support the restaurant.
Other successful countries where McDonald’s has proved to be popular include the Czech Republic, East Germany, Hungary, and Slovenia. Moreover, on October 1993, McDonald&’s entered the Middle East with a new restaurant in Tel Aviv, Israel. This was followed by entry in Saudi Arabia, Oman, Kuwait, Egypt, Bahrain, United Arab Emirates, and Qatar.
McDonald’s Map: goorama.com
McDonald’s Global Strategy
Think global act local: McDonald’s employs a transnational strategy in terms of local responsiveness and global integration. They recognized that overseas market required an extremely high degree of local responsiveness and since their business has grown too big they also need to manage business spread across different regions effectively and efficiently which would not be achieved through any of the other strategies. The value chain needs to be constructed taking into consideration of local culture, legal-political and economic environments in mind.
Local management: McDonald’s emphasize on local management for better responsiveness to the external environment. Moreover, hiring locals would bring more acceptance of the company in local market by customers and company can gain easy access to bureaucracy associated with local government. This brings up the culture of innovation, accountability, and better customer responsiveness. Through franchise model McDonald’s are able to reduce the cost of setting up new businesses in different region. Political sensitivity: Countries like India where 80% population do not eat beef and some religion does not allow eating pork, therefore McDonald’s had to customize their product offerings to the local needs and in a way avoided any political conflicts.
System and process standardization: as a transnational company it is essential to have a standardized system and process in place for effective and efficient management of the businesses running in different territories. McDonald’s force standard operating procedures like make to order make to stock and just-in- time processes.
Pricing strategy: McDonald’s mainly open their shops in major cities targeting middle and upper class citizens as they can afford the prices. After this they start targeting lower middle class citizens.
McDonald’s growth strategy is based on three elements:
1. Increasing number of restaurants.
2. Maximizing sales and profits at existing restaurants.
3. Improving international profitability.
Entry strategy: While McDonald’s cannot export its product but it can choose among different modes of operation in foreign market, some of which may involve a higher degree of commitment of resources than others. In particular, it can open a subsidiary that franchises directly, or enter into a joint venture with a local partner, or establish a master franchising arrangement whereby the master franchisee owns and operates all the outlets in his or her territory or finds franchisees to do the same. The level of investment that McDonald’s commits to these markets differs across these different modes but in all cases McDonald’s exerts significant control over the number of outlets and the growth in the number of outlets in each market.
Regional strategy: For a successful business in host countries McDonald’s had to customize its business strategy to the local needs. Regional strategy became important for McDonald’s they started their expansion in Asian countries as their culture is very different from western world. McDonald’s adopted product localization and innovations for new offerings based on local tastes and needs. For instance, in 1963, McDonald’s introduced the “Filet-of- Fish”sandwich in the Cincinnati area for Catholics who did not eat meat on Friday. This was the first new offering added to the standard menu and went national the following year.
In year 2005 McDonald’s adapted Wi-Fi with the changing times and consumer demand with Nintendo in selected locations. They also started home delivery service in Singapore, where customer can place their orders on phone and have it delivered at their doorsteps. In busy places like malls, airports McDonald’s installed quick service kiosks rather than its standard free-standing units.
Internationalization process: Comparison and Conclusion
In the food industry the pressure for local responsiveness is usually higher than that in other industries, making it essential to adapt the menu to local markets. This is something that also affects to the internationalization process in fast food sector. For that reason, all the companies analyzed following a transnational strategy which adapts perfectly to this kind of industry. Moreover, the franchise system allows them to achieve a faster growth both nationally and internationally because of the low investment required for the franchisees.