by Jeff Reeves | March 30, 2010 9:23 am
First, India goes wild over Domino’s Pizza (DPZ). Now, Yum! Brands (YUM) is seeing runaway success in the region with its Taco Bell, KFC and Pizza Hut chains. It seems like fast food companies from McDonald’s (MCD) to Burger King (BKC) to Wendy’s/Arby’s (WEN) are eating up emerging markets.
If you’re confused by the fact that an American versions of Mexican and Italian food selling well in India, you’re not alone. But one thing that’s plain as day is the big revenue stream these brands are tapping into. India’s GDP slowed to “only” a 6.1% annual rate in 2009, and consumer spending is rising steadily there even as Western markets struggle.
This has created a big opportunity for companies in many sectors, not the least of which are fast-food restaurants. Taco Bell is off to a great start in India, with an article in The Wall Street Journal claiming thousands of customers visiting the fast-food chain’s first India outlet every day. The location is in a mall in the tech hub of Bangalore, and boasts a beef-free menu and a host of vegetarian offerings, including paneer and potato burritos.
The strength of international sales are crucial for YUM. Yum Restaurants International saw its sales expand 3.6% last year, while the company’s domestic base contracted by about 1%. That’s on par with fast-food leader McDonald’s (MCD), which expects 2010 global sales growth to range from 3%-5% even while sales in the mature domestic market remain pretty flat.
Clearly nobody wants to be the last to jump into the vacuum of emerging markets, and Taco Bell’s push as part of YUM expansion plans are on par with the rest of the industry. Companies that respond slowly to opportunity overseas, like Burger King (BKC), have been held back in recent months due to weakness in the U.S. For instance, Burger King posted a more than -5% drop in same-store sales across January and February despite international strength. A whopping -8.2% drop in the U.S. and Canada during January and February just couldn’t be offset by mild international growth.
Also slow to the global game is Wendy’s/Arby’s Group (WEN), which is still worrying about revamping struggling U.S. stores instead of forging ahead with global growth. WEN posted a narrower fourth-quarter loss despite continued sales weakness at Arby’s outlets, but it needs to get an international flavor in a hurry to keep pace with rivals like McDonald’s and Burger King. Wendy’s/Arby’s plans for 2010 include capital spending of about $165 million, a 62% boost from last year, for a total of 200 remodels over both brands. But it better start investing overseas if it doesn’t want to cede the foreign marketplace to competitors.
The push overseas outside of the crowded U.S. fast-food marketplace is a no brainer for these stocks. But perhaps the most surprising element of strategies from McDonald’s, Taco Bell, Dominos and others is to maintain the same focus on value that the companies are pushing in the U.S. For instance, Taco Bell’s India menu starts at 18 rupees, or about 40 cents. That’s just below McDonald’s menu and just above street-food prices in the cities — hopefully a sweet spot for Indian consumers who are looking for a new experience without breaking the bank.
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