Fast Food Franchise In Belgium example essay topic

Johnny Rocket's invades Belgium! Restaurants continue to play a significant role in the Belgian franchise market, and their presence is increasing rapidly, with the fast food franchising market growing at an annual rate of approximately 12%. American fast-food franchising concepts, such as standardized restaurant chains that offer a limited but popular range of dishes served in packaging for on-the-spot consumption has been widely adopted. We plan to bring Johnny Rocket's to Belgium with a twist of catering to business people, by catering lunches. Every Johnny Rockets restaurant boasts great-tasting food from a menu of All-American favorites including juicy hamburgers, hand-dipped shakes and malts and freshly-baked apple pie. Guests also enjoy an All-American diner look and feel, servers who know the secret behind getting ketchup out of the bottle, tabletop jukeboxes that belt out tunes for a nickel and authentic d'ec or.

Johnny Rockets is the place where every Guest can enjoy All-American favorites served with a smile! OUR GUEST PROMISE: o Say 'hello' and 'goodbye' to everyone passing through our doors. o Serve the freshest, highest quality simple All-American fare. o Cheerfully serve guests promptly in a sparkling clean store. o Always dance on the half hour, twirl straws and serve ketchup with a smile. o Handle guest needs right here and now. The hamburger market is the strongest of all franchised food chains. In this market, McDonald's, the second largest hamburger chain, hopes to expand from its current 64 restaurants to well over 100 in the next two to four years. Pizza Hut controls twenty percent of the pizza restaurant market.

Chi Chi's and Dominos are also present in the Belgian market, but they have experienced much difficulty in successfully penetrating it due to the high cost of labor in Belgium. Belgium has one of the highest percentages of inbound franchises as a proportion of franchise systems in the European Union, which helps contribute to the strong competition present in the fast-food sector. The market leader is the GIB group, Belgium's largest retailer, which are the owner and franchiser of the Quick Hamburger Restaurant chain, Lunch Garden and Crock " In Sandwich restaurants. The Quick chain, with one hundred-five outlets, is the sales leader in the hamburger market. GIB originally owned the Pizza Hut master franchise. It is now owned and operated by the Tric on group of Belgium.

The decision to enter into a direct foreign investment was made on the basis that Johnny Rockets wanted to maintain controlling interest over operations, avoid transport costs and trade restrictions. This also allowed for a long-term investment that would acquire fixed assets such as land, equipment and buildings. Labor is also considered to be a key aspect because labor costs are substantially lower than in the United States. In researching which corporation to establish a joint venture Johnny Rocket's decided that GIB group was the ideal choice because of its established reputation, and had hired the U.S. investment bank JP Morgan to find a partner or buyer for its Quick operation. In 1998, the last year in which figures were available, Belgium had the highest growth in franchise turnover in the European Union. With an actual growth rate of 52.1%, Belgium is far higher than the E.U. countries with the next highest turnover rates, Sweden (31.6% growth) and the United Kingdom (14% growth).

Food is a major component of Belgian culture, as evidenced by the fact that Belgians spend about twenty percent of their disposable income on food and beverages, the highest rate in the E.U. Informal dining continues to be a major form of entertainment for Belgians. Fast food restaurants have provided a relatively inexpensive eating and social opportunity for groups such as students and families with young children. Marketing messages are increasingly directed at these groups. McDonald's decision to include play centers for young children in their units is proving to be a successful initiative. Despite the fact that Quick is the largest hamburger chain, American companies have set the pace in the Belgian fast food market.

Fast food only represents about five percent of restaurant sales, which means that the Belgian fast-food sector still lags behind many of its European neighbors. As traditional eating habits change with an increasingly diverse Belgian population, an excellent opportunity exists for American fast food franchises to expand into Belgium. Fast food has been able to compete with other restaurants because of their perceived fast service, clean facilities, reliable taste and affordable prices. The most popular fast-food items are hamburgers and pizza, but Belgians are generally open to new tastes and are willing to support new fast-food concepts. The best sales prospects are products delivered to the home and office. Restaurants, cafes and taverns, and are the three basic types of Belgian establishments that serve meals, as defined by the Royal Decree of June 13, 1984.

HO RECA is a trade association that represents the interests of hotels, restaurants and caf " es / bars. The Trade Association of Friteries, NAVE FRI, represents. Establishments where the serving of meals is the primary activity are classified as restaurants. Owners and managers of these establishments must comply with strict professional qualifications. Establishments where the serving of beverages, light meals and snacks is the primary activity are classified as cafes and taverns. Qualifications for these places are not as strict as those for restaurants.

The average caf'e or tavern offers cheese, ham, pate, sandwiches, salads, omelets and Italian-style foods such as spaghetti and lasagna. In Belgium, many cafes and taverns are owned by or are contractually linked to breweries. Belgian breweries produce four hundred of the most unique beers in the world and are frequently the exclusive beverage providers to cafes and taverns. In such situations, caf'e and tavern owners are free to choose their food supplier (s).

Friteries, which are establishments serving carryout deep fried snacks, are subject to "market stall" trade regulations, as described in Council Directive 94/43/EEC of 14 June 1993. These hygiene regulations are less strict than those applied to restaurants, cafes, and taverns. If, however, provide dining facilities, they must comply with the same requirements as restaurants. The regional distribution of restaurants in 2000 is mainly concentrated in the Flemish region, which is located in the Dutch-speaking northern part of Belgium. The second highest concentration of restaurants is located in French-speaking Southern Belgium (Wallon ia). The lowest number is in the bilingual Brussels-Central region.

The following table shows the distribution per region in 1997. Region Restaurants and Cafes Total 52,807 (Source: National Statistics Institute) Statistical Data The following data are in millions of U.S. Dollars 2002 2003 2004 Est. Growth Foreign owned franchises 269 295 299 4%Locally-owned franchises 208 213 218 2%Total Market franchises 477 508 528 3%US-owned franchises 169 200 207 6%Best Sales Prospects Fast-food franchises that have a strong brand image in the local community such as McDonald's are valuable. Quick service and quality are also important factors. Southwestern cooking styles such as Latin American and Tex-Mex are increasing in popularity. Promoting the development of these traditional foods is a best sales prospect.

Environmental concerns are growing in Belgium; hence foods packaged in earth-friendly biodegradable materials make up a growing segment of the market. 'Health products', such as low fat and low salt foods for the aging population, may become a focus. Health food customers, as well as consumers of gourmet food, demand information on the nutritional value of their purchases. Informative and environmentally safe packaging is important. It is increasingly important for restaurants to state that they do not serve food made from genetically modified ingredients, since many Europeans are strongly and vocally opposed to their usage. American acceptance of such ingredients has given the Belgians another reason to remain wary of American influence.

McDonald's has also been a target for animal rights demonstrations over the past few years. Restaurants providing fast food service, such as hamburgers and pizzas, constitute a significant, growing portion of the US $1 billion restaurant industry. As of the latest statistical information available (1997), the percentage of visitors in each area is as follows: Type of Restaurant by Percent Major Hamburger Chains Quick, a Belgian-owned company, and McDonald's dominate the hamburger market in Belgium. Quick owned by the GIB group, remains the market leader in Belgium. With over 100 franchised restaurants, the company has surpassed its original goal of having a Quick per hundred thousand people in Belgium (one hundred outlets for a population of ten million). Many of their restaurants are located in the parking lots of hyper- and supermarkets owned by the GIB group.

"Quick Express" service is offered in most of their restaurants, which is a concept that involves selling hamburgers "on the street" to pedestrians. GIB has been looking to expand its Quick operation in Eastern Europe, most likely into Hungary and Slovenia. But having spent US $60 million this year opening thirty restaurants, the GIB group feels that it does not have the means to undertake such an endeavor on its own. In late June 2000, GIB intimated hat it was looking for an operating partner for its Quick chain. GIB suggested that this might result in the outright sale of the Quick chain. GIB has hired U.S. investment bank JP Morgan to find a partner or buyer for its Quick operation.

GIB is unlikely to sell off the chain to its main competitor, McDonald's, because it deems Quick's market position too strong to be absorbed by McDonald's. McDonald " sMcDonald's is the fast food leader in Europe, but Quick is dominant in Belgium. McDonald's entered the Belgian market in 1978, a late entry relative to its debut in other European markets. McDonald's has 64 restaurants, with highest concentrations in Flanders and the Brussels Central regions. McDonald's main challenges in further developing in the Belgian market have been high real estate costs, difficulties in obtaining site permits, and high labor costs. Market Access and Barriers Although Belgium is a relatively small country, it is an excellent test market for launching new products in Europe.

Belgium is very close to European averages in private and public expenditures, GDP and age of population. Restaurants that wish to enter the Belgian market must overcome several major obstacles. One important issue is the cost of labor. Belgium's high minimum wage rate, coupled with mandatory social welfare programs, makes labor costs among the highest in Europe. A major US fast food franchise reports its cost structure in Belgium to be the highest in Europe. Another obstacle to opening a fast food franchise in Belgium is obtaining necessary building permits.

The problem of obtaining site permits stems from the diversity in the interpretation and implementation of complex local planning laws by municipal, provincial and regional authorities. The influential Ministry of the Middle Classes, which strongly supports what it considers to be the interests of the small family business sector, has tried to block local and foreign large-scale operators. Citizens' groups in some up-scale neighborhoods have mounted local campaigns to delay or deny building permits based on concerns over noise, litter, odor and architectural styles. Finally, Belgian national pride and resentment have been important issues for American fast food franchises. Belgians tend to perceive the United States as a "culturally imperialist" country. This perception has been abetted by the more radical position taken by many in France.

Many Belgians feel that their country shares special cultural and historical ties with France - and are receptive to, if not easily swayed by, France's nationalist manner. American food culture is commonly viewed as being not only inferior to French and Belgian cultures, but also as invasive and overwhelming to the point of supplanting traditional local cultures. Some American fast-food chains are seen as the symbolic epitome of this threat. There are, however, economic underpinnings behind these sentiments. French food producers and processors in particular are suffering from restrictions imposed by the United States on products such as certain cheeses, foie gras and truffles. The U.S. restrictions were levied in retaliation to the European ban on American beef.

Since the imposition, McDonald's has been the focal point of these economic frustrations resulting in protests, acts of vandalism and, in France, cases of arson. Animal rights advocates have also targeted McDonald's in Belgium in several violent attacks. It is important to note that although this sentiment is widespread, it is latent. In fact, France had the highest number of newly-opened McDonald's restaurants in Western Europe in 1999. However, it is an issue that must be addressed by American fast food chains attempting to penetrate the Belgian market. McDonald's has taken steps in both Belgium and France to overcome any negative sentiments.

Distribution / Business Practices In Belgium, no specific statutory legislation exists that regulates franchise agreements. Franchise contracts are considered commercial agreements subject to law of contracts, commercial law and jurisprudence, or common law. Belgium is also a member of the European Union (EU) and companies are therefore subject to the legal provisions for franchise businesses in the EU, regulated by articles 85 and 86 of the Treaty of Rome. Articles 85 and 86 of the Treaty of Rome aim to safeguard competition within the European Union. However, the principles of franchising are often at odds with the concept of the legislator. Article 85 SS 1 prohibits "all agreements between enterprises, all decisions made by associations of enterprises and all concordant practices that might adversely affect trade between member states and whose purpose is to limit or prejudice free market within the Common Market".

However, a franchising agreement generally contains the following dispositions that are at odds with the concept of these articles: o Territorial exclusivity o Obligation to take stock exclusively from franchiser o Price fixing o Safe-guarding the transmission of know-how Prohibition for the franchises to exercise any similar activities at the contracts end. If a franchise agreement infringes upon article 85 and 86 of the Treaty of Rome, either the litigious clause is to be voided or the whole contract is to be annulled. Such decisions are to be made by the national authorities of member states. In addition, the European Commission may harshly fine infringing companies.

However, when a franchise system is not large enough to influence trade among member states it is not bound by this legislation. These are called "minor agreements". To qualify at a European level, the system may not hold more than 5 percent of the market share nor have turnover in excess of 300 million EURO (US $285 million). Companies may also automatically qualify for a special "block exemption". To do this they merely need to meet the criteria set forth in article 85 SS 3. This exemption only applies to service, distribution and master franchises.

The qualifications for this exemption include: o The franchisee must be free to purchase goods (that are the franchised product of the system) from other franchises in the network. In case of parallel distribution, the franchisee must be free to stock from certified distributors of the franchised goods. o If the franchiser requires the franchisee to guarantee the products sold, all franchisees in the network must be required to do the same. o The franchisee must identify himself as an independent entrepreneur without prejudice to the identity of the network. As transposed into Belgian law, even when the system does not influence trade among member states, a franchise unit may not infringe upon more than two of the following criteria. o The company may not employ more than 50 people The company may not have a turnover in excess of US $5 million The company may not have total assets exceed US $2.5 million If the company does not meet at least two of the three requirements, the contract may not be considered a minor agreement. The company may still, however, fall under the block exemption.

Financing Exports and imports account for 75 percent of Belgium's GDP. Consequently, the process of paying for imported goods is understood by banking staffs in even the smallest regional and local branches. Belgian importers and franchisers are frequently relatively small, with limited sources of capital. In addition, they are accustomed to being offered flexible payment terms, mainly from their neighboring trading partners, i.e. France, Germany, The Netherlands, U.K., Switzerland, and Italy.

Since the use of credit is widespread, flexible credit terms can be important in doing business in Belgium. An American firm should consider offering such terms, provided it is willing and able to do so and provided the U.S. company has done a full credit check into the Belgian company. There are several local credit agencies available, including Dun and Bradstreet. Import duties and value added taxes re applied to the cost insurance / freight value of goods. The rate of applied import duties is the same in all EU countries. There are three main trading banks in Belgium: the General Bank, Brussels Bank Lambert and Kredietbank.

Each of them has a well-developed correspondent bank network in the U.S., as well as a local representative office in at least one major U.S. city. Because of the lack of restrictions, easy tell-electronic communications, and a strong comprehension of English, banking relationships with the U.S. and other countries generally run smoothly. Investments vary based on unit size and local conditions. Freestanding site options incur higher build-out costs associated with construction. The estimated investment that is required to open a Johnny Rockets restaurant is as follows: INVESTMENT RANGE LOW HIGH Franchise Fee $49,000 $49,000 Building Package Range $587,500 $826,000 non-Freestanding Leasehold improvements, furniture, fixtures, equipment, signs, small wares, inventory, opening expenses, etc. TOTAL $636,500 $875,000 Promotions Marketing Johnny Rocket's in Belgium will consist of using newspapers, magazines, television, billboards, and business exhibit centers.

The majority of advertising will be in newspapers since Belgium businesses spent about 64% of advertising last year through this form of promotion. The most popular newspapers are the Le Soir and De Standard, which have circulations of about 70,000 to 100,000. We will also advertise in magazines such as Flair, in Vino Veritas, and De Gente naar which are all very popular. Television advertising is becoming popular and is mostly done on Canvas, Ket Net and La Une, which is a Belgium owned satellite. Advertising through billboards and exhibit centers is another way to successfully advertise. Belgium marketers have been successful advertising this way since it arouses the interests of people since they are very receptive to American products.

We will also use personalized selling, word-of-mouth, and have promotional events. End-user analysis There are ten million inhabitants in Belgium living in an area approximately the size of Maryland. The country has six major metropolitan areas and the population density is the second highest in Europe. The average household size is 2.4 persons, with less than one child per family. Average family expenditures on consumer items are $21,000 per year with a per capita food expenditure of $2,500. Belgian buyers continue to express an interest in high-quality special products (sauces, dressings), innovative products and health / diet foods.

Convenience, health and nutritional value are all important to Belgian consumers.