International food chain giants are adjusting their strategies to stay well ahead of the increasing competition with local brands and the rapid changes in consumer behaviour, which have resulted in lower margins for restaurant operators.

Although the Iraq war, has had little impact on the quick serve restaurant (QSR) segment, including the chicken, pizza and burger categories, the QSR segment has been hit hard by the Sars outbreak in Asia, dampening local store sales, particularly those in tourist destinations such as Phuket and Samui.

Severe Acute Respiratory Syndrome has led to the virtual disappearance of tourists from China, Hong Kong, Taiwan and Singapore, a 24% fall in the number of visitor arrivals in the first quartercompared with the same period last year, according to figures provided from Yum Restaurant International (Thailand).

Despite this gloomy scenario, some street food products such as spicy papaya salad and pushcart noodles, have been repackaged and significantly upgraded to become franchise outlets.

Yum Saap is one of the success stories among the local food restaurants, reinventing itself to fit upmarket consumer tastes and those diners who are willing to pay more for cleaner food and a better shop environment.

``We're seeing more activities in the non-QSR chain restaurant categories, which draw visits from our QSR segment,'' according to a study by Yum Restaurant International (Thailand), referring to market research conducted by ACNielsen.

Consumers now have more choices, for example, Japanese food restaurants, contemporary noodle shops, BBQ buffet stores and hot pot stores.

The most significant growth in the food industry is in other forms of restaurants, such as Suki chains, according to ACNielsen research.

Competition would be even fiercer in the second half of the year, predict analysts, and growth in the sales of brands would largely depend on the speed of the consumer spending recovery following the Sars outbreak.

``The second half of 2003 will be a real battle field with operating costs higher, especially for some key ingredients,'' said Panithan Sethabutra, managing director of Yum Restaurants International (Thailand).

To deal with changing market conditions, all international food chains are putting in more of a marketing effort, mostly by launching new products and promotions to win new customers, especially during the high season months.

Some brands have begun to reinforce their product quality and services in campaigns, particularly in the home delivery segment.

US-based Yum Restaurant International, which operates two giant fast food chains _ KFC and Pizza Hut _ are emphasising service and better customer relations, as well as investing in new store decorations.

But some of the big chains are cutting costs. The A&W fast-food chain has been downsizing its business while no major repositioning in the market has been made by burger market leader McDonalds.

Another factor adversely squeezing the food chain giants is the changes in retail trading zones, forcing some food chains to relocate.

Meanwhile, the rapid and robust growth of discount stores such as Tesco Lotus and Carrefour have resulted in some food chains experiencing losses in outlets located near big discount stores, Mr Panithan said.

``How to manage the cost has become a major concern for restaurant operators while outlet expansion has been conducted along with sales promotion,'' said an analyst at Semico Securities.

The lower margins can be tracked clearly from the performance of listed restaurant chain S&P Syndicate. Sales of the Thai cuisine and bakery chain were worth 574 million baht in the first quarter but with a selling cost as much as 366 million baht.

``While the gross margin is 36% of sales, the net margin was only 38 million baht which translates into only 7%,'' said the analyst.

Competition in the market is expected to intensify, especially among Japanese restaurants, with two new Ramen and Japanese noodle chains set to enter the Thai market.

Another bakery chain would challenge Delifrance's operations in Thailand by offering bakery food items together with coffee, said a researcher at Kasikorn Research Centre (KRC).

A mixed-picture has emerged among the Thai-owned restaurants in their efforts to build brand recognition among consumers.

Bua Ban, a rice with curry restaurant owned by Charoen Pokphand (CP), has been quite successful in popularising healthy foods.

In contrast, Thai Thai, another CP restaurant chain, has fared relatively
poorly due to unclear brand positioning and faced with intense market competition, according to a KRC researcher.

One factor boosting the food restaurant sector is the booming franchise business, with especially strong demand from retired employees and new graduates seeking new businesses.

The franchise boom is partly a result of the government's support to promote local business entrepreneurs.

To cash in on the rising opportunities, franchisors have cut fees, bringing down the total average cost of a franchise to 10 million baht, the KRC researcher said.

An expansion strategy is being pursued by many chains, albeit at a slower pace than last year, due mainly to rising land prices and the scarcity of suitable sites, especially in Bangkok.

Yum Restaurants plan 15 new KFC and Pizza Hut restaurants this year, down from 20 last year, adding to the existing 305 KFC and 83 Pizza Hut outlets countrywide.

``Slower growth in outlet expansion would be seen from this year onward,'' Mr Panithan said.

Minor Food group plans a substantial expansion this year of its five food restaurant chains, including the Pizza Company, Swensen's, Sizzler's, Burger King and Dairy Queen outlets.

Over 100 new outlets are scheduled to operate this year in addition to the 350 branches operating in 2002.

The pizza chain kicks of its campaign this year to offer franchises for both the domestic and overseas markets.

Although there appears to be a glut of coffee outlets in Bangkok, Black Canyon is targeting to open ten more shops this year, on top of the 89 outlets it currently operates, along with six more sites planned by Seattle-based coffee house Starbucks.

There are also opportunities for food chains to mobilise funds from the stock market. Oishi, Black Canyon, Suki restaurant MK and Coca, Gateaux House, Plantation and Farm Design (the operator of the Baan Rie coffee restaurant chain) have outlined plans to make their debut in the local bourse.

By : NAREERAT WIRIYAPONG
Source : The Bangkok Post