STEVE KISHI : The International Burger : Carl’s Jr. Faces Cultural, Lifestyle Differences Abroad

When U.S. fast-food marketing was becoming increasingly crowded in 1988, management at Carl Karcher Enterprises decided to look to the Far East for expansion opportunities. The owner of the Carl’s Jr. restaurant chain asked Steve Kishi, then chief of the company’s internal auditing department, to scout around for opportunities.

Kishi found that a Japanese company, Friendly Corp. of Osaka, had been making overtures to Carl Karcher Enterprises for years. But its requests had been pretty much ignored.

Kishi studied Friendly’s background and decided that the Japanese company had the qualities that company founder Carl Karcher himself would approve of. By 1989, the company had opened its first Carl’s Jr. franchise overseas in Osaka.

Now the Anaheim firm has plans to open Carl’s Jr. outlets in Mexico and Malaysia later this year.

After graduating with a bachelor’s degree in business administration from the University of Southern California, Kishi worked for the international accounting firm of Peat Marwick, formerly Peat Marwick Mitchell & Co., as a senior accountant. He left the company in 1976 to open his own accounting practice.

In 1980, having grown tired of being a sole practitioner, Kishi joined the finance department of Carl Karcher Enterprises as manager of internal audit. He was later promoted to director of the finance department and, in 1988, to chief of its international development department.

In a recent interview, Kishi discussed the company’s international strategy and foreign trade in general with Times staff writer Cristina Lee.

Q. Why did Carl Karcher Enterprises enter the international market?

A. The American market is becoming very competitive and crowded. There are also many untapped opportunities in foreign countries.

Our interest in Japan goes way back to the late 1970s, when several Japanese companies approached Carl Karcher Enterprises to franchise the hamburger chain in Japan. But (the) timing was wrong because our company was in the process of rapidly expanding in the West Coast market.

In 1987, Friendly Corp. of Osaka approached the company to establish a chain of Carl’s Jr. restaurants in Japan. Although we were not actively pursuing the international market at that time, the Japanese company, which has extensive restaurant experience, was very persistent.

At this time, Friendly had commissioned several marketing studies that showed that the Japanese tourists in California liked our hamburgers, and many said they’d like to see us move down there. In the meantime, we found that McDonald’s was immensely successful in marketing their hamburgers in Japan. We decided that the time was ripe to enter the market.

Q. What was your strategy for entering the Japanese market?

A. We hired local advertising firms to conduct marketing tests around the restaurant area in Osaka. Each time we opened a new restaurant, we advertised in the local newspaper, we did door-to-door marketing and advertised through the mail.

We found that the quality of food photography in Japan was not as sophisticated as in the United States. We decided to commission American photographers to photograph the Japanese version of Carl’s Jr. After each restaurant opened for business, the Japanese advertising firm did extensive testing of the customers’ reaction to our service and food. This way, we could better assess what modifications we need to make in the future.

Q. What’s the difference between the Carl’s Jr. restaurants in California and those in Japan?

A. The Japanese version of Carl’s Jr. is much smaller, about 75% of its U.S. counterpart. But we try to be consistent with the design and flow of our kitchen equipment and procedures. We’ve been in the restaurant business for nearly 50 years, and we’ve developed very refined procedures as to how we run our operations.

To produce the same products in Japan in the same efficient manner, it was necessary to duplicate the kitchen production line we use in the United States. Several Japanese architects sent by our Japanese partner in Osaka (Friendly Corp.) visited our Anaheim operation to get a detailed evaluation of the specifications and designs of our kitchens. They studied various restaurant layouts to determine (how) they could be transplanted in Japan.

Luckily for us, the building requirements in Japan are not as strict as those in California. For example, the amount of walkway clearance in the kitchen is much more compact than in the United States. This is because space is so limited in Japan, and they’re accustomed to walking in a tighter environment. Besides, the Japanese people are not physically as large as their American counterparts; therefore, more bodies can often fit in a smaller area.

Q. What were some of the problems that you had to overcome in opening a restaurant in Japan?

A. For our first restaurant in Osaka, we fabricated most of the kitchen--like the refrigerator and the stainless-steel counters--with the help of a company in Anaheim. Most of the kitchen equipment, such as our charbroiler and deep fryers, were purchased in the United States and forwarded to Japan.

Additionally, many of the building materials for the restaurant were shipped from here. This includes items such as roof tiles, carpeting, seating, front doors and floor tiles. We had no problem bringing in any of our materials to start our restaurants there.

Q. What were some other problems?

A. We had to find a local baker who was willing to invest in machines that give our buns what we call a “kaiser cut,” which is a swirl on top of the bun. Our hamburger patties were initially made in our Anaheim factory and shipped by ocean freight to Osaka. About a year ago, we began working with a Japanese meat company to manufacture the product in Japan from meat sourced from Australia, the United States and Japan. It took a lot of collaboration between our production staff and our Japanese counterparts to come up with a perfect patty.

All of our sauces are produced in Japan because many of the preservatives used in the United States are prohibited from being imported into Japan. This is a financial burden to our licensee because they have to pay an exorbitant production cost for their limited number of restaurants. Despite this, they didn’t raise the cost of their hamburgers.

Q. What other modifications were needed?

A. We found that the hamburger restaurant market in Japan is still perceived as providing snacks. We decided, after doing market studies, to reduce our hamburger patty by 25% to better fit their appetite level and to offset the high price of beef.

Our designers and architects played a major role in the design of all of our international restaurants. We tried to incorporate as much as possible of our California-type restaurant, but due to restrictive real estate size in Japan, we were required to make a lot of modifications to fit into the available space.

Q. What were your goals when you entered the Japanese market?

A. Besides a new kind of fast-food diet, we wanted to transplant as much of the California lifestyle as possible. All of our products, such as our salads and baked potatoes, are very consistent with the nutritional and fitness craze that Californians are associated with.

Our licensee wanted to bring to Japan the same type of restaurant, service and environment that the Japanese tourists enjoy in California.

We use a lot of bacon on various sandwiches, but we found out that the Japanese people are not accustomed to the same type of bacon that we have here in the United States.

We thought we could use Japanese smoked bacon, but we found that even when we burned their bacons to a crisp, theirs were not as crispy as those in the United States. We found that there’s a vast difference between American and Japanese curing process. To give our products the same flavor profile, we decided to source our bacon out of Iowa.

Q. Most people are aware that beef is expensive in Japan. How much do your customers pay for a Famous Star Hamburger?

A. Beef is definitely a high-priced item in Japan. Americans think that hamburgers are very expensive in Japan, but our Famous Star Hamburger, our flagship product, costs only 350 yen, or $2.70 U.S. (Its larger U.S. version costs $1.99.)

Q. How does your marketing approach differ from McDonald’s in Japan?

A. While McDonald’s focuses its marketing efforts on price, we concentrate on service. In essence, McDonald’s is selling more hamburgers at a lower price, whereas we are selling fewer units at a higher price. But we, in turn, can afford to give the customers more specialized services, such as bringing food to their tables and our all-you-can-drink beverage system. I believe the Japanese people value service over price.

Q. What other international markets is your company looking at?

A. Our first restaurant in Mexico is under construction and will open in Monterrey in April. Our venture in Malaysia is currently selecting a site, and we project a mid-year opening in Kuala Lumpur. Both markets have tremendous potential for rapid expansion.

After entering the Malaysian market, we will be targeting Singapore and then decide on whether to move toward Australia or China. It’s really a matter of what opportunities come our way. It’s more important that we establish a solid foundation in Malaysia and Singapore before we aggressively pursue other markets in Southeast Asia.

Q. Any other potential markets?

A. We are faced with proposals from potential licensees all over the world. In the past 12 months, I received overtures from companies in China, Poland, Spain, Portugal and various countries in South America. To date, I haven’t found the right partner who can maintain the standards and operating excellence that we expect.

We have a philosophy to only work with companies that have the infrastructure and expertise to be successful in the food-service business. We’re not merely looking to grant our license to the first company that comes knocking on our door. We must protect the integrity and reputation that Carl Karcher has built over the last 50 years.

Q. How have troubles in the Middle East affected your international plans?

A. About four months ago, I received a very attractive proposal from a food-service organization from Saudi Arabia. They had the qualification and the money to make the deal work. However, Don Karcher, our president, and I agreed that it was not in the best interest of our employees to pursue such an agreement. We felt that the environment in Saudi Arabia was much too volatile. We didn’t want to send the wrong message to our employees that we would sacrifice their safety for strictly financial gains.

That proposal is on hold until a more peaceful and stable environment sets in. We’ll continue to review the proposal as circumstances change. But we will always put our employees’ welfare ahead of the cash register.

Q. What have you learned doing business in the international market?

A. I’ve learned to listen and to be flexible in my dealings with foreign companies. We must always remember that cultural and business styles differ dramatically. For instance, when we signed our agreement with MBF International Ltd. of Kuala Lumpur, we were aware that Malaysia has a heavy Muslim population. We knew that the Islamic religion requires that all beef be slaughtered under the “halal” system, which resembles the Jewish kosher process.

Because Muslims do not consume any pork products, our Western Bacon Cheeseburger, which contains bacon, will have to be reformulated for the Malaysian marketplace. So the challenge will be to provide the same flavor that Carl’s Jr. is known for, without the bacon. This is a difficult task, but not impossible.

We’re now testing non-pork bacon substitutes as well as new barbecue sauces to accomplish this task. We’ve tried beef bacon and soya bacon, which is made from soybeans. We found that beef bacon on our sandwiches looked good but did not give a satisfactory taste, while soya bacon tastes good but wasn’t visually attractive.

Q. Is language a problem in your marketing efforts abroad?

A. Not much, because we’re working with local marketing companies that understand local needs. Normally, it’s just a matter of translating existing English-language materials.

Of course, there are cases when words can’t be translated at all. For instance, when we did market tests on our fried zucchini in Japan, we found the Japanese translation for zucchini was either a cucumber or a pumpkin. And since they didn’t understand it, they couldn’t appreciate the taste. To date, we do not have zucchini on the Japanese menu.

In Malaysia, for instance, the population speaks three languages--various Chinese dialects, Malay and English. This means our marketing materials will be developed using those three different languages.

In Mexico, we are finalizing our marketing materials. We thought our current Hispanic advertising and marketing materials could be used there. Unfortunately, the dialect of the Spanish language used in Monterrey, Mexico, is very different from the Spanish spoken among California’s Hispanic community. So we’re modifying the language to fit market needs.

Q. What advice do you have for restaurants planning to franchise their services in the international market?

A. Many of our American ways of doing business will have to be modified to suit a foreign market. Going international is a long-term investment, and you should not expect to see benefits in the short term. Choose a foreign franchisee that is familiar with the kind of business and market that you want to enter.