Karcher Nears Deal to Place Carl’s Jr. in 9 Pacific Nations

Carl Karcher Enterprises, the parent company of Carl’s Jr., is negotiating a licensing agreement with a Malaysian finance company to expand the fast-food chain into nine Pacific Rim countries.

An official for MBf International Ltd., a unit of MBf Group of Cos.--a large financial-services firm based Kuala Lumpur, Malaysia--confirmed Thursday that it is close to signing the agreement with Karcher, which could be announced as early as today.

“We think the (Carl’s Jr.) product is good, and we’re enjoying a growing economy,” said Soopeng Khoo, executive vice president for MBf Group, when contacted at his office in Kuala Lumpur. “People are getting more affluent. They travel a lot and get used to eating food that does not originate from this country.”

Khoo said top MBf executives are in the United States and met with Karcher officials Thursday. Top Karcher officials could not be reached for comment.

The deal would mark the second major Karcher deal in the Far East. In 1988, Karcher signed an agreement with a Japanese firm to open 30 Carl’s Jr. outlets in Japan. Two are operating there now, with three more scheduled to open this year.

The move places Karcher, with its Carl’s Jr. chain, among the major U.S. fast-food operators trying to stake a large claim in the growing international fast-food market.

Under the proposed agreement with MBf, the first Carl’s Jr. restaurant would open in Malaysia early next year, followed by other outlets in Singapore, Australia and Hong Kong. Other target countries would be Indonesia, the Philippines, Thailand, Taiwan and New Zealand.

The exact terms of the deal could not be determined. But analysts said it will probably involve forming a joint venture, with MBf providing most of the financing and Karcher providing management and training. MBf already has a licensing agreement with another U.S. restaurant chain, Dallas-based Grandy’s.

“A joint venture is the only way to go,” said Sarah Stack, an analyst for Bateman Eichler Hill Richards in Los Angeles. “You need to have a national partner to help navigate the cultural differences.”

While details could not be determined Thursday, the basic outline of the agreement was confirmed this week by industry analysts and sources familiar with Karcher’s operations.

“It’s a no-lose situation,” said James J. Murren, an analyst for C.J. Lawrence in New York.

He also said Karcher will probably take MBf as a joint-venture partner, lending market support and ideas with a limited cash investment.

“It’s an opportunity to get the (Carl’s Jr.) name out with no significant capital expenses,” he said. The deal “is very modest, and it’s a revenue producer that’s pretty much risk free.”

While lauded as turning out some of the highest-quality fast food in the industry, Carl’s Jr. has had only modest success outside California, where it has become a fast-food institution since the first Carl’s Jr. restaurant was founded in the mid-1950s. Now there are about 550 company- or franchise-owned Carl’s Jr. outlets in California, Arizona, Nevada and Oregon.

Anton Brenner of Altman, Brenner, Wasserman & Co. in New York said Asian markets certainly are not as saturated as the United States is with fast-food hamburger outlets. He said Carl’s Jr. has differentiated itself enough from McDonald’s that it can succeed.

“It’s certainly smart to be expanding internationally,” Brenner said. “Those restaurant companies that show the most rapid growth are those that have a more global approach.”

Stack of Bateman Eichler Hill Richards agreed that there is plenty of room for fast-food development in the Far East: “Carl’s Jr. will be perceived as the quality alternative to McDonald’s, just as they are in Southern California.”

She said the move into the Far East will not have a “significant” near-term impact on Karcher’s earnings and revenue. The company reported a 13% decline in earnings and an 18% increase in revenue for first nine months of fiscal 1990, ending Nov. 6. Company officials attributed the drop in earnings to discounting by competitors.