Casting Bread Across the Waters : U.S. Eateries, Including Foodmaker’s Chi-Chi’s, Expand Overseas

It’s probably another sign that the world is growing smaller, but no matter where the Chi-Chi’s Mexican restaurant chain has expanded--Belgium, Germany, Luxembourg, Kuwait--restaurant managers have found a local mariachi band or a Mexican folk singer to serenade patrons.

“Somehow, somewhere, in every country we’re always able to find some Mexicans who are ready and willing to strike up the band,” said Terry Smith, a former Chi-Chi’s vice president who holds the right to open franchises overseas.

Chi-Chi’s, owned by San Diego-based Foodmaker, the parent company of Jack in the Box, has joined the ranks of U.S.-based restaurant chains that increasingly are using licensing and franchise agreements to expand into Europe, the Middle East and the Far East.

Smith, who has opened eight franchised Chi-Chi’s restaurants in Europe and the Middle East since 1988, plans to open six more during the coming year. Although the chain could grow faster overseas, Smith said, growth is being restrained in order to maintain the quality that foreign diners demand.

Foreign diners have been quick to embrace American food, particularly fare served up by fast-food outlets. The American bill of fare overseas includes a wide range of offerings, everything from hamburgers with all the fixings to Chi-Chi’s Sonoran-style Mexican food.

“At at time when foreign competition is co-opting many U.S. industries, the American food service industry is rapidly expanding into foreign markets,” said John R. Farquharson, chairman of the Washington-based American Restaurant Assn.

With the domestic market saturated, chains are increasingly looking overseas for growth. That interest has dovetailed with growing interest overseas in American popular culture and restaurants, one industry source said.

In four years, the number of domestic restaurant chain units operating in foreign countries has risen 39%, to 14,177 in 1991, up from 10,199 in 1987, according to a restaurant association survey.

Because of food prices overseas, American-style food is as expensive as local offerings. But foreign diners, many of whom have eaten American fast food, are willing to pay if food and service is first-rate, Smith said.

According to the restaurant association survey, the domestic chains with the heaviest foreign presence are Kentucky Fried Chicken (3,300 units overseas), McDonald’s (3,227) and Pizza Hut (1,353).

Domestic sit-down restaurants have been slower to expand internationally because high land, food and labor costs make turning a profit more difficult. However, chains that can modify their business plans in order to clear local barriers can succeed oversees, Smith said.

The real question for American dinner houses is whether they really have the long-term outlook needed to go international, Smith said. “They have to be willing to invest money and the energy to get the concept right.”

Irvine-based Restaurant Enterprises Group, which used a licensing agreement to open 200 Coco’s restaurants in Japan, sees “tremendous potential” for overseas expansion, particularly in the Far East, said John Eccleston, the group’s director of international operations.

But sit-down restaurant chains can’t simply transfer domestic operations to foreign countries, people in the industry said.

Key decisions must be made by people living in the market and not in the United States, Smith said. “It is almost impossible for American companies to get it right if their international people live near the U.S. headquarters and travel around the world a few weeks each year,” Smith said.

Sometimes chains have to break with tradition in order to succeed.

General Mills’ restaurant division, which opened the first of its nearly 50 Red Lobster restaurants in Japan in 1981, responded to Japan’s expensive real estate by downsizing overseas units and leasing space on less-expensive upper floors.

Japanese real estate prices prompted Portland’s The Old Spaghetti Factory, which has eight franchised restaurants in Japan, to abandon its domestic policy of establishing large restaurants in “older, architecturally interesting buildings,” company spokesman Bob Martin said.

But, in 1988, the spaghetti house “lucked into” an old warehouse location in Kobe that has become its most successful Japanese location, Martin said. The restaurant “really captured the customers’ imagination,” leading The Old Spaghetti Factory to actively seek additional more buildings, Martin said.

Chi-Chi’s, which has opened eight restaurants in Europe and the Middle East, promptly tossed out the domestic game plan that called for large restaurants to be situated in or near shopping centers with plenty of foot traffic and parking.

Although extremely successful in suburban U.S. settings, the policy “did not translate onto the European scene,” Smith said. And, because real estate isn’t usually available for new buildings, Chi-Chi’s has leased and renovated existing buildings.

U.S. restaurants are most likely to succeed overseas if they stick with decidedly American menus that won’t pit operators against local restaurants, Smith said.

Coco’s, for example, pitches itself to Japanese patrons as a California-style restaurant. And, rather than compete against Japan’s seafood restaurants, Red Lobster positioned itself as “an ethnic restaurant where you can get American seafood . . . but not sushi,” said Red Lobster spokeswoman Anne Durning.

That doesn’t mean U.S. restaurants ignore local tastes.

The Old Spaghetti Factory offers nearly half a dozen spaghetti dishes--featuring shellfish or roe, for example--that appeal to Japanese diners. Although Coco’s offers hamburgers, the meat, which isn’t served on buns, “is more like chopped beefsteak covered with sauces,” Eccleston said.

Since food costs are generally higher than in the United States, restaurant chains can find it difficult to turn a profit.

“We’re always able to find corn or flour for tortillas, and chicken and beef are pretty universal,” said Foodmaker Chairman Jack Goodall. “So we’re going to be easy to source no matter where we are.”

Chi-Chi’s “grain-based concept” also keeps meat costs low contrasted with most American-style restaurants, Smith said. Similarly, The Old Spaghetti Factory’s pasta-based menu allows fatter profit margins than restaurants featuring beef or fish dishes, Martin said.

“Meat, while sought after” in Japan, “is very expensive, and it can price you out of the market,” Martin said. “Pasta is relatively inexpensive. . . . So, relative to other sit-down restaurants, we’re very competitive.”

Mariachis and margaritas also play a key role in Chi-Chi’s overseas locations.

“We’re marketing ourselves as the experience-oriented restaurant,” Smith said. “If you walk into our restaurant, there’s a cantina with three Mexicans playing guitars. . . . There’s a strong Mexican ambience.”

Alcohol sales, which can make or break a domestic restaurant’s profit, are as important overseas.

Although sales vary at different locations, Chi-Chi’s foreign liquor sales generally equal or exceed the domestic market, where alcoholic beverages account for 28% of sales. Smith described Chi-Chi’s margarita sales as “amazing” because the drinks are not readily available in Europe.

Chi-Chi’s European liquor sales remain profitable, despite heavy taxes that raise the price of a $39 case of tequila to as high as $170, Smith said. And, surprisingly, margaritas--sans alcohol--sell equally well in Chi-Chi’s waterfront location in Kuwait City, where liquor is banned.

The Kuwait City restaurant, which opened in 1988, reopened late last year after crews repaired damage suffered during the Iraqi occupation of Kuwait.

Iraqi troops used the restaurant’s roof as an anti-aircraft gun emplacement. Its interior served as a headquarters and interrogation center, and the kitchen was used to feed Iraqi officers.

Although troops stripped the restaurant of furniture when they left, most of the kitchen equipment was left intact, Smith said.

Smith said the Kuwait City restaurant was at first designed to include Middle Eastern and American features. But, during the renovation, “we dropped anything that didn’t look Mexican,” Smith said. “We went with an even stronger Mexican image.”

Most of the Kuwait City restaurant’s original employees are back at work, Smith said. The restaurant’s manager led most of the crew members out of Kuwait and through Iraq, where they joined the long line of refugees that poured into Jordan, Smith said.