Focus Brands stays flexible as it grows snack concepts
Cinnabon locations in Russia are more like bakery-cafes and often serve as gathering places with additional seating.
There’s a belief in Japanese culture that a cold stomach makes you sick, and root vegetables such as sweet potatoes will keep you—and your stomach—warm. So when Ken Chen says the cream cheese-filled sweet potato pretzel is the best-selling item at Auntie Anne’s locations in Japan, it makes perfect sense and serves to reinforce a broader international approach of appealing to flavor preferences of the local market.
“We know we have a brand DNA with Auntie Anne’s and Cinnabon,” says Chen, the senior VP and managing director of the Asia Pacific region for Focus Brands, parent company of Auntie Anne’s and Cinnabon. “But we also know that to be successful we may need to adjust.
“While we do offer our core products, right from the beginning we adapt to the local tastes.”
That’s not just corporate speak from Atlanta-based Focus Brands, but a strategy the franchisor supports through its international team operating from posts in more than 12 countries, including China, where Chen is based in Shanghai City. Asia is already the largest international market for Auntie Anne’s, with 520 stores across countries such as Japan, South Korea, India and Indonesia. China in particular is now being targeted for growth, with the country’s first Auntie Anne’s franchisee, Chris Qiao, signing to develop the pretzel concept in Shenzhen in southeastern China.
“With China, we’re really taking the view that it’s not one size fits all,” says Chen, adding he’s soon traveling to Shenzhen for an extensive menu tasting and evaluation in advance of the first store opening in the coming months. That’s true not just of the menu but of franchisee selection, as rather than partner with a major master franchise group, Focus Brands is electing to take a regional approach in China and continue its preferred method of finding mid-sized partners who are directly involved in operations.
“Early in my tenure we looked for the biggest operators, the ones who have multiple brands, but we’ve actually found it’s the more medium-sized groups that have the most success,” says Chen, noting Qiao also owns a local Chinese concept called Gaga Café. “They’re family owned, for the most part, and they grow with us, they appreciate the brands.”
Imelda Lim has 36 Auntie Anne’s stores in Indonesia, with plans to expand.
Mike Kehoe, president of international at Focus Brands, says genuine interest on the part of the franchisee is crucial, and having its concepts as part of a broader food and beverage portfolio usually isn’t the best fit because “one brand always suffers, and it’s not because of the brand itself but because it’s not getting the attention it needs.
“We want them to love our brand and they need to be very interested in the ROI,” says Kehoe. “Of course foodservice experience and infrastructure around that is important, but ideally the model we prefer is a franchisee that’s owning and operating.”
Imelda Lim fits that franchisee profile to a T. A fan of Auntie Anne’s since 1995, when she was a college student near where the first international location opened in Indonesia, Lim is now the franchise owner for the country and has opened 36 stores since 2012 under the PT Pretzelindo Sukses Pratama group name.
“Snacking and bakery is a big part of the Indonesian market and culture,” says Lim, who recently opened the 600th international location for Auntie Anne’s, this one in the capital of Jakarta (the brand has since hit 631 international units). “It’s a proven market for bakery and Auntie Anne’s has a special placement in the market … there’s a proven life cycle through generations.”
Just the right locations
Mall locations and other high-traffic retail areas are the ideal home for an Auntie Anne’s as the goal is to capitalize on the impulse nature of purchasing one of the indulgent pretzels. The location also impacts the consumer’s experience.
“One of the keys to Auntie Anne’s is the freshness of the product,” says Lim. “You want to eat it right away.” Lim also makes a point to find real estate close to entertainment venues, “but not too close to the food court” or full-service restaurants.
“We want locations in between,” she says, to make use of one of Auntie Anne’s best qualities: the aroma. “We want it where they can smell the pretzels.”
While Lim sees opportunity to continue expanding throughout Indonesia, she’s mindful of the biggest challenge that comes with operating in the world’s largest island country: geography.
“Geographically, Indonesia is quite challenging, and the further you get from Jakarta the more costly it becomes just to keep a consistent supply chain,” says Lim, adding she’s working to source more ingredients locally before pushing into other areas.
MegaGroup CEO Oleg Papazov says there’s not much competition for Cinnabon in Russia.
Grappling with geography
Geography is a similar challenge for Oleg Papazov, CEO of Moscow, Russia-based MegaGroup, which has 108 Cinnabon stores and seven Auntie Anne’s units throughout Russia, plus another four Cinnabons in the Belarus capital of Minsk. Because there are often hundreds of miles between major cities, Papazov’s master franchise group deviates from Focus Brands’ more common owner-operator approach and instead has franchisees in some 45 cities, in addition to running a handful of its own stores in Moscow.
“Logistics is a big part of our business,” says Papazov, “so the franchisee needs to be able to support that, be able to warehouse and store products. We have two huge warehouse complexes in Moscow and St. Petersburg and keep three to four months worth” of inventory storage at a time.
Papazov and MegaGroup are rebounding after a turbulent couple of years in 2014 and 2015 that included the closure of about 35 Cinnabon stores as “consumer confidence suffered a lot” in the wake of Western sanctions on Russia and the ruble’s currency free fall.
“All of our imports doubled in prices,” says Papazov, referring to the currency dive in late 2014. “It was hugely challenging,” but 2016 was a positive year and now “we’re back to the same store development growth and we’ll likely be at 135 stores by the end of 2018.”
Cinnabon is a concept without much competition in Russia, says Papazov, and the stores there are more like bakery cafes with lots of seating and menus that appeal to the country’s strong coffee culture.
“What differentiates us from the other coffee shops is the Cinnabon,” he says. “In provincial towns, Cinnabon is the meeting place, and it’s such a unique product, it tastes so good.”
Despite ongoing political tension between the U.S. and Russia, Papazov doesn’t think that situation factors into the snack purchase mindset of local consumers, who he says “just eat what they want to eat.”
“At the end of the day, we’re selling cinnamon rolls, it’s not very politicized,” he says.
Ken Chen, Focus’ Asia Pacific managing director.
Looking to expand other brands
Back in Atlanta, Kehoe talks about the immense potential still out there for both Cinnabon and Auntie Anne’s, noting, “If we’re not winning in those two brands, we’re missing opportunities.”
Focus Brands also has its eye on international growth for other concepts in its portfolio, such as Moe’s Southwest Grill and Schlotzsky’s—but only after it’s paved the way with its proven snack brands.
“Moe’s could be hugely successful in Brazil, for example, but let’s first get established with Cinnabon,” says Kehoe of a concept with 40 percent of its 1,469 stores located outside the U.S.
Understanding that the biggest challenge in international development is “controlling the uncontrollable,” Kehoe says Focus Brands continues to be successful because of the resources it devotes to targeted growth through its regional development teams.
“We try to be as involved and as truly engaged as possible,” he says.
That level of involvement is playing out in China, where Chen recently learned the government doesn’t allow the importation of bleached wheat flour, a main ingredient in the Auntie Anne’s pretzel mix. He’s working with the franchisee to find a local supplier and says ultimately for brands to succeed abroad “it’s a matter of being flexible, literally and figuratively.”