February saw US foodservice giant Sysco move for European player Brakes, Chipotle seek to restore consumer confidence in the business and Smashburger among a clutch of operators continuing to expand internationally.
Brakes gets US owner in Sysco
Seven months after Sysco pulled the plug on plans to buy local rival US Foods amid regulator opposition, the US foodservice distributor in February made a move to buy UK-based Brakes Group for around U$3.1bn.
The bulk of Sysco’s business is in the Americas, although it has a presence in one part of the UK (Northern Ireland) and over the border in the Republic of Ireland.
The takeover of Brakes, expected to be completed by July, will give Sysco operations across the UK, as well as in Sweden, France, Belgium, Spain and Luxembourg.
Brakes, owned since 2007 by private-equity group Bain Capital, has annual sales of GBP3.3bn (US$4.7bn), supplying fresh, chilled and frozen food to over 50,000 customers. Its subsidiairies include Freshfayre, M&J Seafood and, since last year, Davigel, the France-based foodservice business it acquired from Nestle.
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Given there is little geographical overlap between the two companies, the deal is expected to go through, with Sysco indicating it sees the transaction being completed by July.
The lack of shared ground geographically means there is unlikely to be few cost savings to be enjoyed from the deal; instead suppliers that use Brakes in Europe should be more watchful of further acquisitions made by Sysco, using its new asset as a platform for more deals.
Chipotle looks to rebuild
February was the month in which Chipotle Mexican Grill, the under-fire US chain, announced the end of the federal investigation into the e. coli incidents linked to the business.
And it was also the month in which Chipotle set out how it plans to win over consumers who have shied away from the fast-casual operator.
On 2 February, Steve Ells, Chipotle’s founder, chairman and co-CEO, said the US Centers for Disease Control and Prevention had brought an end to its probe into two e. coli outbreaks associated with the business, which led to 60 people being infected – and the chain’s sales – and shares – tumbling (although these were not the only two food safety incidents linked to the business).
“The fourth quarter of 2015 was the most challenging period in Chipotle’s history,” Ells said. “We are pleased to have this behind us and can place our full energies to implementing our enhanced food safety plan that will establish Chipotle as an industry leader in food safety.”
On 8 February, Chipotle shut all of its outlets for four hours to present to its staff changes to the way food is prepared, which include working on some ingredients in a central kitchen rather than in individual restaurants.
The impact of the outbreaks on Chipotle’s reputation was underlined in the operator’s fourth-quarter results. Comparable restaurant sales dropped nearly 15%, meaning over the year as a whole, sales on this metric were up only 0.2%. Restaurant-level operating margins fell 700 basis points in the fourth quarter and net income 44% lower.
“2016 will be a very difficult year relative to our past performance. But, by staying true to our food culture and unique people culture, and layering on our rigorous food safety program, we are confident that we are now in a position to aggressively welcome customers into our restaurants and restore customer confidence in the things that make Chipotle great,” co-CEO Monty Moran said.
As Chipotle seeks to rebuild the trust of consumers, it will be working with officials on a new subpoena, which requires the business to produce documents on food safety matters going back to the start of 2013. The subpoena supersedes one issued in January over a single incident at a restaurant in California.
Jollibee-backed Smashburger opens up more markets
When Smashburger announced last autumn it had secured investment from Asian foodservice giant Jollibee Corp., the US-based fast-casual burger chain said the backing would bring “additional energy and resources” as the chain expands – and February saw the company announce its latest new markets.
Smashburger plans to open 22 restaurants in United Arab Emirates and four in Qatar “over the next several years”. It is already present in Bahrain, Kuwait and Saudi Arabia.
The fast-casual segment is rapidly developing in parts of the Middle East and competition growing but Smashburger’s franchise partner on this deal believes there is an opportunity for Smashburger. “Despite there being an ample number of fast casual restaurants in this region, the industry has yet to reach its potential in United Arab Emirates and Qatar and we feel there is a huge opportunity for brands such as Smashburger,” Abdel Hameed, chairman of Pearll Investments, said.
Smashburger is set to add Egypt to its roster of markets and also plans to enter the UK in 2016. It says it is “actively seeking partners” to help it grow in Europe, Asia and South America.
With the fast-casual market in the US growing but fiercely competitive, as well as consumer demand, particularly in emerging markets, for Americana, expect the likes of Smashburger to continue to open new markets.
And with the backing of Jollibee, Smashburger may be better able than some of its peers to test and build and develop a robust long-term international operation.
McDonald’s, Pizza Hut and Quick also look internationally
McDonald’s will this month open its first outlet in Kazakhstan.
Reuters reported in February the US fast-food giant will launch its business in the country in the capital, Astana.
McDonald’s first announced it planned to enter the former Soviet state in November 2014, saying the first outlet would open in the second half of 2015.
Kazakhstan is a market already familiar with US operators, with Burger King and Pizza Hut already present in the country.
Meanwhile, Pizza Hut last month officially launched operations in Kenya, with its local partner reportedly outlining plans for more restaurants.
Feast Limited has opened two Pizza Hut restaurants in Nairobi and has plans for four more in the Kenyan capital by the end of the year, the company told Kenyan radio station Capital FM. There are plans to take the Pizza Hut brand into more sub-Saharan markets.
Further north, French fast-food chain Quick has re-entered Morocco, a decade after leaving the market.
Quick, now part-owned by the company behind Burger King, opened an outlet in the city of Rabat. The company told local reporters it plans to open a restaurant in each of Casablanca and Marrakech this summer, with another dozen in Morocco following in the next five years.
