NEW YORK FRIES HEATS UP IN HONG KONG - Report on Business Magazine
By: Sharda Prashad
Special to Globe and Mail Update
Jay Gould had never been to Hong Kong when, in 2007, he received a call from a potential investor interested in setting up a New York Fries franchise on the Chinese island.
Gould's premium French fry chain had already saturated the Canadian market, and he had begun to branch out into South Korea and the Middle East. He quickly saw the logic. "The big American chains were already there, helping the locals develop a taste for fast food."
And Hong Kong, home to about seven million people, including 550,000 foreigners, had a culture of eating out. Most importantly, it could serve as a gateway to China. The trick was finding a partner who could effectively tap the potential without diluting the brand.
Gould was determined to avoid the mistakes he'd made in Australia 10 years earlier, a foray that floundered when the franchisee chose poor locations and lacked sufficient capital to grow the business. For future foreign operations, the Toronto entrepreneur decided that he would approve locations, sourcing, menus and marketing. Gould also increased the upfront franchise fee to $300,000, with $25,000 refunded if the franchisee opens five more stores. That way, he explains, the franchisee would have to secure substantial funding to get in on the action, and would have an incentive to expand.
Gould bought the Canadian franchise in 1984. Three years later, he decided to acquire the company and eventually grew it into a 200-outlet chain. Hong Kong represented a great opportunity to expand the business even further. The island is an ideal launching pad for markets in southern and eastern China because it has a sophisticated justice system, a large banking industry and many of its businesses pay no corporate taxes, notes Elizabeth Thomson, a Canadian lawyer who helps companies set up in the region.
In May, 2008, Gould settled on Ricky Takasu and Thomas Lau, two former Vancouverites who represented a group of five investors. The two partners did a four-week training course in Toronto, and then two New York Fries executives travelled to Hong Kong to approve the first location - in the tony Harbour City shopping centre - and help arrange supplies of the key ingredients. For now, many items come from abroad - including the potatoes, as Gould couldn't find a local variety of sufficient high-quality. He also approved one change to the recipe to account for local taste buds: The gravy is beef-flavoured but contains no beef, since many locals are vegetarians.
The franchisees opened the second Hong Kong location last fall (another is set to open this summer), and sales to date far exceed the Canadian average, Gould reports. With more South Korean franchises launching in the not-too-distant future, Gould has doubled his visits to Asia. As he learned the hard way, "There is no substitute for actually being there."