Burger King Holdings Inc. (NYSE: BKC) will officially closing the doors of locations in Israel this summer after a failed attempt to bring Western tastes to the Middle East. This is the latest in a string of fast-food failures for U.S. restaurants including McDonald’s Corp. (NYSE: MCD), Yum! Brands Inc. (NYSE: YUM) and Wendy’s/Arby’s Group Inc. (NYSE: WEN).
Orgad Holdings, which owns about the same number of BKC and Burger Ranch locations in Israel, said recent research indicated that the Israeli style of hamburgers was far more popular and that all 52 Israeli branches of Burger King would be transformed into Burger Ranch. While this isn’t a huge blow for a franchise with about 12,000 restaurants in over 70 countries, it’s certainly a step back for BKC stock when it comes to global growth plans.
But Burger King is not alone. Though Yum! Brands (YUM) chain Taco Bell recently making a splash with its potato and paneer burrito in India, the fact is that many American restaurants struggle overseas.
Take fast food icon McDonald’s (MCD). In the wake of the Icelandic banking crisis in 2009, MCD pulled out of the nation for good. McDonald’s ingredients, most of which are sourced from Germany, saw prices doubled what they were in 2007 due to high import taxes and unfavorable currency echange rates. Rather than hike Big Mac prices 20% to offset costs, Mickey D’s just threw in the towel.
Of course, that hasn’t crippled MCD stock. To the contrary, McDonald’s earnings for the first quarter showed strong global McDonald’s sales offset same-store sales declines in the U.S. But the McDonald’s problems in Iceland show not every nation is a good fit for U.S. stocks.
Wendy’s/Arby’s (WEN) also had trouble overseas in 2009, and closed 71 locations in Japan. The reason was not related to taste as much as business deals, as a disagreement with franchise operator Nihon Wendies resulted in a severing of ties. But the move was significant never the less. According to the Associated Press, Wendy’s had sales of about $70 million in Japan for fiscal 2009.
So despite all the talk of global appeal, the fact is that American restaurants can indeed fail to capture a foreign nation’s affections. Whether its issues with taste or just business differences, international expansion is never without challenges.
Maybe next time The King will hold a taste test before expanding overseas.
As of this writing, Jeff Reeves did not own positions in any of the stocks named here.
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