In a market dominated by American fast-food giants such as McDonald’s and Burger King, New Zealand based BurgerFuel found its niche. The company sells gourmet burgers made from New Zealand beef in discerning Australasian and Middle Eastern markets including Iraq. Doris Evans reports. www.burgerfuel.com
Chris Mason founded BurgerFuel in 1995 and opened the first store in the trendy Auckland suburb of Ponsonby. Two years later the kitchen system developed and more stores followed in franchise. In 2003, Josef Roberts joined the business and the story started to get interesting. Charismatic entrepreneur Roberts has a colourful history. In the 90s, he turned Red Bull, a little-known energy drink with legal problems, into a pop phenomenon in New Zealand and Australia, making millions in the process. By 2002 the job was done and it was time for a change. Chris Mason approached him and Roberts fell for the new business. “I liked BurgerFuel immediately,” he said. “Chris had four stores back then and I felt that he had created something cool.” Building a gourmet hamburger company was a real challenge, very complex, very difficult. Exactly what Roberts was looking for.
Things did not get easier when they decided to go public in 2007, on the eve of the financial crisis. Four more stores had been opened in New Zealand and the first one in Australia. “We made it to the stock exchange,” Roberts recalls, “but six months later everything turned to custard when the financial crisis struck. I sat down and asked myself, where is a market where we could go?” The shares of BurgerFuel were listed on the NZAX, the NZ alternative market, which is a marketplace for small to medium-sized fast growing businesses. The initial public offering raised NZ$8 m (€5 m), which was less than expected.
The Middle East appeared to be a market to grow the business. The region had every thing Roberts wanted, the oil, the money and the young population. “This market was overlooked by all of us in NZ,” he says. Dubai, dubbed the Las Vegas of the Middle East, was racing ahead at the time. Mason and Roberts decided it was time to go there and find a partner.
But how to contact suitable partners? Roberts’ advice is simple: “Sniff the pavement. Get on a plane, follow your instinct, talk to people and meet people, first and foremost find the right person”. Roberts did exactly this. He had eight appointments lined up in Dubai and he remembers: “It was pouring with rain when I arrived. The whole city was in pandemonium, everything went crazy.” While Roberts was sitting in his hotel room, all of his appointments were cancelled except one. As it turned out, this was the one, Al Khayyat Investments (AKI). “They loved the passion, they loved the brand and they loved the fact that I stood in front of them talking about what we could do together. They came on board immediately,” Roberts recalls. In 2008, BurgerFuel signed a Master License Agreement with the Dubai-based company.
Saudi Arabia and Bahrain followed in 2009. The licensee for both countries is Hamad Albuali of Sadf Trading and Development Co. In 2010 the first stores in the Middle East were opened, one in Dubai and another one in the Persian Gulf Port of Dammam. The 200-seat store in Dammam is three times the size of those back home in New Zealand and so far the biggest. “Producing NZ-style burgers in another country as foreign as Saudi Arabia, has been a major undertaking,” says Chris Mason.
The specialist store fit-outs were made in New Zealand and exported in containers to the Gulf States. The Dammam store needed like all restaurants in Saudi Arabia a special layout with a separate door and eating area for men without families.
In 2011 two more stores in Saudi Arabia opened with two more in Dubai. Another Master License Agreement was made in the same year, this time with Iraq. Baghdad’s Ra Ali Group, a consortium which also owns 50 percent of Iraq’s North Bank financial institution as well as 50 percent of Pepsi Iraq, bought the rights.
The first Iraqi BurgerFuel is located in Sulaymaniyah in the Kurdish speaking region of Northern Iraq known as Iraqi Kurdistan. This area is the only legally defined region within Iraq that has its own separate democratic government for its population of nearly five million people. “It is hard to see this from the outside but it is reasonably safe here,” says Mason.
For Roberts the Iraqi partnership is “an interesting prospect with strong and established business partners, who have a good understanding of the BurgerFuel brand and local markets.”
Libya and Kuwait followed in 2012 with franchise agreements. The master license agreement for Kuwait was signed with Al Khayyat Investments (AKI), who already operates five stores in Dubai in the United Arab Emirates and has another eight sites under construction or scheduled to open in 2013. In Libya, BurgerFuel has partnered with Sadeen General Trading Co. The local company operates Caffè di Roma as well as a host of international brands such as Lavazza coffee and Villeroy & Boch.
“We saw Libya as one of the leading countries to enter in North Africa. Democracy is flourishing right now so this is a sought after market to enter and to take first mover advantage in,” comments Mason. The focus on growth in the Middle East saw him and his family relocate to Dubai in 2009 to take up the role of CEO International Business. Roberts holds the role of Group CEO.
The political situation in Libya, however, remains unstable. The ruling National Transitional Council, which took over when Gaddafi was overthrown, has struggled to impose its authority over the militias involved in last year’s uprising.
“When you watch these things on CNN they look pretty scary but when you’re in the markets and working away, trying to conquer these countries by selling hamburgers, it’s never as severe as it appears,” Roberts says.
“Franchising is a good way of doing business in volatile regions, as the franchisees bear most of the risk,” he adds. BurgerFuel owns the rights for the countries and issues master licenses for the entire country. “Our focus on the Middle East has been good for our brand. Preferably we are looking for partners who have a food and beverage division. They should also have knowledge of real estate, because this is always an issue,” says Mason. 20 stores per territory is the target. ”We want to be with partners who are passionate about our brand and have the ability to roll out,” adds Roberts.
In the Middle East, BurgerFuel restaurants are mainly located in malls due the temperatures outside and the shopping habits of the consumers. The model in New Zealand, however, is based on the high streets. “We prefer an outside approach to get visibility and build the brand,” says Roberts. The kiwi restaurants usually have 40 to 60 seats and, where possible, an outside area.
The offer in the Middle East is identical to the one in New Zealand, except that pork and bacon are replaced with chicken or beef. “Using our own halal beef ensures that we are delivering the best possible burgers,” says Mason. All condiment ingredients come from New Zealand as well. BurgerFuel has a reputation for their aioli sauces and the patented ‘doofer’, a folding cardboard burgerholder.
BurgerFuel buys its beef from Anzco Foods, a multinational group of companies, whose core business is to procure, process and market New Zealand beef and lamb products. Anzco produces finished beef patties to specific standards. They are then snap frozen and sent to the stores in New Zealand and overseas. Buns and vegetables are sourced locally. The buns are created to the recipes of the New Zealanders. “Our processes are really standardised and tight,” says Roberts. The most sought after burger on the BurgerFuel menu is the cheeseburger: 1/3 pound 100 percent pure NZ grass-fed beef, melted cheddar, grated parmesan, salad, relish and fresh natural BF aioli at NZ$9.90 (€6.24).
Chicken-, Vege- and Mini-burgers are also offered as well as drinks, ice cream and typical kiwi sides such as potato or kumara fries. “Most of the original items are still on the menu, but we have specials on a rotating basis,” says Mason. Wages in the Middle East are slightly lower than in New Zealand. Hence labor costs are lower, but rents are high in relation to other parts of the world, argues Roberts without disclosing the relation of wages to goods and rents compared to New Zealand.
BurgerFuel caters to 18- to 35-year olds. In the Middle East customers are generally 50 percent locals and 50 percent expats. BurgerFuel has developed into an icon in the region, believes Mason. “Everything is being very well received, because we moulded and crafted the business and tailored the brand,” he says.
In March last year the company reported strong profit growth with an after tax figure of NZ$708,360 (€446,747), from NZ$33,500 (€21,116) a year earlier. Company revenue rose 24 percent on the previous year to NZ$10.3 m (€6.5 m), while total store system sales, which include franchisees’ revenue, lifted 15.5 percent to $38.1 m (€24 m). In the Middle East system sales rose to NZ$ 8.6 m, which is due to pricing improvements, according to Roberts.
By the time the annual report was presented, the company was running 8 stores in the Middle East, 28 in New Zealand and 1 in Australia. Since then it has opened two more stores in New Zealand and hopes to open more than six restaurants in the Middle East, including Qatar and Egypt.
“It’s not only about having the best burger, it’s also about having the best brand,” says Roberts. “We are marketing guys and we like to put some humour into it.” The design of the brand with its signature blue and purple colours is unique and reflected on the website. Social media such as Facebook and Twitter play an integral part of the marketing concept. A couple of years ago BurgerFuel won an award for having the best Social Media site in New Zealand. In July 2012 the company started its own internet-based ‘radio station’ streamed via the web into its stores throughout New Zealand.
While the Middle East is successful, operations did not go well in Australia, where two stores were initially opened. One store in Sydney closed in November 2010 “due to the rising operational costs, particularly the labour costs, which have risen by more than 50 percent during the past four years”.
The home market in New Zealand, however, is still growing. Just recently a new restaurant opened close to Auckland. The company operates mainly in the North Island but does not have a South Island footprint so far; however, a restaurant in Christchurch is being planned.
The fast-food category in New Zealand (4.4 m inhabitants/largest city: Auckland City with 1.486 m inhabitants) is estimated to be worth around NZ$1.7 bn (€1.07 bn) annually. Leader McDonald’s NZ claims a market share of 40 percent. Their total annual sales are around NZ$680 m (€429 m), which includes 131 stores owned by franchisees, which make up 80 percent of their 160-restaurant network. Burger King runs 80 restaurants and family-owned Wendy’s NZ has 17 outlets, mainly in the North Island.
The market is made up of seven major players including KFC, Pizza Hut and Domino’s. ‘Restaurant Brands’ operates the local outlets of KFC and Pizza Hut and has recently acquired Carl’s JR. Although Roberts concedes that everybody who is in the food business is a competitor – “we are talking about the share of the stomach here” – he sees the company belonging to a different category than that of the big players such as McDonald’s or Burger King. “Our product quality is higher, so are our prices of course, we offer gourmet burgers and in this fast casual segment we are the market leaders in New Zealand,” he argues. Roberts and Mason are always on the lookout for business opportunities. New world markets such as China are at the moment of particular interest. “There’s no doubt that China is moving in a certain direction with a growing middle class,” says Roberts.
“We are interested in expanding globally; that is really the bottom line. We are now regarded as an international brand; to be a global brand by definition you would have to be in 15 or 20 countries. We hope we are there in ten years time.” In Europe, Germany particularly is on the agenda.
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