The expansion of White Spot Restaurants into Asia began with a moment of clarity.
A half-decade ago, the Vancouver chain's executives detected an odd sales spike in mushroom burgers. The Asian ex-pat university student population turned out to be responsible for the sales pattern. There was something magic in the combination of mushrooms, sweet buns and tangy relish that appealed to Asian palates.
The aha moment: If they like it here, they'll love it there.
Thus began White Spot's leap into Asia. Its success underscores a vital point about the Lower Mainland of British Columbia: It's not just the closest part of Canada to Asia. In many ways, it's the closest part of Asia to Canada.
White Spot president Warren Erhart says control of the brand has been an instrumental factor in the expansion. The taste of the burger needed to be the same in Bangkok as in Burnaby.
Mr. Erhart joined White Spot Restaurants in 1990 as division general manager. Three years later he was appointed president. He is responsible for the development of the Triple O's concept as well as the expansion of the White Spot brand beyond British Columbia into Alberta and overseas markets. He instigated Triple O's partnership with Chevron and BC Ferries, which in 2003 received Newsmaker of the Year award for outstanding partnership in the Food Service and Hospitality Industry.
Mr. Erhart joined us earlier and took your questions.
Dave Michaels, globeandmail.com: Hi Mr. Erhart, and thanks for joining us today. We have a few questions ready, so let's get right to them.
From Andrea H., Winnipeg: Mr. Erhart, will you be expanding White Spot further into Canada?
Warren Erhart: Our growth has been non-exclusive. This year we will be opening 10 restaurants in total, of which 2 are in Asia. We are continuing to research other domestic markets along with international opportunities.
From Tim Marko: While travelling in Hong Kong I saw a Triple O's restaurant near the IFC building and heard that it is continually full of patrons. Can you build enough critical mass with this brand overseas to offset the investment cost? How challenging is it to build the brand and keep costs under control in new markets?
Warren Erhart: We have successfully built the brand in Hong Kong to offset the infrastructure costs to support the franchisee successfully. There is more of a cost versus a benefit as you are building up critical mass, but it does come to point in time where from a franchisor's point of view that it becomes profitable. There is no question there are upfront costs that have to be budgeted for in the planning process.
As far as new markets are concerned, they have to be analyzed on a country-by-country basis as different countries have different rules that need to be considered. For example, in some countries (Thailand and South Korea) there are protectionist policies regarding importing of beef products. New markets are no different when it comes to controlling costs than in the domestic market, however this is another reason why we led with our Triple O's brand (having fewer products and more simplified system).
Dave Michaels, globeandmail.com: Franchising can have its pitfalls. What sort of safeguards do you have to ensure White Spot's standards are being met at the franchises, especially when they are so far away?
Warren Erhart: We have "seasoned" supervision for support and compliance that is based in Asia. We do operations reviews and have a Mystery Shop program in our restaurants. In addition we perform regular plant inspections at our food suppliers.
From Giovanni: Hello Mr. Erhart. First, thank you for taking the time to answer my questions. For someone like me, studying and eager to have a career in international business, I am curious to know about the following:
1. Where was your first outlet in Asia and how did you make that decision?
2. How did your first entry into Asia work out for you in your whole Asian expansion?
I look forward to your response. Thanks.
Warren Erhart: Our first Asian location was in the Admiralty District of Hong Kong in Pacific Place. It is in a high-end food court named Great. It opened on Nov. 20, 2003. Our franchisees who have a strong understanding of the real estate market in Hong Kong selected this site, as it was considered a "triple A" location in Hong Kong. When entering a new market it is important to try and find the best possible site available - it is all about "location, location, location."
Success breeds success. Our first was very successful and the momentum of this success helped us to grow more units in Hong Kong and other countries.
Pacific Place is still our No. 1 sales-volume location in the entire Triple O's system.
Dave Michaels, globeandmail.com: Once your first restaurant opened in Asia, were any tweaks necessary to the menu?
Warren Erhart: Not initially, but we have since added a number of menu items that complement the system and the tastes of the local market. Specifically in British Columbia we have a very popular salmon burger, but in Hong Kong white fish is more popular so we recently created a fish burger made with cod from New Zealand. We developed the recipe in B.C. and sourced the product in Hong Kong.
From David Ariagno: What is your typical fee structure, and what percentage of materials do you provide (i.e. meats, paper goods, condiments) to overseas licensees?
Warren Erhart: Our standard fee structure for Triple O's is as follows:
Franchise fee = $40,000
Royalty fee = 6 per cent
The cost of all food and paper products is born by the franchisee. We negotiate supply agreements to ensure best possible pricing to our high quality standards.
We currently ship our relish, pickles and beef gravy from Vancouver. These ingredients were difficult to replicate in Hong Kong.
Dave Michaels, globeandmail.com: In a franchise situation, sometimes the parent company handles marketing, sometimes it's up to the individual stores. Did your company do any marketing in Asia? If so, who handled it?
Warren Erhart: In the Canadian Triple O's system, we have a marketing fund which all franchisees contribute to. In addition all franchisees are to spend 1 per cent in their local markets.
In Asia, the franchisees are responsible for spending a percentage of their sales in brand and local marketing as per our agreement. We provide assistance with "off the shelf" and specific location marketing programs to insure consistency for brand look and feel. When we first entered the Asian market we did do some investment spending on public relations marketing.
Dave Michaels, globeandmail.com: Have any entrepreneurs from further east in Canada, outside your business area, approached you with a franchising opportunity? Is this something you have explored in the past?
Warren Erhart: From time to time we do get approached by Canadian entrepreneurs who are interested in building Triple O's in other markets. We really believe that this is a brand that can grow both internationally and domestically. If the right situation presents itself we would be very interested. We look forward to becoming a national brand.
Dave Michaels, globeandmail.com: Asian cultures tend to lean more toward vegetarianism. Have your outlets there given that any consideration, or added any vegetarian items?
Warren Erhart: We introduced salads as part of our core menu in Hong Kong and we also have a Veggie Burger. The Veggie burger makes up 4.5 per cent of the entree sales mix in Asia compared to 3.5 per cent in Canada.
An interesting point: In Canada our top menu item is the Bacon Cheddar Burger, but in Asia it is the Mushroom Burger.
Dave Michaels, globeandmail.com: This likely depends on the market, but how have you reached price points in Asia? Discretionary incomes are likely lower there. How do you find the sweet spot?
Warren Erhart: We always leave pricing to the discretion of the franchisee. We work with the franchisee to do a competitive analysis of the market and check for price sensitivity. We do offer a premium experience, and our quality will command a higher price point.
In developing the business model it is important to look at our three biggest costs - food, labour and facility. We have found that the food costs are quite consistent between Canada and the Asian markets. Although in Canada, our labour costs tend to be higher and facility costs lower in our business model.
Dave Michaels, globeandmail.com: I saved the best question for last. What's your favourite item on the Triple O's (or White Spot) menu?
Warren Erhart: You had to end with a tough question. How do you chose your favourite child? You love them all the same!
Seriously, at Triple O's I am a huge Bacon Cheddar Burger fan.
I get my burger "fixes" at Triple O's, but my current favourite item at White Spot is the Asian Chicken Salad.
Dave MIchaels, globeandmail.com: Thanks, Mr. Erhart, for spending time with us today. And thanks to our readers, too.