Arrive at the airport in the Honduran capital of Tegucigalpa and look across the street. The first thing you see, as if plucked from an Atlanta roadside, is a Church’s Chicken restaurant, alongside other fast food icons including Burger King and Little Caesars.
This Central American nation of 8 million people is feathered with fried birds, as local concepts like Pollo Campero and Power Chicken battle with U.S. imports for customers. Ads for packaged chicken, Cargill-owned Pollo Norteño, cover local food stands called pulperias.
It’s poultry powerhouses like this where Church’s, which has more than 1,600 restaurants in nearly 30 countries, has spread its wings to become one of the world’s leading brands in its category, trailing only KFC and Popeyes by number of stores among chicken chains operating internationally. (Atlanta’s Chick-fil-A has higher revenues than KFC and more stores than Church’s but does not have any restaurants beyond North America.)
“We’re blessed in that we’re in the chicken business, and it’s the No. 1 protein in the world. It’s the food of the masses,” says Zack Kollias, executive vice president who has presided over the Church’s international expansion for more than a decade.
But there’s chicken, and then there’s American quick-service chicken. The latter carries cachet and the promise of an experience. Overseas, it can differ substantially from the standalone restaurant and drive-thru back home. American chains tend to occupy space in sought-after shopping malls and retail properties, burnishing their stores with upscale fixtures and modern design to appeal to a crowd that wants to stay awhile. Air conditioning, in some countries, is a luxury that serves as an important draw.
With success depending on so many factors, Church’s has become picky about which markets it chooses to enter, Mr. Kollias says.
“We’re not interested in flag-planting around the world. There are a lot of people who want to sign an agreement with a U.S. franchisor, but that doesn’t mean that they can deliver,” he said.
Mr. Kollias looks for countries with rising disposable incomes and, not surprisingly, copious chicken consumption. He wants to see a certain familiarity with Western brands, but not a fast-food place on every corner. Bulgaria, which got its first Church’s last year, fits that bill, boasting some of the highest per-capita chicken consumption in the European Union, which it joined in 2007.
“We’re not usually looking to be the first on the block,” Mr. Kollias said.
Watching its growth path, Church’s doesn’t seem to be imposing too many limits on itsefl. Beyond Bulgaria, it openedTexas Chicken stores in New Zealand and Thailand last year. (Texas Chicken is the brand outside the Western Hemisphere — it’s instantly associated with American culture rather than conjuring thoughts of a religious institution, Mr. Kollias says, though “Church” just happens to have been the name of the founder.)
So far this year, new franchises under existing agreements are coming online in successful markets like Canada, Mexico, Indonesia and Saudi Arabia. Belarus saw its first Texas Chicken outlet open May 10. Pakistan is on-deck. And an agreement to enter the Southeast Asian nation of Laos is soon to be signed. The Atlanta-based company opened a record 39 new international stores in 2015 and plans to eclipse 50 this year.
The company’s differentiator, Mr. Kollias said, is its crunchy fried chicken recipe, which locks in flavors and avoids the oiliness he says plagues other brands. And though some localization of flavors occurs in each market, consumers the world over are introduced to the company’s signature made-from-scratch honey butter biscuit.
All this is only possible through partnerships with experienced operators on the ground, who know not only the food market, but also have access and experience in the retail environment. They also need the scale to source chicken locally, as very little of the supply is imported in each country. In other words, the partner really makes the expansion, Mr. Kollias said.
PTT Public Co. Ltd., Thailand’s state-run oil conglomerate, is a prime example. The company operates more than 1,500 Amazon Cafes out of its service stations, taking control of space in its convenience stores formerly rented out to other companies. It now plans to open 70 new Texas Chicken stores by 2023.
“They certainly understand multi-unit retail and food,” Mr. Kollias said.
Texas Chicken’s partners in Malaysia have also flourished. They’re soon soon to open the 25th out of a 35-store agreement. Vietnam will see its 10th store soon. Both underscore the importance of the Southeast Asian market, an area of the world with rising incomes and more than 600 million people.
But Mr. Kollias says the goal isn’t to hold partners to a strict expansion schedule, but rather to help them understand the long-term investment potential of franchise ownership. Profit comes through measured, consistent expansion over time rather than milking a single store. Strong, transparent relationships between the “mothership” back in Atlanta and the local franchisees and operators are key, he added.
“The development agreement should stay in our pocket. We should never look at it. If you start using the contract as a hammer, you don’t end up with a very good franchise agreement,” Mr. Kollias said. “You have to be very in tune with the business. It’s not a contract-driven business; it’s relationship-driven.”
Regulations, size of market and local tastes come into play as well. India will likely require multiple franchisees, given the restrictions on movements of goods between states and the vast regional differences in food preferences.
Middle East Brings Tumult, Opportunity
The next phase of growth includes a map that might seem counterintuitive to those unaware of how franchising operates with near immunity to geopolitical tensions.
The Middle East has been a bounty for Church’s and other American chains, especially markets like United Arab Emirates and Saudi Arabia. Texas Chicken stores in the latter have been more affected by the drop in oil prices (and the reduction of subsidies that help pad incomes) than roiling conflicts in the region, Mr. Kollias said.
“We certainly see a lot of growth in Saudi and the Emirates and don’t see any reason for that to turn around,” Mr. Kollias said.
While civil war in Syria has closed five stores in that country, six remain open in Iraq’s northern Kurdistan region, though the operating environment has grown tougher as fighting has raged against the Islamic State in nearby territory. Those stores once rival the 35 stores in Dubai in sales volume, but things have dropped off.
Instability has delayed plans to go beyond two new stores in Egypt, but Church’s is looking for opportunities in more stable countries like Kuwait, a hot franchise market.
Bringing It Back Home
Church’s is owned by San Francisco-based private-equity firm Friedman Fleischer and Lowe, but its operating base is still in Atlanta. That means what happens overseas affects the city, Mr. Kollias said.
“To have an international franchise business, you need to have a strong domestic business. If Church’s was not a strong domestic business, I would have the success we have overseas. One does not exist without the other,” he said.
And while earnings aren’t segregated by international and domestic, the nearly 500 stores operating overseas do send monthly royalty checks back home, raising the company’s value and providing job opportunities at the headquarters specific to international logistics, research and development and quality assurance.
“We’ve added a number of people to make the business strong,” he said. “A lot of the funds that are made overseas are invested right back into the U.S.”