May featured a run of announcements from pizza chains, the sale of Middle East franchise group Cravia and UK health-focused chain Leon eyeing expansion.
Spain’s Telepizza to enter UK …
Telepizza is among the largest domestic foodservice operators in Spain, a market where the sector has suffered in recent years amid the country’s economic woes.
However, according to Euromonitor, Spain’s consumer foodservice channel saw sales grow in 2015 after six years of decline. Nevertheless, operating in Spain remains a challenge, with disposable income lagging the levels seen before the onset of the downturn and unemployment remaining stubbornly high. There had been signs of Spain’s employment picture was improving but the jobless figure rose in the first quarter of 2016, with 21% out of work.
Telepizza specifically has faced “strong competition” in Spain, Euromonitor says, from chilled and frozen pizza in grocery stores and the growing number of outlets offering takeaway and delivery services.
In that context, it is little surprise Telepizza continues to look at geographic expansion. The company already operates in 15 markets, with Portugal and Poland alongside Spain in Europe, four Latin American countries and a range of franchise markets. By the end of 2015, Telepizza had over 1,300 outlets across its markets.
In March this year, Telepizza announced plans for a franchise business in Saudi Arabia and last month came another notable geographic move. Telepizza set out plans to open its first outlet in the UK by the end of the year.
Telepizza has appointed Burger King franchise business Karali Ventures as its first partner in the UK. The two companies plan to open 80 outlets in the UK, with Telepizza already setting an ambition of having 300 with 20-30 franchisees over the next decade.
“Our international expansion is gaining momentum after a strong launch, which has been reinforced by international partners who are interested in growing our brand globally,” Pablo Juantegui, Telepizza’s executive chairman, said.
However, carving out a foothold in the UK will be a challenge for Telepizza. The UK’s pizza delivery market is dominated by Domino’s, while another US chain, Papa John’s International, is gradually building a name for itself in the country.
Fahhan Ozcelik, a foodservice industry consultant, says there is room in the UK for Telepizza but believes the company must look to make its menu stand apart from its established competitors. “Karali is a well chosen partner for Telepizza to deliver fast growth in UK. They will get their relevant share in UK market where still there is potential for pizza delivery market growth,” Ozcelik says. “I think my advice for Telepizza to succeed would mainly be focus on the inspirations of Mediterranean flavours to British consumers as the product differentiation, addressing fresh and healthy attributes, as well as menu variety.”
… while Spain becomes latest market for Papa John’s
Telepizza saw another entrant into Spain’s pizza market in May – US group Papa John’s.
The company has chosen Madrid as the location for its first Spanish outlet, with plans for more than 100 planned for in and around the Spanish capital.
“People know when they’re getting quality ingredients and that is why Papa John’s pizza continues to expand into new countries and territories. In addition, we will be adding much needed jobs to the labour market which is a win, win,” Papa John’s chief development officer Tim O’Hern said.
O’Hern’s line on job creation underlines the challenge of doing business in Spain as a consumer goods business. Unemployment remains a significant issue in the country, dampening purchasing power, making competition intense. “Spain is a tough entry due to highly competitive nature of the market,” Ozcelik says.
Nevertheless, Papa John’s has set out its ambitions for Spain, its latest move in western Europe. Speaking to analysts at the start of the month when Papa John’s announced its first-quarter results, founder, chairman and CEO John Schnatter said western Europe is “a big part of our expansion strategy”. As well as now having over 300 restaurants in the UK, Papa John’s opened its first restaurant in northern France last month and will be opening its first in the Netherlands in July. Papa John’s is also looking for potential franchisees in other areas of France, as well as in Belgium, the Czech Republic and Poland.
The company’s international expansion has not been without its problems. The business is, for example, refranchising restaurants in China. However, Schnatter told analysts: “I think since it’s our future, management is more focused on international than I’ve ever seen them.”
Other pizza plays in May
In the UK, the Pizza Hut chain announced plans to invest further in its own delivery service. The company has had a trying time in the UK in recent years amid the rise of the likes of Domino’s. In 2012, Yum! Brands, the company behind the Pizza Hut brand globally, sold the UK restaurant business to private-equity turnaround specialists Rutland Partners. In recent months, Pizza Hut outlets in the UK have been closed and others refurbished in a bid to boost sales. In February, it was reported Rutland Partners had put the business on the market.
However, the Pizza Hut Delivery business remains part of Yum! Brands and last month the company announced plans for further investment to compete head-on with Domino’s on takeaway. According to The Daily Telegraph, Pizza Hut Delivery wants to open another 200 sites by 2020.
In the US, meanwhile, Yum! Brands and Pizza Hut announced a series of commitments on the food used in the restaurants in the country. Pizza Hut pledged to remove the preservatives BHA and BHT from the meat in its recipes by the end of July. By the end of March next year, Pizza Hut will no longer have artificial preservatives in its cheese and will have stopped using antibiotics important to human medicine in its chicken.
The use of antibiotics in food supply is a hot issue in the sector. Last month, Yum Brands’ Taco Bell chain committed to stop using antibiotics “important to human medicine” in its chicken by the end of the first quarter next year, although another of the group’s banners, the chicken-heavy KFC, has not gone as far as its stablemates.
Cinnabon-to-Five Guys Middle East franchisee sold to Fajr Capital
Cravia Group, the Dubai-based franchise operator behind chains including Cinnabon, Seattle’s Best, Zaatar W Zeit and Five Guys, was snapped up in May by private-equity firm Fajr Capital.
The deal, struck for an undisclosed sum, will “accelerate” Cravia’s plans for growth, Fajr Capital said. “Cravia is one of the most successful and exciting food and beverage platforms in the Middle East,” Fajr Capital CEO Iqbal Khan said. “We are delighted to announce our investment in Cravia at such an important stage in the company’s growth trajectory, and look forward to expanding the business in our constituent markets.”
Cravia runs over 80 restaurants across the Middle East. Its Five Guys franchise covers Saudi Arabia, Bahrain and Qatar. The foodservice operator hopes to “leverage Fajr Capital’s global network to increase the company’s presence in existing markets and penetrate new markets such as Bahrain and Qatar”.
Ozcelik says Cravia, which launched in 2001, enjoyed early success but had to develop its business to keep track with changing consumer habits in the region. He argues securing the Five Guys franchise would have attracted the investment.
“Cravia achieved a good success with Cinnabon and Seattle’s Best Coffee during the initial years in UAE. However during the end of the decade, the trends changed very much similar to the US market with the entry of key fast-casual players led by better burgers. Cravia added diversity to the portfolio with the locally relevant casual dining concept of Lebanese cuisine Zaatar w Zeit and own brand The Steak to get on track with the competitive development in changing consumer trends,” Ozcelik says.
“Since the beginning of the 2010s, Cravia was looking for funding to stay on stream with the fast developing dining out trends in Gulf Cooperation Council markets as well as a strong leading brand to secure. I think the upturn was achieved by signing Five Guys. The attention of private equity was highly drawn to Cravia with the outstanding success of the Five Guys store opened in Riyadh compared to other competitive outlets opened before. Fajr Capital’s contribution will drive fast growth, mainly focused on Five Guys and will likely open new market opportunities.”
UK health-focused chain Leon sets out stall for expansion
Leon is a UK chain aiming to make fast food healthier. On a promotional video on the company’s website, co-founder John Vincent describes Leon as “naturally fast-food”, with the promo emphasising a food-with-integrity focus that has become a buzz phrase in the industry, talking about menu items such as gluten-free, baked fries, “super food” salads and Rainforest Alliance-certified coffee.
The business, set up in 2004, has 35 outlets in London, Birmingham and at travel locations in the UK.
In May, there were two pieces of news giving some indication of Leon’s expansion plans – one domestic and one international.
Leon has struck a five-year deal with SSP, which operates food outlets in travel locations in the UK. The two companies are to open Leon stores at railway stations. “Just like traditional fast food, we aim to be where people need and want us – on busy high streets, in airports and in train stations,” Vincent said. The first outlets under the SSP deal are expected to open later this year at two London rail stations – Liverpool Street and Paddington.
Meanwhile, The Daily Telegraph reported Leon is looking at international expansion. “We’ve got an agreement to do loads of restaurants in northern Europe,” the newspaper quoted Vincent as saying. “We’re also doing America.”
The first Leon outlet outside the UK is set to open next month at Amsterdam’s Schipol airport. The Daily Telegraph said Leon had identified the location for its first US store. “We’ve found a site in Orlando, Florida,” Vincent said. “It’s a big building near ShakeShack and a Chipotle.”
Contacted by just-food, Leon was more coy about its US plans. “We’re working hard on our plans to open the first Leon in America and will be in touch when we have more detail to share,” the company said. However, it added: “At Leon we know that there is something magical about fast food. Our American cousins have a long history of providing food on the go, but we are confident our naturally fast food will impress as we make it easier for customers to eat and live well.”
Consumer demand in the US for healthier fast food suggest the Leon concept could resonate, although, as ever, location, menu and price will be critical to the chain’s success.