Foreign market entry strategies for Applebee's restaurant expansion

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.

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).

Untenable Foreign Markets

Virtually any of the emerging nations in Asia, South America and Oceana represent viable targets for expansion; however, countries where alcohol is not allowed or politically unstable regions would probably make poor candidates for the company's market diversification efforts.

Creating an Ethical Business Environment

The company's has a stated corporate social responsibility mandate that guides its business practices at home and abroad that should be followed in any new foreign markets.

Conclusion

The research showed that although the company does not serve them in all of their restaurants, the world is currently Applebee's oyster and is ripe for further expansion of its casual dining business model in many of the world's 200 or so countries with the exceptions noted above. People the world over want to enjoy good food and drinks in a relaxing atmosphere, differing only in regional and local preferences. Therefore, expanding the company's operations into additional foreign markets is a timely and justifiable enterprise.