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Foreign fast food chains face mixed competition to achieve economies of scale; investment environment conducive in Pakistan

Published on 19th Dec, Edition 51, 2016

 

Interview with Mr. Rafiq Rangoonwala – President, Pakistan Food Association

Profile:

Mr Rafiq Rangoonwala is with the quick service restaurants (QSR) industry since 1980 and has managed several brands like KFC, Hardees, Pizza Hut, Burger King, TGI Fridays, Pizza Express etc. in several countries. Presently, he is the President of Pakistan Food Association as well.

Burger King was introduced in Pakistan in 2014 and started its operations in Karachi and has 20 restaurants spread over six cities, few more to be opened by the end of December 2016 making it one of the fastest growing international brands.

MCR Pakistan (Private) Limited has the master franchise and is a dominant player in the restaurant industry. MCR has franchises of other brands like Pizza Hut and TGI Fridays as well, taking the total number of restaurants close to 100 in 20 plus cities, thus making it the largest restaurant company in the country.

 

PAGE: Your views on the performance of foreign chains of fast food sector:

RAFIQ RANGOONWALA: In my opinion, the foreign fast food chains have mixed results in Pakistan. The ones that came earlier like McDonald’s, Pizza Hut, KFC etc. have first movers advantage thus economy of scale. The new comers are facing few challenges that the older entrants have already gone through, for example:

1. Economy of Scale: Since their volume is low, they pay higher price comparing to the ones with more units on ground. Secondly, the franchisors take longer to approve the local suppliers in most of the cases, therefore they have to import which increases their Cost of Goods Sold.

2. Human Resources: The new entrants, most of the times, have to hire middle management staff of the older brands to run their business as CEOs and COOs. Since the experienced management individuals are few and cost big money and are not easily available, these individuals are not usually more affordable to the new brands.

3. Market Know How: Most of the new entrants have owners who come from other walks of life and do not have required experience of the business dynamics. They either totally dependent on their employees or in some cases keep major decisions in their hands.

4. Contract (Franchise/development agreement): Some contracts that people have signed in my opinion due to lack of knowledge and experience of this business is going to become an impediment to their growth and sustainability.

PAGE: How would you comment on innovation and use of technology in fast food sector of Pakistan?

RAFIQ RANGOONWALA: Technology is playing major role in the QSR industry these days from cooking platform to point of sales and customer response monitoring. It has made major inroads and is helping the business run their affairs more professionally. The innovation part is also very important to keep the brand fresh and relevant. The foreign brands have lead in both innovation and technology due to their size, scale and international presence. Local brands are also doing their best but in my opinion, there is no comparison or competition.

 

PAGE: Your views on competition in fast food sector of Pakistan:

RAFIQ RANGOONWALA: Competition is getting fierce. It is across the board among international brands as well as versus local brands. In some cities local brands are doing very well and are taking market share from their international competitors. It’s going to get more interesting, some brands will have to close their shops due to the reasons mentioned above.

PAGE: What is your take on the government support to the fast food sector in terms of import of raw material, machines and taxation?

RAFIQ RANGOONWALA: In my opinion, government support to the fast food sector is literally next to nothing. On the other hand, there are lots of impediments that are actually discouraging. Fast food sector can help the government in job creation, human resource development, technology transfer, local supplier development while it collects GST in billions. I feel that the appreciation of this sector is missing at the government level.

PAGE: Your views on investment in fast food sector of Pakistan:

RAFIQ RANGOONWALA: Investment in fast food sector is happening despite all the challenges and will continue. Major international brands barring few are already in Pakistan, but there is lot more out there. Pakistan with a population of almost 200 million people, and increasing middle class and two income families provide lots of potential and promise. The frequency of visit and penetration of fast food per million is very low, this provides great opportunity to grow.

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