Wednesday, August 13, 2008

Know your market

Sorry to my regular readers, this topic is something of an obsession of mine.

The piece that I wrote last week about the failure of Starbucks in Australasia got me thinking about Burger Fuel Worldwide [BFW] again.

Starbucks [SBUX] failed in Australasia partly because the model that the coffee giant has used in the United States and other regions across the world doesn't fit local tastes.

The "coffee culture" in this part of the world, especially in Melbourne and parts of New Zealand, is much more sophisticated than in the United States and we already have our favourite cafe's here, owned mostly by smaller operators who know their market well. They know what to sell them, how to price the product and where to put their stores. Their customers therefore are loyal to their local cafe and wont go within a lattes' roar of a Starbucks.

Consequently Starbucks failed.

Ho does this relate to Burger Fuel?

Well, Burger Fuel has a very strong local New Zealand culture. It also knows its customers very well, they have a strong youth appeal, it is trendy, upper end and loved by those who frequent it on a regular basis.

Like Starbucks though, a question one has to ask if one were to invest money in Burger Fuel shares is, how will Burger Fuel management successfully transport the culture that they have fostered in New Zealand to new international markets that might not fit the culture that has made the company such a success locally?

I mean, that is where Starbucks went wrong. Many other fast food chains that have entered this country have entered thinking they could just import an idea from the USA, without changing it to fit the local market, then expect to see the money roll in.

El Pollo Loco, the US chicken chain, a couple of taco chains and even Wendy's Burgers, who are now doing well here, all entered New Zealand in the 1980s and 90s and failed quickly.

They failed to adapt their franchise model to fit the local tastes. Assuming you know your market is one of the biggies when it comes to starting a business, get that wrong and you might as well forget the rest.

In the case of Burger Fuel, they have a concept; trendy high quality, high priced burgers with an edge.

In their first international market in Sydney Australia though, this concept has been well established for years and those operators have lengthy local knowledge, which as I have said above is all important when transporting a foreign business and expecting it to fly.

What have BF management done to fit local Australian tastes and expectations and how will they change that model to fit in when they begin business in their newest territory, Dubai?

I have previously shown an interest in investing in this company, at a lower than current share price, but given the Starbucks example that I have pointed out above and some more thinking, I would have to now completely ditch any ideas that I had of buying a stake at any price.

What was I thinking?

Its too tough a burger to bite on.


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c Share Investor 2008