Investment deal approved but analyst says the US is an extremely tough market to crack.
New Zealand fast-food operator BurgerFuel faces a major challenge as it takes "coals to Newcastle" by expanding into the world's most competitive fast-food market and home of the hamburger - the United States - says a retail analyst.
Shareholders yesterday approved a deal that will see Franchise Brands - an investment firm established by the founders of the Subway sandwich chain, Fred DeLuca and Peter Buck - purchase a 10 per cent stake in the Auckland-based company that operates 55 stores in New Zealand, the Middle East and Australia.
BurgerFuel chief executive Josef Roberts said he hoped the company could use the partnership to boost growth and potentially open 1000 new stores by 2022 as it expanded into the United States, as well as other possible new markets such as China, India, South America and Britain.
Franchise Brands has the option to increase its stake in BurgerFuel, which was founded by Chris Mason in Ponsonby in 1995, to 50 per cent over the next eight years.
Addressing shareholders at a meeting held to approve the partnership, Roberts said the company's current rate of growth - roughly one new store every three weeks - was insufficient.
He told the Business Herald that the target of 1000 new stores was an aspiration rather than a projection, but it wasn't beyond the realms of possibility.
"That's a big number, but potentially this partnership [with Franchise Brands] could help deliver this to us," he said. "It's certainly possible - if you crack the US market there's a thousand stores right there."
The US fast-food market generates annual sales in excess of US$200 billion and is predicted to reach US$237 billion by 2017, according to market research firm Euromonitor.
An analyst with market research firm Coriolis, Tim Morris, said the US was the graveyard of thousands of failed burger chains and an extremely tough market to crack.
"It's like taking coals to Newcastle," he said. "The world is full of US fast-food chains because it is such a competitive market and the five that we see here in New Zealand are the five best ones that battled their way through the wild west and the constant shake-out."
Roberts acknowledged the challenge, telling shareholders the company now had "a real mountain" to climb.
He said he expected securing store locations to be one of the biggest challenges BurgerFuel would face in the US, where the company should open its first stores within six to 12 months.
California, Texas or the northeastern state of Connecticut (where Subway is based) were possible entry points, he said. The New Zealand company is targeting existing Subway franchisees in the US - and other markets - who may want to branch out into a new brand.
"The whole point of this deal is we can access applicable Subway franchisees who are in a position to grow their business beyond a Subway," said Roberts. "So effectively that's a catchment market worldwide, everywhere."
Brian Gaynor, an executive director of major BurgerFuel shareholder Milford Asset Management, told yesterday's meeting he was "delighted" with the Franchise Brands deal. "We believe it creates a lot of opportunity for BurgerFuel," Gaynor said. "It's only day one - it's the execution of this that's going to be the key thing."
BurgerFuel shares, which more than doubled after the announcement of the Franchise Brands deal last month, closed up 5c at $2.65 last night.