2002 Food Franchise in Thailand

• In 2000, food franchises accounted for 30% or US$356 million of the total franchise market. 60% of it or US$211million was in fast food.

• Just 3 years after the economic crash in mid 1997, the food franchise industry was back to pre-crisis levels in 2000.

• During 2002 – 2003, food franchise turnover is expected to continue to grow at an average rate of 15 - 20% each year.

• Foreign Food Franchise business account for 80% of the total food franchise market.

• Foreign food franchise systems in Thailand can be divided into 3 categories as per the followings:

1. Foreign Food Franchisers open their own company in Thailand and then open their own food outlets (i.e. Pizza Hut from USA).

2. Foreign Food Franchisers appoint one company in Asia (mostly in Singapore or Hong Kong) as a “Sub-Area Licence Development Franchise” taking charge of opening and operating food outlets in this Region (i.e. Delifrance from Singapore).

3. Foreign Food Franchisers joint venture with Thai counterparts then open their own food outlets. (i.e. McDonalds joint ventures with Thai company and jointly open the new company in Thailand named McThai. The McThai company then opens and operates all McDonals outlets throughout Thailand).

• 80% of the Foreign Food Franchise market are from U.S.A. Well-known brand names include: Kentucky Fried Chicken (KFC), McDonalds, A&W, Pizza Hut, Burger King, Starbucks, Swensen's, Dairy Queen, Baskin Robbins, Sizzlers, Mister Donut, Au Bon Pain, Mrs. Fields and Auntie Anne's.

• As of the end of 2000, Thailand had 1,500 fast food and family restaurant outlets with the number expected to increase to 2,000 by the end of 2002.

• Most of the Upper Market Fast Food Franchise are controlled by Foreign brands. There are mainly 2 sub-sectors playing the major roles in the market: – Quick Service Restaurants (QSR) – Full Restaurants

• Foreign QSR could be divided into 2 groups: – Heavy Fastfood which accounts for 80% of the market or approximately US$240 million in 2002(estimate). Heavy Fastfood Franchise (expenditure ranged from Baht180– 230/person/visit) active in the market now are Pizza Hut, Sizzlers, etc. – Light Fastfood which accounts for 20% of the market or approximately US$54 million in 2002 (estimate). Light Fastfood Franchise (expenditure ranged from Baht40–60/person/visit) active in the market at the moment are Mister Donut, Swensen’s Ice-cream, Cinnabon, Auntie Anne's, etc.

• There are also Foreign Food Franchise, whose expenditure is over Baht230/person/visit, called, “Full Restaurants” in this market. This sub sector is well described by the following names: Hard Rock Café, TGIFriday’s, Tony Roma, Oishi Buffet, etc.

• 90% of Foreign QSR and Full Restaurant Franchisers active in Thailand have opened their own companies and food outlets such as Hard Rock Café, TGIFriday’s, Tony Roma, etc.

• The rest 10% are joint ventures with Thai counterparts. Then they jointly founded the company to open and operate their own outlets according to the Foreign Franchisers’ policies. This category includes Sizzlers, Oishi Buffet, etc.

• In summary, Foreign QSR and Full Restaurant Franchises in Thailand are mainly managed and directed by the Foreign Franchisers themselves.

• The potential for new Foreign QSR and Full Restaurant Franchisers to penetrate to the Thai market at the moment can be considered low, due to the involvement of large amount of investment funds for the whole process of marketing i.e. renting good locations (the largest cost for franchise operators), opening & decorating new outlets, promoting brands, etc.

• The investment of 2 major players of Pizza can be considered as a good example. In 2002, Pizza Hut will invest US$43 million to open 15 new outlets, while The Pizza Company (local company used to joint venture with of Pizza Hut) will invest US$44 million to open 10 more outlets.

• Both of them aim at increasing number of outlets, and marketing their Pizza by very aggressive pricing promotion campaigns.

• There are still some success opportunities for QSR’s “Light Fastfood” which have their own characters such as Cinnabon (Cinnamon Buns), Auntie Anne's (Pretzels), etc. However, according to the Thai Franchise Association, authentic Italian Gelato could be well considered in this category as well.

• The market of “Light Fastfood” is still going well because average expenditures are perceived to be affordable (only Baht40–60/person/visit), it has a relatively low cost of production, and only small space outlets in the good locations mostly in the “Modern Trade” market places are required.

• The key elements to the success in Food Franchise Business are Management, Service, Food Quality, Locations, Price, Image, acceptance by consumers, respectively.

• Food Franchise Business in Thailand are still in the development stage since they account for only 4% of the whole food industry. This figure is comparatively small compared to Malaysia (9%), the Philippines (20%) and Singapore (20%).

• Firstly, most Foreign Franchisers gather information of local companies interested to be part of Foreign Food Franchise Business from the Thai Franchise Association, the Thai Chamber of Commerce, etc.

• Then, they pay visits to discuss for potential opportunities with interested and qualified Thai parties.

• Finally, they study the market in terms of cost structures: raw materials, locations, construction, promotion, etc. in order to choose the proper franchise system according to their product positioning in the Thai market.

• Bangkok, a capital city which is home to over 12 million people, is a prime area that all franchises should target. The next locations should be major cities such as Pattaya, Phuket, Hadyai, Chiengmai, Nakorn Ratchasrima, and Khon Khen.

• From a legal perspective, the franchising industry does not fall under any special legislation and legal franchising issues are dealt with under civil and commercial laws.

• The law is neutral about dispute settlement procedures, leaving agreement for the parties to decide, preferably in writing, at the time of signing the contract.