Christopher Adams

The Business Herald’s markets and banking reporter.

Kiwi burgers fuel Middle East

BurgerFuel's first store in Iraq, opened this year, is part of the company's plans to extend its franchise business model where the local owners bear most risks. Photo / Supplied
BurgerFuel's first store in Iraq, opened this year, is part of the company's plans to extend its franchise business model where the local owners bear most risks. Photo / Supplied

Through a Western lens, the Middle East tends to get framed as a violent, war-ravaged land populated by terrorists, Koran-bashing zealots and subjugated women.

Now, the media coverage is focused on Syria's brutal crackdown on its rebellious citizens. But there are other sides to the story. The region has some fast-growing economies, with expanding pools of middle-class consumers and youthful populations. Around 65 per cent of Saudis, for example, are aged under 30.

New Zealand has exported primary products to the region for decades, but a new generation of Kiwi firms is moving in. One of them is Auckland-based BurgerFuel, which has steadily built a presence across the Middle East in the past few years.

In January, the listed gourmet burger operator opened its fourth store in Dubai, giving it a total of eight stores across the United Arab Emirates, Saudi Arabia and Iraq.

Additional restaurants will soon open in Abu Dhabi, Egypt, Qatar and Riyadh, the Saudi capital.

The company reported sales of $2.7 million for its Middle Eastern stores in the six months to September 30, a 47-per-cent increase on the same period a year earlier.

The Arab Spring - the wave of uprisings that has toppled dictators from Yemen to Tunisia over the past 15 months - is opening up new opportunities.

In March, BurgerFuel announced it had signed a master licence agreement with a partner in Libya. The troubled North African nation - which deposed its former tyrant, Muammar Gaddafi, only eight months ago - should get its first BurgerFuel store within a year.

Chief executive Josef Roberts says the firm saw the chance to "get in early" after the dictator's downfall.

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.

BurgerFuel doesn't own its Middle East stores. Rather, it grants franchise licences to local firms in the countries where its restaurants operate.

Roberts says franchising is a good way of doing business in such a volatile region, as the franchisees bear most of the risk.

"The local partners do the investment," he says. "BurgerFuel is not investing cash in these countries.

"What we do is find our partners and work with them. They build the stores and we support the brand and the product and make sure things are rolling out well."

As well as collecting royalties on sales, BurgerFuel exports New Zealand beef and locally produced relishes to its stores across the region.

"So long as people are eating our burgers and our franchisees are making money, we've got a viable model," Roberts says.

Steve Jones, New Zealand Trade and Enterprise's Dubai-based trade commissioner for the Middle East and Africa, says BurgerFuel has created a "nightclub alternative" in Saudi Arabia where young people, as a result of strict religious controls, have limited entertainment options.

However, young men and women aren't fraternising together over their burgers and fries - far from it. BurgerFuel's Saudi stores, like all restaurants in the Kingdom, are segregated.

Women and married men eat on one side of a dividing wall while "bachelors" dine in the other. They even enter the restaurant through separate doors.

Roberts says BurgerFuel tries to create a nightclub-style atmosphere as much as it can in Saudi Arabia. They even play music, despite the fact it's banned by the authorities.

BurgerFuel, however, has made the concession of giving its Bastard Burger a different name in Saudi Arabia, the birthplace of Islam.

Western women's rights groups have criticised multi-national fast food operators for "upholding gender apartheid" in that country, but Roberts says he's comfortable with the situation. "We do what it takes," he says. "The numbers are good."

Indeed, the Saudi fast-food market is growing at a blistering pace.

Market research firm Euromonitor expects the total category to be valued at US$4.4 billion ($5.5 billion) by 2015, 30 per cent higher than the US$3.4 billion it was worth in 2010.

By comparison, New Zealand's quick-service restaurant market is valued at around $1.7 billion.

McDonald's already has about 850 stores across the Middle East and plans to open a further 100 this year. There were 320 KFC and Pizza Hut stores operating in Saudi Arabia alone at the end of last year.

"These people [in the Middle East] are looking for Western culture, Western brands and Western ways of life," Roberts says. "For us, I think we've hit it at the right time where we've been able to get in with the right partners, establish our stores and really tune into the market that exists there."

He says other burger businesses operating in the region in the price tier above McDonald's, Burger King and KFC include US chains Fatburger, Johnny Rockets and Shake Shack.

According to its website, Johnny Rockets will also open its first restaurant in Libya in the near future.

BurgerFuel's expansion into the Middle East began in 2008 when the company began searching for new markets as the global financial crisis tightened its grip.

"Countries were starting to have difficulties and at that stage Dubai was still expanding rapidly and was really becoming a stage for products and brands," Roberts says.

"We thought we could target that city, build our first store there and have it as a permanent trade exhibition and build business from there, which is very much what we did."

Revenues earned from its Middle Eastern operations have helped drive the firm, which listed on the alternative NZAX exchange in 2007, into profit.

The company posted a maiden annual net profit of $33,513 early last year, and followed that up with a $224,554 profit in the six months to September 30.

News of the profits has driven big gains in BurgerFuel shares, which have lifted around 150 per cent over the last 12 months and were trading at 90c yesterday.

But that's still short of their $1 listing price, meaning BurgerFuel's first shareholders are still waiting for that elusive return.

Meanwhile, the fast-food sector is not the only industry showing strong growth in the Middle East.

NZTE's Steve Jones says the Arab Spring prompted Gulf Governments to increase their spending on social infrastructure, such as hospitals, in order to keep their citizens happy.

That's bolstering the healthcare and construction industries, he says.

The Middle East is one of the fastest growing markets for Auckland-based Orion Health, which develops technology that allows hospitals to store medical records online giving doctors easy access to their patients' histories.

Chief executive Ian McCrae says the company opened its first office in the region in Dubai's internet City, a technology park and free economic zone, last year.

Orion is looking to open another office in Saudi Arabia this year, he says.

Medical technology manufacturer Fisher & Paykel Healthcare is also benefiting from the high levels of healthcare investment.

Paul Shearer, the company's senior vice-president for sales and marketing, says the firm's sales in the region have grown by about 30 per cent annually over the past two financial years.

"It's a very important market for us," he says, adding that F&P Healthcare now has three staff based in the region.

Roberts says BurgerFuel is eyeing additional markets in the Middle East, including Lebanon and Kuwait.

Chris Mason, who founded the company in the 1990s, is based in Dubai and constantly assessing new opportunities, he says.

"I think the Middle East has got a few more countries for us to mop up and then we can start spreading our wings into other parts of the world."

BurgerFuel's first store in Iraq, opened this year, is part of the company's plans to extend its franchise business model where the local owners bear most risks.

'Sooner rather than later' is timetable for move into China

BurgerFuel is eyeing China as a possible new market.

Speaking from Shanghai, chief executive Josef Roberts said he was assessing whether the company could enter the world's second biggest economy "sooner rather than later".

"It's early days but sometimes you've just got to jump on a plane and have a look," he said.

"There's no doubt that China is moving in a certain direction with a growing middle class market, and those are the kind of countries we're interested in."

BurgerFuel's moves come as other Western fast-food firms also make a push into China.

McDonald's announced last year that it was planning to open another 700 stores in that country by next year.

Yum Brands - the New York-listed owner of KFC, Pizza Hut and Taco Bell - now makes more than 40 per cent of its profits in China, where it opened more than 650 new restaurants last year.

Yum operates more than 4600 stores in around 800 Chinese cities.

Roberts said China could be a challenging market for BurgerFuel, so it was important to find the right partner.

The company is also considering manufacturing its store fit-outs in China, rather than bringing them from New Zealand.

"The high New Zealand dollar is putting pressure on our ability to sell our store fit-outs from New Zealand," Roberts said.

"We would like to be in a position where we can export our store fit-outs from somewhere like China ...

"We'd like to be able to deliver cheaper stores for our partners."

FAST MOVERS

GDP growth 2011

Qatar 18.7 per cent
Iraq 9.6 per cent
Saudi Arabia 6.5 per cent
Kuwait 5.7 per cent
United Arab Emirates 3.3 per cent

Source: CIA World Fact Book

Global burgers: BurgerFuel store numbers

NZ 28
Australia 1
UAE (Dubai) 4
Saudi Arabia 3
Iraq 1

- NZ Herald

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