Japanese Firm Licensed to Open Carl’s Jr. Restaurants in Japan

Carl Karcher Enterprises has moved into the international market by licensing a Japanese company to open Carl’s Jr. restaurants in Japan.

The Anaheim-based fast food restaurant signed an agreement Tuesday with Friendly Corp. of Osaka, which will open at least 30 Carl’s Jr. restaurants within five years in the metropolitan Osaka region.

The contract makes Karcher Enterprises the latest American company offering to satisfy the growing appetite in Japan for American fast food.

McDonald’s Corp., for one, first planted its golden arches in Japan in 1971 and now has more than 600 outlets there. And Kentucky Fried Chicken, which first brought the colonel’s fare to Japan in 1970, now has 701 restaurants in that country. Mister Donuts, Wendy’s International, Denny’s and White Castle have also joined the crowd of American restaurants overseas.

The appeal is largely due to the huge potential of the Japanese market. “Japan is the same size as California but with a much larger population base of 120 million people,” said Steven Kishi, Karcher’s director of finance and administration who negotiated the contract with Friendly Corp.

Marketing research by Karcher Enterprises indicates that the hamburger segment of Japan’s restaurant industry is about $1.6 billion and is projected to reach about $3.6 billion within the next few years.

While the Karcher contract calls for at least 30 Carl’s Jr. outlets in Japan to be built through 1993, Friendly Corp. actually plans on taking a much bigger chunk of the rapidly expanding Japanese fast-food market. The company’s goal is 50 Carl’s Jrs. in Japan within five years and possibly “several hundred units” over the next 10 to 15 years, Kishi said.

Specifically, the licensing agreement signed Tuesday gives Friendly the exclusive right to use the Carl’s Jr. name in Japan for 25 years. Friendly plans to open the first five Carl’s Jr. outlets in the Osaka metropolitan region by early 1989.

Karcher Enterprises, in turn, is to receive $500,000 as an up-front fee, then royalties of up to 1.5% of sales, based on a sliding-scale formula. The fast-food chain also agreed to provide technical assistance to its Japanese licensee.

In addition to the cash and royalties, the agreement gives Karcher Enterprises the chance to expand without much risk because the licensing agreement requires no capital investment by Karcher.

Osaka-based Friendly, a publicly traded company, is not connected with the Friendly Ice Cream chain of restaurants owned by Hershey Foods Corp. of Hershey, Pa. Karcher Enterprises owns or franchises 449 Carl’s Jr. restaurants in four states.

Since 1985, Karcher Enterprises has been successfully following a “back-to-basics” strategy to pull out of a two-year slump. The chain reported net earnings of $11.8 million for the first nine months of its fiscal 1988 ended Nov. 2. Those earnings were nearly triple the $4.2 million earned in the same period during the prior year.

The licensing agreement, several analysts said Tuesday, puts Karcher Enterprises in a win-win situation.

“They can’t lose because they’re not putting up any money,” said James J. Murren, vice president and restaurant analyst in New York with C.J. Lawrence, Morgan, Grenfell Inc. “There’s an immediate monetary gain as they go into the first quarter. And there could be a moderate win (with) nice growth from a well-capitalized restaurant company that has experience in the home market” in Japan.

Even so, Steven A. Rockwell, a vice president and analyst with Alex Brown & Sons, cautioned that the agreement with Friendly is not likely to affect Karcher Enterprises’ earnings for some time. “It won’t have a major impact . . . because the revenue to Karcher will be small for the foreseeable future,” he explained.

Kishi said Karcher Enterprises and Friendly Corp. have not decided whether to modify its menu in Japan--McDonald’s, for example, serves soup at some of its Japanese restaurants. Friendly Corp. will “basically follow our product line with maybe a few modifications with special appeal” to the Japanese--such as possibly a new hamburger with a different taste, Kishi said.

SOME U.S. FOOD CHAINS IN JAPAN

1st Unit Number of Company Opened Outlets Kentucky Fried Chicken 1970 701 More Than McDonald’s 1971 600 Wendy’s 1980 26

Source: The chains CARL’S JR. RESTAURANTS

Company Location Operated Franchised Orange Co. 62 3 Rest of Calif. 282 59 Arizona 26 -- Nevada -- 14 Oregon -- 3 TOTAL 370 79