Foreign market entry and diversification strategies

Foreign Market Entry Strategies for Applebee's

Together with International House of Pancakes, Applebee's is owned by DineEquity, Inc. And competes in the casual dining industry. In recent years, Applebee's International, Inc. And Applebee's Neighborhood Grills & Bars have expanded their operations throughout the United States and into 17 foreign countries. The casual dining business model developed by Applebee's has a proven track record of success in these venues, and further diversification of the company's operations abroad appears to be justified based on the review presented below.

Rationale in Support of Diversification

Today, Applebee's International, Inc. (hereinafter alternatively "Applebee's" or "the company") is owned by DineEquity, Inc., with the acquisition having been completed in November 2007 (Applebee's form 10-Q, 2011). According to DineEquity's most recent annual report (2011), "As of December 31, 2011, the company restaurant operations segment consisted of 177 company-operated Applebee's restaurants. . . . All company-operated restaurants are in the United States" (p. 2). By contrast, Applebee's Neighborhood Grill & Bar is the world's largest casual dining concept in terms of number of restaurants and market share with 2,019 system-wide restaurants as of December 31, 2011 (Form 10-Q, 2011).

The Applebee's Neighborhood Grill & Bar franchises include 1,842 franchisee-operated restaurants (as noted above, 177 of these restaurants are company-operated). These restaurants were located in almost all of the states (49), as well as a United States territory and 15 foreign countries as of December 31, 2011 (Form 10-Q, 2011). According to DineEquity's description, "Each Applebee's restaurant is designed as an attractive, friendly, neighborhood establishment featuring high quality, moderately-priced food, alcoholic and non-alcoholic beverage items, table service and a comfortable atmosphere. Applebee's restaurants appeal to a wide range of customers including young adults, senior citizens and families with children" (Form 10-Q, 2011, p. 5).

These attributes have helped make the company the world's largest casual dining restaurant operation which is no mean feat given the highly competitive nature of the industry. In this regard, Crandall, Vozikis and Sparks emphasize that, "The restaurant industry is one of the most competitive industries in the world today. It can cost a half a million dollars for a restaurant just to open for business" (p. 19). Moreover, the growth of the company-operated stores and the proven track record of success demonstrated by the continuing diversification of the company's operations abroad is all the more noteworthy given the challenges that are involved. For example, Crandall and his associates add that, "Owners work 70 hours a week, including holidays and weekends, and still 10% of them fail. Although the competition is fierce and the success rate for restaurants is extremely low, restaurants keep springing up" (1996, p. 19). Based on this proven track record of success, it just makes good business sense to expand this dining concept into other appropriate foreign countries as discussed further below.

Proposed Diversification Strategy

Although every consumer's dining preferences are unique, the company's casual dining business model has proven successful in a wide range of venues irrespective of regional or cross-cultural differences. For instance, Crandall et al. (1999) emphasize that, "The fastest-growing segment of the restaurant industry is casual dining, where sales are increasing at double-digit rates" (p. 19). The family-friendly atmosphere at the company's restaurants has also been conducive to its growth, as well as Applebee's combination of good food and alcoholic beverages. For instance, Crandall and his colleagues suggest that the casual dining nomenclature ". . . includes such settings as Applebee's where the food comes with a relaxed atmosphere. The concept here is 'not-so-fast' food for aging boomers who may still crave a burger but now want to sit down and eat it from a plate, perhaps with a glass of wine" (p. 19). The company has a proven track record of success in its foreign markets, making further expansions a viable proposition as discussed further below.

Identification and Discussion of Potential Foreign Market and Proposed Entry Strategy

In general, companies have a wide range of entry strategies available to enter foreign markets, including using company-owned restaurants that use locally hired managers or franchises (Prater & Ghosh, 2005). Given the broad-based nature of regional and local differences in beverage and food preferences, the use of local talent is regarded as essential to success in either case (Tavoletti, 2011).

Anticipated Challenges in the Foreign Market and Strategic Responses

The company must be prepared for changes in demand for its products due to economic downturns. In this regard, Crandall et al. (1999) report that, "The implementation of any restaurant-merchandising concept must be managed by appropriately setting prices. In order to do this, restaurant personnel must grasp the idea behind menu-item demand and the elasticity of that demand" (p. 19). In other words, local managers or franchise owners must have a keen understanding of how changes in price will affect current demand as well as how further demand will change as prices are increased or decreased (Crandall et al., 1999).