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Pollo Campero in the USA Esteban R. Brenes

Strategy Department, INCAE Business School, Alajuela, Costa Rica

Amitava Chattopadyay INSEAD Business School, Singapore, Singapore

Luciano Ciravegna International Development Institute, King’s College London, London, UK and

INCAE Business School, Alajuela, Costa Rica, and

Daniel Montoya INCAE Business School, Alajuela, Costa Rica

Abstract

Purpose – This case illustrates the challenges that Pollo Campero, a Guatemalan fast food company, faces when expanding in the US market. The purpose of this paper is to stimulate a discussion about consumer segmentation, competitive strategy and the internationalization of emerging market multinationals. Design/methodology/approach – The case study is based on primary research conducted in conjunction with the company, including interviews with senior management and an ample review of documents. Secondary sources have been used to gather information about the industry, the US market and consumer segments. Findings – The case illustrates that Pollo Campero was initially very successful in the US market because it appealed to consumers of Central American origin. It found it harder to appeal to a broader range of US consumers, who had no emotional attachment to the brand. Originality/value – This is a complex, in-depth case study suitable for use with advanced MBA students and practitioners. Depending on the aims of the instructor, different aspects of the case can be highlighted and it can be used in a competitive strategy class as well as in a corporate strategy class or a strategic marketing course. It can be used in a class focussing on brand, positioning and consumer segmentation, a class on competitive strategy in the fast food industry, or a class on the international strategy of emerging market multinationals.

Keywords Business strategy, USA, International marketing strategy, Emerging market multinationals, Fast food industry, Internationalization

Paper type Case study

On a hot, steamy summer afternoon in Dallas, Roberto Denegri, President and COO of Campero USA (CUSA) – a wholly-owned subsidiary of Guatemalan fast-food company Pollo Campero Corporation – sat in his air-conditioned office in the Lincoln Centre Tower II, grappling with the question of what CUSA’s growth strategy should be over the next years. Pollo Campero Corporation entered the US in 2002 with a single restaurant in Los Angeles (LA). Since then, it had expanded, largely because of its popularity with customers of Central American origin. In 2007, the Board of Directors of Pollo Campero Corporation moved CUSA from Guatemala to Dallas to better manage its operations in the US Pollo Campero had an ambitious goal for CUSA – to open approximately 300 restaurants by 2014. Now, in 2010, the number of Pollo Campero restaurants had reached 48, covering 12 states and Washington, DC – not a bad result per se, but not on pace with the goals set in 2007. The market research report sitting on Denegri’s desk provided a clear picture of industry trends and consumer segments in the US market. Pollo Campero’s Board of Directors had stated

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0025-1747.htm

Management Decision Vol. 52 No. 9, 2014

pp. 1649-1679 r Emerald Group Publishing Limited

0025-1747 DOI 10.1108/MD-09-2013-0498

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Pollo Campero in the USA

very clearly to Denegri that it expected CUSA to continue to be a key growth driver for the corporation.

Denegri needed to evaluate the situation and prepare his recommendations for the next Board meeting, happening in two weeks. Among other things, Denegri was asking himself if it was time to change the way their brand and their company were positioned in the USA.

Pollo Campero Pollo Campero, loosely translated to “country chicken,” was founded in Guatemala in 1971. It offered customers a new fast-food concept in terms of flavor: a tender, juicy, crispy chicken, marinated with a mix of spices highlighting Central American flavors. In 1972, Pollo Campero expanded to neighboring El Salvador, taking advantage of similarities in consumer tastes. By 1982, the company had 18 restaurants in Guatemala and seven in El Salvador. In 1992, the company opened its first restaurant in Honduras, where it had also acquired a poultry farm. Guatemalans, Salvadorians and Hondurans traveled frequently throughout Central America, which helped Pollo Campero become a well-known brand in the region. In 1997, Pollo Campero developed a franchise program, which allowed the company to open stores in Panama and later in Nicaragua, Costa Rica, Ecuador and Mexico.

Between 1997 and 2000, Campero became the most internationalized Latin American fast-food chain, with 143 restaurants and nearly 6,000 employees. By 2001, Pollo Campero had decided to enter the USA, encouraged by the large number of people buying their fried chicken in El Salvador and Guatemala to bring to their relatives in the USA. Pollo Campero Corporation CEO Juan José Gutierrez said[1]:

When boarding a flight from El Salvador or Guatemala to Los Angeles and other destinations, you could smell the chicken all the way, so the Campero management team, further motivated by suggestions from airline managers, resolved to take this opportunity to offer their product to this market niche, and we did so through franchisees just as we had been doing in Latin American countries.

In 2002, Pollo Campero opened its first US restaurant in LA through a franchise agreement with ADIR Restaurants Corp., a sister company of La Curacao. La Curacao sold consumer electronics, such as home computers and digital cameras, and home appliances. It was an ideal partner for Pollo Campero because it was based in LA, the US city with the largest number of Central Americans and, thus, catered specifically to that population. For example, La Curacao provided export delivery services to Guatemala and El Salvador. ADIR became a master developer in 2001 and was the only sub-franchisor licensed by Pollo Campero to offer sub-franchises in California, Washington, Oregon, Nevada, New Mexico and Arizona (Campero USA Corp, 2011).

The restaurant openings broke sales records in the industry, hitting $1 million in its first 22 days (Arndt, 2010). Juan José Gutierrez commented:

People came to the newly-opened Pollo Campero and for several months, especially at the beginning, the restaurant was full of customers. That was very encouraging. We found that more people than normal came because some drove from far off places to visit, but only at the opening time. Of course, after that they did return but just occasionally; therefore, we had to keep with the Central Americans living near the restaurant.

Campero opened stores in other cities and states, especially those with large settlements of Central Americans, such as DC, Texas and New York. In 2003,

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Pollo Campero created CUSA, an organizational unit located in Guatemala, to manage the operations in the USA. Operations Manager of CUSA Rodolfo Bianchini said:

Restaurants required someone to break in hands and make them ready for opening, so we stayed between two and three weeks working on them. We spent about half of the year in the United States.

Between 2002 and 2007, Pollo Campero opened 30 restaurants, targeting mainly the Central Americans living in the USA. During the opening weeks, sales ranged between US $10,000 and $50,000 per day in each restaurant, which, according to Denegri, was above the average sales of competitors.

In 2007, the Board of Directors established a set of strategic objectives for the future. Its objectives for the US market were to be among the top 50 quick-service restaurants (QSRs) in terms of average annual sales, and to open approximately 300 restaurants by 2014. In order to facilitate learning about the US market, the Board of Directors moved CUSA to Dallas. Dallas was chosen because of its proximity to Guatemala (a three-hour flight) and because it was a strategic location for operations’ logistics. Roberto Denegri, a manager with previous experience in the fast-food industry, was appointed President and COO of CUSA, together with a finance director, an operations manager and a person in charge of granting franchises. Denegri hired four new managers to improve the marketing and operations of CUSA. Denegri had to report to Juan José Gutierrez, CEO of Pollo Campero Corporation, and to the Board of Directors. The Board gave Denegri the responsibility for ensuring that CUSA’s strategy was suited to achieving the long-term objectives they had set (see Figure 1).

Initially, the restaurants in the USA were a simple copy-paste of its offering in Central America. Waiters and cashiers spoke better Spanish than English since many of them were Central Americans. In order to test new concepts and improve CUSA’s organizational learning in the US market, Denegri decided to open some company- owned restaurants. In 2007, CUSA opened two new restaurants in Dallas and bought back 50 percent of a restaurant established in 2004 in a joint venture with a franchisee. Dallas had 449,600 households with an average of 2.6 members and an average household income of US $41,800. The Hispanic population accounted for 42.4 percent

Source: Pollo Campero USA Corp.

CEO

President/COO

Admin/Receptionist

Sr. Director of Treasury and Accounting

Sr. Director of Company Ops (Procurement) Marketing VP

Sr. Marketing Manager

Marketing Manager

Field Marketing Specialist

Director of Operations Services

Director of Training

Training Coordinator

EVP of Franchise Operations

Director of Licensing

Franchise Business Consultant

Director of Development

Paralegal

Human Resources

Accounting Supervisor

Bookkeeper

Director of QA

Figure 1. Pollo Campero USA Corp. (CUSA) organization chart

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Pollo Campero in the USA

of the entire population, most from Mexico and Central America, and whites and blacks accounted for 28.8 and 25 percent, respectively. Neighboring cities, such as Irving and Farmer Branch, also had large Hispanic communities.

By late 2007, there were 36 restaurants under the name of Pollo Campero. The increase in restaurant openings was the result of an increased number of franchisees (from seven to 20), each responsible for a smaller territory of three to five restaurants in smaller geographical areas. The franchise opportunities were offered under a disclosure document and were only for the development and operation of Pollo Campero restaurants outside of the ADIR territory and within the USA. In November 2007, the company also entered into an agreement with Wal-Mart to run Pollo Campero restaurants inside Wal-Mart stores. It was a great opportunity to open stores nationwide. Guiselle Ruiz, Vice-president and Regional General Manager of Wal-Mart Stores, USA, said:

Our customers today come from many different backgrounds and all walks of life. Many are Latin American, and they are among our fastest-growing markets. It stands to reason that our offerings reflect the needs of the communities we serve. We know Pollo Campero will add value to Wal-Mart with its premium Latin American restaurant brand (Marketwire, 2007).

Lorenzo L�opez, Wal-Mart Stores Inc. spokesman, stated: “It’s kind of like when we’re looking at salsa versus ketchup and tortillas versus bread” (Daily News, 2008).

Between 2008 and 2009, CUSA achieved an improvement in its financial results (see Tables I and II).

However, by June 2010, the growth rate defined during the 2007 strategy session and the goal of 300 restaurants by 2014, were not being accomplished. Pollo Campero had only 48 stores in 12 states and Washington, DC (see Table III).

Pollo Campero restaurants feature brightly colored booths with Latin authenticity, and 50 percent of them have drive-through windows (see Plate 1). The US menu included fried plantains and milky horchata, drinks from its original menu, but also uniquely American dishes such as grilled chicken and mashed potatoes, aimed to appeal to US consumers at large (see Figure 2). The cooking process of chicken, marinated with over 20 ingredients, including spices native to Central America and breaded by hand, made the flavor penetrate to the bone. The chicken was juicy and free of trans-fat, differentiating Campero from other restaurants. The beans cooked and served at the restaurants resulted from a blend of nine ingredients.

Campero’s prices varied all across the USA. On average, they tended to be on par with KFC and a little less than Popeye’s. However, both of those brands invested large sums on TV advertising, generating a stronger value perception with consumers. Campero, lacking the resources to compete with KFC and Popeye’s through advertising, introduced new promotions. It imitated its competitors by offering eight pieces of chicken for $7.99 and by adding snacks to the menu with prices from US $0.99 for products such as a tortilla with chicken, which attracted new consumers. CUSA soon realized that the copy-paste approach would not work everywhere. In Central America, Pollo Campero is well recognized. In the USA, the name was totally unfamiliar, except to customers with Central American roots. Rodolfo Bianchini clearly appreciated this and said with regard to the restaurant in Wal-Mart:

Most people didn’t know the brand. However, we are simply a “chicken” concept. So people came over and tried the product and in most cases they ended up very pleased (Daily News, 2008).

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2009 2008

Revenues Royalties 2,856,503.00 2,497,954.00 Store development fees 1,409,063.00 243,750.00 Franchise fees 80,000.00 70,000.00 Others 98,923.00 70,095.00

Total revenues 4,444,489.00 2,881,799.00 Expenses

General and administrative expenses 1,204,765.00 1,391,182.00 Advertising and marketing 136,139.00 499,624.00 Professional fees 784,611.00 1,553,020.00 Project development 36,959.00 321,799.00 Salaries and payroll taxes 3,412,549.00 3,505,202.00 Travel 561,183.00 723,917.00

Total operating expenses 6,136,206.00 7,994,744.00 Loss before provision for income taxes – – Net loss (1,691,717.00) (5,112,945.00)

Source: Campero USA Corp. (2011, p. 365) Table II.

Statement of operations

2009 2008

Assets Current assets

Cash and cash equivalents 414,597.00 1,217,233.00 Accounts receivable, net of allowance for doubtful accounts of approximately US $ 67,000 and US $38,000 as of June 30, 2009 and 2008, respectively 219,967.00 330,819.00 Due from related parties and others 494,482.00 307,130.00 Prepaid expenses and other current assets 64,441.00 127,275.00

Total current assets 1,193,487.00 1,982,457.00 Restricted cash 267,317.00 255,000.00 Note receivable, franchisee 1,080,000.00 – Property and equipment, net 533,738.00 347,656.00 Due from related parties, less current portion 608,722.00 1,182,205.00 Deposits and other assets 60,905.00 24,071.00 Total assets 3,744,169.00 3,791,389.00 Liabilities and stockholder’s deficit Current liabilities

Accounts payable 202,299.00 727,518.00 Accrued expenses 458,301.00 745,105.00 Deferred revenue 768,750.00 1,220,000.00 Due to related parties – current portion 77,928.00 –

Total current liabilities 1,507,278.00 2,692,623.00 Due to related parties, less current portion 2,309,498.00 1,080,243.00 Deferred revenue 839,687.00 1,240,000.00 Total liabilities 4,656,463.00 5,012,866.00 Commitments and contingencies Stockholder’s deficit (913,294.00) (1,221,477.00) Total liabilities and stockholder’s deficit 3,743,169.00 3,791,389.00

Source: Campero USA Corp. (2011, p. 365)

Table I. Pollo Campero USA corp.

(CUSA) 2008 and 2008 balance sheet

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Pollo Campero in the USA

Less than 1 percent of the US population identified themselves as Central Americans. Their family income did not exceed $40,000 per year. They visited QSRs about five times per week, spending between US $22 and US $26 per week. Attracting Central Americans to its restaurants had been easy, but their small numbers limited the prospect for Campero’s future growth in the US Denegri realized that in order to decide which strategy to adopt, CUSA needed to understand how the broader set of US consumers perceived Pollo Campero and its main competitors: how did they perceive the name, the facilities, the products, and the experience? Were they comfortable in different environments, such as the “Latin” environment of Campero? What did they expect from going into a Campero restaurant? Was it feasible to target mainstream Americans? Or were there other groups that CUSA could target? To analyze the engagement of customers, Denegri used an analytic framework provided by an external consulting firm (see Figure 3).

State Year

Outlets at

beginning

of year

Outlets

opened Terminations

Non-

renewals

Re-acquired

by franchisor

Ceased

operations -

other reasons

Outlets at

year end

Arizona 2008 0 0 0 0 0 0 0

2009 0 1 0 0 0 0 1

California 2008 15 3 0 0 0 1 17

2009 17 1 0 0 0 4 14

Florida 2008 0 1 0 0 0 0 1

2009 1 2 0 0 0 0 3

Georgia 2008 0 1 0 0 0 0 1

2009 1 2 0 0 0 0 3

Illinois 2008 1 1 0 0 0 0 2

2009 2 0 0 0 0 0 2

Maryland 2008 3 0 0 0 0 0 3

2009 3 1 0 0 0 0 4

Massachusetts 2008 0 0 0 0 0 0 0

2009 0 2 0 0 0 0 2

North Carolina 2008 0 0 0 0 0 0 0

2009 0 0 0 0 0 0 0

New Jersey 2008 0 0 0 0 0 0 0

2009 0 1 0 0 0 0 1

New York 2008 2 2 0 0 0 0 4

2009 4 4 0 0 0 2 6

Rhode Island 2008 0 0 0 0 0 0 0

2009 0 1 0 0 0 0 1

South Carolina 2008 1 0 0 0 0 0 1

2009 1 0 0 0 0 0 1

Texas 2008 5 0 0 0 0 1 4

2009 4 3 0 0 0 0 7

Virginia 2008 2 0 0 0 0 0 2

2009 2 1 0 0 0 0 3

Washington DC 2008 1 0 0 0 0 0 1

2009 1 0 0 0 0 0 1

Total USA 2008 30 8 0 0 0 2 36

2009 36 19 0 0 0 6 48

Source: Campero USA Corp. (2011, p. 365)

Table III. Campero chicken restaurants in the USA

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The core customers, Central Americans, focussed on the quality of the food and overlooked other components of the experience because their cultural heritage strongly connected them with the brand. However, new consumers were not familiar with Pollo Campero and lacked this clear connection. Brand elements, such as the name and the logo, were unclear and confusing to them. The consultants from ABC Consulting Co.[2], a firm hired by CUSA in 2009 to help it change its strategy, mentioned that “the little chicken” in the logo was infantile, cheap and did not reflect the food quality of Campero. In addition, the logo typography had some cowboy features; its shape was similar to that of many of their competitors; and, like Campero, some competitors also used the Spanish word “Pollo” in their names.

According to the market research carried out by ABC Consulting Co., the atmosphere of Pollo Campero attracted Central Americans and, in some cases, Hispanics. They suggested to Denegri that such a Hispanic environment may not be appealing to non-Hispanic Americans, who comprised the largest percentage of population and had the most purchasing power (see Figure 4).

In addition to its foray into the USA, Pollo Campero Corporation crossed the Atlantic in 2006 to open a restaurant in Spain and then one in Andorra. It did so through a joint venture between Pollo Campero Corporation and Agrolimen, a Spanish business group, through its affiliate company Eat Out Group, owner of the Pans and Company chain, ranking number one in bocadillo/sandwich sales in Spain. Their franchise in Central America was run by Pollo Campero Corporation. In the following years, the group entered China, Indonesia, Bahrain and India through joint ventures with local businesses. By the summer of 2012, Pollo Campero Corporation accounted for US $400 million. Revenue came from the more than 80 million customers it served yearly in 14 countries (see Table IV) through a network of some 330þ restaurants. The Corporation had three divisions: The Latam division based in Guatemala ran the Latin American business; CUSA ran the USA out of the Dallas HQ; and a third division called Campero International Franchising ran the rest of the world from its headquarters in Spain.

Source: Pollo Campero USA Corp.

Plate 1. Restaurant

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Pollo Campero in the USA

http://www.emeraldinsight.com/action/showImage?doi=10.1108/MD-09-2013-0498&iName=master.img-003.jpg&w=336&h=180

Franchise agreement Through its franchises, CUSA allowed franchisees to operate Pollo Campero stores that sold the unique Pollo Campero chicken products. Franchisees signed a Store Development Agreement to develop a single specific location or a network of Pollo Campero stores within a targeted area under the Store Development Program. A network typically consisted of three or more stores. In addition to the typical Pollo Campero Store, CUSA granted to qualified prospects the right to operate a Pollo Campero “Express Unit.” An Express Unit was suited to some urban areas and special venues, where conditions required a more-concise format, such as inside shopping malls and airports, and could include special distribution opportunities offered to franchisees (Campero USA Corp., 2011).

All Pollo Campero stores had to be developed and operated to meet CUSA specifications and standards. The Franchise Agreement was limited to specific location(s), and CUSA had the right to set up restaurants or issue franchises aiming to

Source: Pollo Campero USA Corp.

Figure 2. Pollo campero menu

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capture customers in the same geographic area, subject to the limited territory granted in a Store Development Agreement. The specifications and standards included a distinctive exterior and interior design, decor, color and identification schemes and furnishings; special menu items; the unique flavor of their fried chicken, marinated and breaded with a secret formula; standards, specifications and operation procedures; quality of products and services offered; management programs; training and assistance; and marketing and promotional programs, all of which CUSA could change, supplement, and further develop.

Source: InterBrand Design Forum, “Segmentation and Brand Strategy", Pollo Campero, June 18, 2010

Affinity

Enabling

Tr a n sa

ct io

n a l

In te

rp e rs

o n

a l

Emotional Higher Social Value Helps Define Me Attachment Based on Extroverted Wants

General Broad Impersonal Product-Driven Mass

Functional Lower Social Value Works With Me Attachment Based on Introverted Needs

Specific, Specialized Deep

Personal Service-Driven

Unique

Figure 3. Framework of analysis:

engagement

Source: United States Census Bureau (2011b)

Population of largest group

DC 10,000,000 5,000,000 1,000,000 100,000

Hispanic origin group

Cuban Dominican Mexican Puerto Rican Salvadoran

00 100 Miles

Source: U.S. Census Bureau, 2010 Census Summary File l.

0 100 Miles 50 Miles

Figure 4. Distribution of hispanic

population in the USA

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Pollo Campero in the USA

CUSA had three different store formats. The Free-Standing Pollo Campero retail stores did not share any common walls with a third party and had their own parking areas. They generally required a lot ranging from 1,400 to 4,000 m2 (15,000-43,000 sq. ft.) and a building ranging from 170 to 260 m

2 (1,800-2,800 sq. ft.) in size. The total investment

required to begin operation of a Free-Standing location ranged between $826,537 and $1,652,500. The second format, In-Line Pollo Campero stores were mid-sized restaurants located in commercial properties sharing a common wall with a third party, such as in a strip mall. They were generally 185 to 300 m2 (2,000-3,200 sq. ft.) in size. Total investment for an In-Line location ranged from $651,950 to $1,433,500. Finally, the Express Pollo Campero units were smaller restaurants, such as a counter at a food court in a shopping mall. They were generally from 65 to 150 m2

(700-1,600 sq. ft.) in size. Total investment for this format ranged from $312,421 to $679,500.

These investment ranges included a $40,000 initial franchise fee, and if the franchisee leased or subleased the premises from CUSA, $5,000 for the security deposit and prepaid rental charges would be required, for a total of $45,000 in initial fees that had to be paid to CUSA or its affiliates before the franchisee opened for business (see Table V). Two others fees, the “Continuing Franchise Fee” and the “Continuing Advertising Fee,” each amounting to 5.0 percent of gross sales, had to be paid weekly. Monitoring of sales and operating costs at different types of stores showed variability in performance between the eastern and western regions of the USA (see Tables VI and VII).

US industry and competitive landscape In 2009, there were over 945,000 food-service outlets in the USA employing 12.7 million people. The National Restaurant Association (NRA) projected a 2.5 percent increase in industry revenues in 2010 over 2009, reaching US $580 billion (see Table VIII). Stores were categorized by their nature as either commercial sites, accounting for 91.4 percent of revenues, or non-commercial ones, accounting for 8.6 percent (see Table IX).

Franchises Country Stores

Affiliates Pollo Campero, S.A (“PC”), Guatemala 139 Pollo Campero de El Salvador, S.A. de C.V. (“PCES”) El Salvador 89 Pollo Campero, S.A (“PC”), Honduras 15 Varesse, S.A. de C.V. (“VAR”) Mexico 3 Inversiones 12,995, S.A. Costa Rica 19 Campero International, Corp. (“CIC”), Nicaragua 5 Campero USA Corp. (CUSA) USA 50 Pollo Campero Iberia, (“PC Iberia”) Spain 8 Pollo Campero Iberia, (“PC Iberia”) Andorra 1 Pollo Campero Iberia, (“PC Iberia”) Indonesia 3 Pollo Campero Iberia, (“PC Iberia”) Bahrain 2 Pollo Campero Iberia, (“PC Iberia”) Ecuador 5 Pollo Campero Iberia, (“PC Iberia”) India 2 Pollo Campero Iberia, (“PC Iberia”) UK 1 Pollo Campero of Canada, Inc. Canada 0

Source: Campero USA Corp. (2011, p. 365)

Table IV. Pollo Campero global expansion

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MD 52,9

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0 0 -$

5 0 ,0

0 0

L u

m p

su m

B ef

o re

o p

en in

g In

su ra

n ce

co m

p a n

y /a

g en

t T

ra v

el a n

d li

v in

g ex

p en

se s

w h

il e

tr a in

in g

$ 2 ,0

0 0 -$

1 5 ,0

0 0

L u

m p

su m

A s

in cu

rr ed

, d

u ri

n g

tr a in

in g

A ir

li n

es ,

re n

ta l

ca r

a g

en ci

es ,

re st

a u

ra n

ts ,

h o te

ls ,

et c.

M a rk

et in

g st

a rt

-u p

ex p

en d

it u

re $ 2 0 ,0

0 0

L u

m p

su m

A s

p er

co n

tr a ct

, b

ef o

re o p

en in

g T

h ir

d p

a rt

ie s,

a p

p ro

v ed

su p

p li

er s

A d

d it

io n

a l

fu n

d s

fo r

th e

fi rs

t si

x m

o n

th s

o f

o p

er a ti

o n

$ 3 6 ,0

0 0 -$

5 0 ,0

0 0

L u

m p

su m

M o n

th ly

a n

d a s

in cu

rr ed

T h

ir d

p a rt

ie s

a n

d em

p lo

y ee

T o ta

ls $ 8 2 6 ,5

3 7 -$

1 ,6

5 2 ,5

0 0

D o es

n o t

in cl

u d

e re

a l

es ta

te co

st s

In -l in

e st

o re

s es

ti m

a te

in it

ia l

in v es

tm en

In it

ia l

fe e

fr a n

ch is

e fe

e $ 4 0 ,0

0 0

L u

m p

su m

o r

p er

p a y

m en

t sc

h ed

u le

fo r

q u

a li

fi ed

in ce

n ti

v e

p ro

g ra

m s

G en

er a ll

y p

a id

a t

ti m

e o f

ex ec

u ti

o n

o f

th e

S to

re D

ev el

o p

m en

t A

g re

em en

t (“

S D

A ”)

C a m

p er

o U

S A

C o

rp .

R ea

l p

ro p

er ty

: b

u il

d in

g /b

u il

d o u

t co

st s

$ 2 1 0 ,0

0 0 -$

6 9 7 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g U

S A

o r

th ir

d p

a rt

ie s

(y o u

r la

n d

lo rd

a n

d /o

r co

n tr

a ct

o r)

(c o n ti n u ed

)

Table V. Free-standing and

inline stores estimate initial investment

1659

Pollo Campero in the USA

T y

p e

o f

ex p

en d

it u

re A

m o u

n t

M et

h o d

o f

p a y

m en

t D

u e

P a y

R ea

l p

ro p

er ty

: si

te d

ev el

o p

m en

t co

st s,

fr ee

-s ta

n d

in g

$ 0 -$

2 7 ,5

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g U

S A

o r

th ir

d p

a rt

ie s

(y o u

r la

n d

lo rd

a n

d /o

r co

n tr

a ct

o r)

A d

d it

io n

a l

d ev

el o p

m en

t co

st s

$ 6 ,0

0 0 -$

8 0 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g U

S A

o r

th ir

d p

a rt

ie s

(y o u

r la

n d

lo rd

a n

d /o

r co

n tr

a ct

o r)

R es

ta u

ra n

t eq

u ip

m en

t, fi

x tu

re s

$ 1 6 7 ,0

0 0 -$

2 7 5 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s S

ig n

s $ 6 ,0

0 0 -$

5 0 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s P

O S

$ 2 0 ,0

0 0 -$

4 5 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s P

la y

a re

a eq

u ip

m en

t $ 1 5 ,0

0 0 -$

3 0 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s O

p en

in g

in v

en to

ry $ 1 5 ,0

0 0 -$

3 0 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s M

is ce

ll a n

eo u

s o p

en in

g co

st s

$ 6 ,7

5 0 -$

2 7 ,0

0 0

L u

m p

su m

L u

m p

su m

a s

in cu

rr ed

S u

p p

li er

s, u

ti li

ti es

, em

p lo

y ee

s, et

c. U

n if

o rm

s $ 1 ,2

0 0 -$

2 ,0

0 0

L u

m p

su m

B ef

o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s In

su ra

n ce

$ 1 8 ,0

0 0 -$

4 5 ,0

0 0

L u

m p

su m

B ef

o re

o p

en in

g In

su ra

n ce

co m

p a n

y /a

g en

t T

ra v

el a n

d li

v in

g ex

p en

se s

w h

il e

tr a in

in g

$ 2 ,0

0 0 -$

1 5 ,0

0 0

L u

m p

su m

A s

in cu

rr ed

, d

u ri

n g

tr a in

in g

A ir

li n

es ,

re n

ta l

ca r

a g

en ci

es ,

re st

a u

ra n

ts ,

h o te

ls ,

et c.

M a rk

et in

g st

a rt

-u p

ex p

en d

it u

re $ 2 0 ,0

0 0

L u

m p

su m

A s

p er

co n

tr a ct

, b

ef o

re o p

en in

g T

h ir

d p

a rt

ie s,

a p

p ro

v ed

su p

p li

er s

A d

d it

io n

a l

fu n

d s

fo r

th e

fi rs

t si

x m

o n

th s

o f

o p

er a ti

o n

$ 3 5 ,0

0 0 -$

5 0 ,0

0 0

L u

m p

su m

M o n

th ly

a n

d a s

in cu

rr ed

T h

ir d

p a rt

ie s

a n

d em

p lo

y ee

T o ta

ls $ 6 5 1 ,9

5 0

to $ 1 ,4

3 3 ,5

0 0

(D o es

n o t

in cl

u d

e re

a l

es ta

te co

st s)

E x p re

ss U

n it

In it

ia l

fe e

fr a n

ch is

e fe

e $ 4 0 ,0

0 0

L u

m p

su m

o r

p er

p a y

m en

t sc

h ed

u le

fo r

q u

a li

fi ed

in ce

n ti

v e

p ro

g ra

m s

G en

er a ll

y p

a id

a t

ti m

e o f

ex ec

u ti

o n

o f

th e

S to

re D

ev el

o p

m en

t A

g re

em en

t (“

S D

A ”)

C a m

p er

o U

S A

C o

rp .

R ea

l p

ro p

er ty

: b

u il

d in

g /b

u il

d o u

t co

st s

$ 4 8 ,0

0 0 -$

2 0 5 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g U

S A

o r

th ir

d p

a rt

ie s

(f ra

n ch

is ee

la n

d lo

rd a n

d /o

r co

n tr

a ct

o r)

R ea

l p

ro p

er ty

: si

te d

ev el

o p

m en

t co

st s,

fr ee

-s ta

n d

in g

n /a

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g U

S A

o r

th ir

d p

a rt

ie s

(f ra

n ch

is ee

la n

d lo

rd a n

d /o

r co

n tr

a ct

o r)

A d

d it

io n

a l

d ev

el o p

m en

t co

st s

$ 1 0 ,0

0 0 -$

4 0 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g U

S A

o r

th ir

d p

a rt

ie s

(f ra

n ch

is ee

la n

d lo

rd a n

d /o

r co

n tr

a ct

o r)

(c o n ti n u ed

)

Table V.

1660

MD 52,9

T y

p e

o f

ex p

en d

it u

re A

m o u

n t

M et

h o d

o f

p a y

m en

t D

u e

P a y

R es

ta u

ra n

t eq

u ip

m en

t, fi

x tu

re s

$ 1 3 0 ,0

0 0 -$

1 8 0 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s S

ig n

s $ 6 ,0

0 0 -$

4 0 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s P

O S

$ 1 6 ,0

7 1 -$

3 2 ,0

0 0

L u

m p

su m

o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s P

la y

a re

a eq

u ip

m en

t n

/a L

u m

p su

m o r

fi n

a n

ce d

A s

in cu

rr ed

, b

ef o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s O

p en

in g

in v

en to

ry $ 5 ,0

0 0 -$

1 5 ,0

0 0

L u

m p

su m

B ef

o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s M

is ce

ll a n

eo u

s o p

en in

g co

st s

$ 6 ,7

5 0 -$

2 7 ,0

0 0

L u

m p

su m

A s

in cu

rr ed

S u

p p

li er

s, u

ti li

ti es

, em

p lo

y ee

s, et

c. U

n if

o rm

s $ 6 0 0 -$

1 ,5

0 0

L u

m p

su m

B ef

o re

o p

en in

g A

p p

ro v

ed su

p p

li er

s In

su ra

n ce

$ 8 ,0

0 0 -$

1 4 ,0

0 0

L u

m p

su m

B ef

o re

o p

en in

g In

su ra

n ce

co m

p a n

y /a

g en

t T

ra v

el a n

d li

v in

g ex

p en

se s

w h

il e

tr a in

in g

$ 2 ,0

0 0 -$

1 5 ,0

0 0

L u

m p

su m

A s

in cu

rr ed

, d

u ri

n g

tr a in

in g

A ir

li n

es ,

re n

ta l

ca r

a g

en ci

es ,

re st

a u

ra n

ts ,

h o te

ls ,

et c.

M a rk

et in

g st

a rt

-u p

ex p

en d

it u

re $ 1 0 ,0

0 0 -$

2 0 ,0

0 0

L u

m p

su m

A s

p er

co n

tr a ct

, b

ef o

re o p

en in

g T

h ir

d p

a rt

ie s,

a p

p ro

v ed

su p

p li

er s

A d

d it

io n

a l

fu n

d s

fo r

th e

fi rs

t si

x m

o n

th s

o f

o p

er a ti

o n

$ 3 0 ,0

0 0 -$

5 0 ,0

0 0

L u

m p

su m

M o n

th ly

a n

d a s

in cu

rr ed

T h

ir d

p a rt

ie s

a n

d em

p lo

y ee

T o ta

ls $ 3 1 2 ,4

2 1 -$

6 7 9 ,5

0 0

D o es

n o t

in cl

u d

e re

a l

es ta

te co

st s

S o u r c e :

C a m

p er

o U

S A

C o rp

. (2

0 1 1 ,

p .

3 6 5 )

Table V.

1661

Pollo Campero in the USA

Limited-service restaurants, which included fast-food chains (QSRs), provided a quick and cheaper alternative to traditional full-service restaurants. This industry was estimated to be worth around US $164.8 billion in 2009. In this type of restaurant, consumers served themselves by bringing food to their own tables and pouring drinks from a fountain. The average customer paid US $3.90 in the morning, US $5.60 for lunch, US $6.00 for dinner and $3.50 for a snack in the course of the afternoon (Campero USA Corp, 2011).

The “fast-casual restaurants” (FC) were a limited-service category of restaurants, serving fast, convenient food, but focussing on providing a great experience for customers through food with good taste, appearance and freshness in addition to a friendly atmosphere and excellent service. These restaurants combined the strategy of full-service restaurants with that of QSRs. The average meal sold for US $10 (Green, 2012). Although customers and industry experts valued what these restaurants offered, they continued to classify them as QSRs. Fast-casual was the only category of

Region Easterna Westernb

Type of unit Average gross sales Average gross sales

Free-standing 1,743,155 978,731.00 In-line 1,154,894 1,374,825.00 Express n/a 553,547.00

Notes: aStates: AK, AL, CT, DC, DE, FL, GA, HI, IL, IN, KY, MA, MD, ME, MI, MS, NC, NH, NJ, NY,

OH, PA, RI, SC, TN, VA, VT, WV, WI; bstates: AR, AZ, CA, CO, IA, ID, KS, LA, MD, ME, MI, MS, NC, NH, NJ, NY, OH, PA, MN, MO, MT, ND, NE, NM, NV, RI, SC, TN, VA, VT, WV, WI, OK, OR, PR, SD, TX, UT, WA, WY Source: Campero USA Corp. (2011, p. 365)

Table VI. Average gross sales per restaurant

Region Eastern Western

At/Below At/Below Type of unit Number Percentage

Avg. food and paper cost (%) Number Percentage

Avg. food and paper cost (%)

Free-Standing 4 40 32.0 3 47.1 33.1 In-Line 2 5 Express 0 0

At/Below At/Below Type of unit Number Percentage Avg. labor cost (%) Number Percentage Avg. labor cost (%) Free-Standing 4 33.3 22.8 2 41.2 27.6 In-line 1 5 Express 0 0

Notes: During the reporting period, there were ten Free-standing units and five In-Line units in the Eastern Region and nine Free-Standing units; seven In-Line units; and one Express unit in the Western Region. Food/Paper (referred to below for convenience as “food”) means food, beverages and items served or associated with the food or beverage, such as cups, napkins, straws, bags, plastic utensils and wrapping paper. Labor means salaries, payroll, and similar related expenses. % At/below average means the percentage of stores included in the data whose applicable costs are at or below the stated average. The above food and labor costs are stated as a percentage of gross sales (excluding sales tax and discounts) Source: Campero USA Corp. (2011, p. 365)

Table VII. Operating costs by region and restaurant type

1662

MD 52,9

restaurants experiencing growth after the 2009 recession. The NRA vice-president for research said that fast-casual restaurants would have a better performance than the rest of the industry since it captured the sweet spot between QSRs and casual dining. Fast and convenient service was like QSRs, but had much-higher-quality food, an atmosphere similar to that of casual dining, and reasonable prices that fell between the two.

In general, 43 percent of sales in this industry were made at dinnertime, 31 percent at lunchtime and 9 percent at breakfast. The remaining 17 percent of sales took place while customers traveled (10 percent) or purchased snacks (7 percent) (Miller and Associates 2011). The restaurant industry operations report developed by NRA indicated that full-service restaurants’ sales of solid food accounted for 79 percent of total sales, with drinks accounting for 21 percent. The figures for limited-service restaurants were 86 and 4 percent, respectively, plus 10 percent for other products. The most important cost for both full- and limited-service restaurants was raw materials used in the preparation of dishes – US $61.1 billion and US $48.8 billion, respectively (see Table X).

In 2003, 53 percent of customers visited one of the big restaurant chains, while 14 percent visited a small chain and 33 percent visited independent or local restaurants. Six years later, in 2009, 59 percent of customers visited the big chains, 11 percent small chains and 30 percent independent or local restaurants.

In the US there were 196 full-service restaurant chains and 99 limited-service chains. Full-service restaurant chains included Applebee’s, Neighborhood Grill & Bar, Chili’s Grill & Bar, TGI Friday’s, Olive Garden, On the Border Mexican Grill & Cantina, Red Lobster, Outback Steakhouse and Denny’s. Limited-Service QSR chains included McDonald’s, Burger King, Taco Bell, KFC, Wendy’s, Subway, Popeye’s Chicken & Biscuits, Church’s Chicken and Pollo Campero. Limited-Service fast-casual chains included Panera Bread, Chipotle Mexican Grill, Qdoba Mexican Grill and Chick-fil-A (Franchise Times, 2008).

Chipotle Mexican Grill specialized in offering a broad range of ingredients that customers could choose for their burritos, tacos and salads. An important ingredient was chicken, described as follows: “It comes from naturally-raised chicken and is marinated overnight with our spicy smoked chipotle, then grilled. Grill marks give it a subtle, caramelized flavor” (Chipotle Mexican Grill, 2012a).

Year US $ current growth (%) Real growth (%)

2000 5.50 3.00 2001 4.60 0.80 2002 5.30 1.20 2003 4.50 2.10 2004 6.20 3.00 2005 5.30 2.20 2006 4.70 1.60 2007 4.80 1.00 2008 3.20 �1.20 2009 �0.70 �2.90 2010a 2.50 �0.10

Note: aEstimated

Source: Miller and Associates (2011, p. 416)

Table VIII. Restaurant industry

sales growth

1663

Pollo Campero in the USA

Category US$ Billions % Growth 2009-2010

Restaurant and food services industry 580.00 100 2.5 Commercial 530.31 91.4 –

Eating and drinking places Full-service restaurants 184.17 31.8 1.2 Limited-service (including QSR and fast casual) restaurants 164.83 28.4 3 Snack and non-alcoholic beverage bars 24.73 4.3 2.4 Bars and taverns 18.84 3.2 2 Social caterers 7.09 1.2 4.5 Cafeterias, grill-buffets, and buffets 7.67 1.3 2.2 Total 407.35 70.2 2.1

Food service contractor-managed services Colleges and universities 13.64 2.4 5.7 Manufacturing and industrial plants 6.65 1.1 �0.5 Primary and secondary schools 5.86 1.0 5.4 Recreation and sports centers 5.02 0.9 4 Hospitals and nursing homes 5.05 0.9 6.7 Commercial and office buildings 2.56 0.4 1.8 In-transit foodservice (airlines) 2.06 0.4 0.7 Total 40.84 7.0 4

Retail and lodging Retail-host restaurants 30.93 5.3 4.9 Hotel restaurants 26.53 4.6 4.6 Recreation and sports (includes movies, bowling lanes, recreation, and sport centers) 12.52 2.2 2.5 Vending and non-store retailers (includes sales of hot food, sandwiches, pastries, coffee, and other hot beverages) 11.1 1.9 1.2 Mobile caterers 0.635 0.1 �1.7 Other accommodation restaurants 0.407 0.1 3.2 Total 82.12 14.2 2.5

Noncommercial 49.68 8.6 – Noncommercial restaurant services (businesses, educational, government, or institutional organizations which operate their own restaurant services)

Hospitals (includes voluntary, proprietary hospitals, long-term general, TB, nervous and mental hospitals, state and local short-term hospitals, and federal hospitals) 15.22 2.6 4.7 Clubs, sporting, and recreational camps 8.55 1.5 0.9 Nursing homes (includes homes for the aged, blind, orphaned, and the mentally and physically disabled) 7.14 1.2 2.6 Public and parochial elementary, secondary schools 6.14 1.1 2.2 Colleges and universities 6.08 1.0 �1.4 Community centers 2.14 0.4 4.8 Transportation 1.83 0.3 4.3 Employee restaurant services 0.426 0.1 2.1 Total 47.52 8.2 2.5

Military restaurant services Officer and NCO clubs (open mess) 1.48 0.3 3.7 Military exchanges 0.679 0.1 3.1 Total 2.16 0.4 3.5

Source: Miller and Associates (2011, p. 416)

Table IX. Food service industry structure and income distribution

1664

MD 52,9

Chipotle also sold beef, pork, vegetables, rice, beans, guacamole, sour cream and spicy sauces. Guacamole was made onsite; and fresh foods, such as onions, were cut and prepared manually. Steve Ells, Chipotle founder and CEO, said that the atmosphere at these restaurants was a simple but unique experience:

Perceiving sounds and smells and seeing when something is cooked can really help whet your appetite. Unfortunately in many restaurants the “cooking” part is more like a science experiment. For this reason, each Chipotle is designed with an open kitchen facing the entire restaurant (Chipotle Mexican Grill, 2012b).

Ten chains with chicken as their main course ranked among the top 50 QSR chains in the USA (see Table XI). Kentucky Fried Chicken was the largest, with revenues of US $4.9 billion, 5,200 stores in the USA and 15,580 worldwide.

Every day, more than four million people are served at KFC restaurants in the USA. Every year, they ate 800 million muffins, 45 million kilograms (almost 100 million pounds) of coleslaw and 90 million kilograms (almost 200 million pounds) of mashed potatoes. Annual chicken sales were estimated at US $1.8 billion. The main product was the original recipe. Chicken was marinated with 11 different species and cooked under pressure. It was also sold as extra crispy or in strips. Also on the menu was

Chains Total sales US$ million

Annual sales per unit

US$ thousands

Units Under license or franchise Company-owned Total

KFC 4,900.0 960.00 4,307 855 5,162 Chick-fil-A 3,217.0 2,095.00 205 1,275 1,480 Popeye’s 1,597.0 1,057.50 1,539 37 1,576 Church’s Chicken 835.0 680.00 975 287 1,262 Zaxby’s 718.0 1,581.00 406 86 492 Bojangles’ 659.5 1,556.40 296 163 459 El Pollo Loco 582.0 1,600.00 243 172 415 Boston Market 545.0 1,020.00 0 520 520 Wingstop 306.6 744.00 425 23 448 Wing Zone 56.0 580.00 96 4 100

Source: QSR magazine, www.qsrmagazine.com/reports/chicken

Table XI. Pollo Campero in the USA,

major limited-service restaurant chains

specializing in chicken

Restaurants Categories Full service Limited-service

Cost of food and beverages sold 32 33 Salaries and wages 30 30 Restaurant occupancy costs 7 6 General and administrative expenses 3 8 Pretax income 4 3 Other (including direct operating expenses, marketing, utilities, maintenance, depreciation, administrative, interest, and corporate overhead) 20 20

Source: Miller and Associates (2011, p. 416)

Table X. Pollo Campero in the USA,

2009 cost structure for full-service and limited-

service restaurants

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Pollo Campero in the USA

roasted chicken with hot sauce or BBQ sauce. Individual dishes could cost US $1 if the products were on promotion, but usually they were around US $6 with side dishes and beverage (soda or iced tea.) They offered children’s menu and family combos (around US $18 for five people) and focussed on serving customers quickly and only at the counter, where customers ordered, paid for and picked up their food. Customers could not see the kitchen from the counter, as it was after hidden behind dispensers for ready-packed food to serve customers quickly (Kentucky Fried Chicken, 2012).

Chick-fil-A, based in Atlanta, Georgia specialized in marketing sandwiches made with breaded boneless chicken breast. Sandwiches featured different cheese types, salsa and lettuce or tomato. The menu also included nuggets, wraps, and a wide range of salads in large plates or bowls, chicken soup with tortilla and chicken breast soup with vegetables, French fried potatoes and coleslaw. Tables were decorated with natural flowers. Restaurants offered a welcoming family-oriented environment. Chick-fil-A had some 500 stores in 39 states and Washington, DC and was a strong supporter of the local communities.

The Popeye’s fried chicken chain featured a restaurant and menu design reflecting the excitement of New Orleans, where it began in 1972. It offered marinated chicken in the traditional Louisiana style, characterized by a spicy condiment, as well as dishes such as mashed potatoes, muffins, coleslaw, red beans and rice, green beans and applesauce. Service and promotions were very similar to KFC’s, as were their different forms of chicken and sauces. Unique products on their menu included a flour-tortilla burrito, made with red beans, rice and chicken (Popeye’s, 2012).

Originally from San Antonio Texas, Church’s Chicken was another chain specializing in fried chicken. Their products and service closely resembled KFC’s. They described their product as high-quality, freshly prepared chicken that was different from their competitors’ product as a result of care taken in preparing the food. In addition to its original fried chicken, Church’s offered spicy chicken, boneless chicken wings with spicy sauce, BBQ or sweet and sour chicken, chicken burgers, chips, handmade muffins, corn, fried jalapenos and coleslaw. It was present in 22 countries, with 1,625 restaurants (Church’s Chicken, 2012).

The “Pollo Loco” chain, founded in Mexico in 1975, had more than 400 restaurants in California, Arizona, Nevada, Texas, Illinois, Connecticut, Oregon and Utah. However, most of their restaurants were located in LA, where they had their real market share; they had not been able to expand successfully outside LA. By 2010, most of its restaurants in others states were closed, with only a handful remaining.

Pollo Loco stressed as its priority providing healthy food options to customers. It constantly brought fresh dishes to its menu inspired by Mexican cuisine, such as grilled chicken, fresh vegetables, pinto beans, chicken fajitas bowls, tortilla soup with chicken and crispy, fresh salads as a side to chicken or other main courses. It offered its own hot sauce, red chili hot sauce, jalapeno sauce, pico de gallo, guacamole, sour cream and flour tortillas, plus a wide variety of soft drinks, iced tea and horchata (El Pollo Loco, 2012).

Despite not being among the top ten restaurants, Pollo Tropical advertised itself as the place to relax and enjoy a great meal prepared with fresh products and served quickly. Originally from Miami, with its first store opening in 1998, by 2009, the company had about 70 stores in Florida, as well as in cities including Brooklyn, New York and Woodbridge, North Bergen, Little Ferry and Clifton, New Jersey (Enotes, 2012). It described its product as chicken always fresh, never frozen, freed of hormones and trans-fat, marinated in citrus and then cooked on the grill. The chain estimated

1666

MD 52,9

that it cooked about 11 million kilograms (about 20 million pounds) of chicken per year. Its menu also included pork, quesadillas, sandwiches, white rice, yellow rice, beans, fried cassava, and cassava and plantains with cheese. Average income per transaction was US $9.38, with entrees priced between US $4 and US $9 (Pollo Tropical, 2012). Customers purchased and paid at the counter and brought the product to their table. However, CEO Larry J. Harris regarded Pollo Tropical as a fast-casual restaurant due to product taste and also because customers were allowed to observe food preparation, giving a sense of transparency and security about food safety and ensuring freshness. Industry experts, however, considered this chain closer to QSR than fast-casual.

US customers The US population had grown at a rate of 0.9 percent annually over the last five years, reaching 307 million people (Denavas et al., 2011; United States Census Bureau, 2011a). Four ethnic groups predominated. People who identified themselves as white accounted for 64 percent of the entire population, including citizens with family roots in Europe, the Middle East and North Africa. The Hispanic group consisted of people from Cuba, Mexico, Puerto Rico and Central and South America and accounted for 16 percent of the population. African Americans accounted for 13 percent and included people from countries such as Kenya, Nigeria and Haiti. Asians accounted for 5 percent and consisted of people from Southeast Asia, the Far East and India, and countries such as China, Japan, Cambodia, the Philippines, Malaysia and Vietnam. The remaining 2 percent consisted of Native Americans from Alaska and Hawaii, among other groups (United States Census Bureau, 2011a).

Hispanics had the fastest growth rate among all ethnic groups, nearly 4 percent per year between 2000 and 2009, reaching 49.1 million people in 2009. Mexicans accounted for 63.0 percent of the Hispanic population, followed by Puerto Ricans (9.2 percent), Cubans (3.5 percent), Salvadorans (3.3 percent), Dominicans (2.8 percent) and Guatemalans (2.1 percent). Among Central Americans, Hondurans accounted for 0.7 percent, and Nicaraguans and Costa Ricans each accounted for 0.3 percent. Note that in 2000, Salvadorans accounted for 1.9 percent of this population and Guatemalans for 1.1 percent. Both increased substantially and reached greater representation among Hispanics, as mentioned above (United States Census Bureau, 2011b).

It was predicted that, by 2010, 41 percent of Hispanics would be living in the Western US and would account for 29 percent of the region’s total population, while 36 percent of Hispanics would be living in the South and comprising 16 percent of the region’s population. In total, 14 percent of the Hispanic population lived in the Northeast and accounted for 13 percent of the total population in the region, while the Midwest was inhabited by 9 percent of Hispanics, who accounted for 7 percent of that region’s population (see Figure 4 and Table XII). Of the Hispanic population, 75 percent was concentrated in California, Texas, Florida, New York, Illinois, Arizona, New Jersey and Colorado. The state with most Mexicans was California (11.4 million), followed by Texas (7.9 million), Arizona (1.6 million), Illinois (1.6 million) and Colorado (0.7 million). The Salvadoran population was concentrated in California (570,000), Texas (220,000), New York (155,000), Virginia (124,000) and Maryland (124,000). Guatemalans were found in larger numbers in California (330,000), Florida (84,000), Texas (74,000), New York (66,000) and New Jersey (49,000) (United States Census Bureau, 2011b). ABC Consulting indicated that using this information and the current number of restaurants in each state, it was possible, based on current restaurants’ density, to estimate the potential number of restaurants targeting Central Americans in

1667

Pollo Campero in the USA

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Table XII. 2010 estimations for Hispanics living in the USA per state and region

1668

MD 52,9

whole USA. The consulting firm suggested to Denegri that it would be wise to use New York as a benchmark because it had the highest density of restaurants per population, and all of them reported good results.

There were about 117.5 million US households, of which 74 percent were family households and 16 percent were non-families. In 2009, the average household income in real terms was US $50,500. Whites accounted for 71 percent of all households, with an average income of US $55,300. Hispanics accounted for 11.3 percent of households, with an average income of US $38,700. African Americans made up 12.6 percent of households and had an average income of US $33,150. Finally, Asians made up 4.0 percent of households, with an average income of US $66,500 (Denavas et al., 2011).

Household distribution by age of household head resulted in 5 percent led by someone under age 25. Average household income was about US $31,200. In total, 16 percent of households were headed by someone between the ages of 25 and 34, and their average income was US $51,000. Between 18 and 21 percent of households were headed by people between 35 and 44 and 45 and 54 years old. The average income for these groups was US $62,100 and US $65,300, respectively. In all, 17 percent of households were headed by people between the ages of 55 and 64 years, with income around US $58,000. Households headed by people aged 65 or older accounted for 22 percent and had a total income close to US $32,000 (Denavas et al., 2011).

Restaurant – type choices varied by ethnic group and household income and characteristics (see Table XIII). Middle-aged consumers spent more at restaurants, as they had higher incomes and households with more people. In general, householders aged 35-54 spent between 17 and 21 percent more than the average consumer. Older consumers were more likely to choose full-service restaurants. When the head of household was 25 or younger, 57 percent of the household budget was devoted to QSRs. However, the preference for QSRs decreased as age increased. Households with one parent and children tended to visit QSRs and devoted 61 percent of their budget to eating out, whereas households made up of couples without children spent only 33 percent of their budget at QSRs. The largest expenditure on eating out was that of households made up of couples with children of school age or older still living at home. On average, they spent between 50-54 percent more than other households. Couples whose children no longer lived at home devoted more of their budget to full-service restaurants than to QSRs.

Current market data CUSA executives realized that demographic characteristics alone were not enough to figure out which segment they should target. The marketing experts from ABC Consulting analyzed psychographic characteristics (see Figure 5).

Based on different groups created through psychographics and research-driven analysis, they identified six segments within the USA on which Pollo Campero could focus. These segments were characterized as follows (see Figure 5). First, open-minded food-lovers, which included 17 percent of the population, mostly whites or Hispanics aged between 18 and 35. This group represented 29 percent of the total spending on Limited-Service QSR/Fast Casual (FC) restaurants and was willing to seek new experiences and tastes. Their household income ranged between US $50,000 and US $150,000. They spent close to US $40 per visit in a fast-food restaurant and up to US $50 in fast-casual restaurants. They visited these sites three to four times a week.

Couples without children accounted for 30 percent of the population and represented 15 percent of QSR/FC total spending; this group generally sought highly

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Pollo Campero in the USA

convenient places. Household income ranged between US$50,000 and US$100,000, and they spent about US$11 and US$20 in quick-service and fast-casual restaurants, respectively. They visited these places three to four times per week.

Then there were families with children, which represented 17 percent of the population and 13 percent of total QSR/FC spending. They did not seek new flavors, so traditional fast food was their main choice. Their household income varied greatly, usually US$75,000 or less. They spent around US$20 at QSRs and US$28 at fast- casuals, and they visited these places at least three times per week.

Breakfast Lunch Dinner

Categories Index

Market

share (%)

US$ Per

HH Index

Market

share (%)

US$ Per

HH Index

Market

share (%)

US$ Per

Age of householder

Under 25 71 5 77 99 7 367 107 7 363

25-34 132 22 143 129 22 477 133 22 449

35-44 128 26 138 131 26 484 131 26 443

45-54 126 26 136 114 24 422 116 24 392

55-64 77 12 84 81 13 301 77 12 258

65-74 62 6 67 60 6 222 55 5 185

75 and older 28 3 30 28 3 103 23 2 76

Household income

Under $20,000 44 10 48 46 10 169 46 10 155

$20,000-$39,999 81 19 88 80 19 297 77 18 259

$40,000-$49,999 92 9 99 83 8 308 109 10 337

$50,000-$69,999 127 19 137 113 17 417 114 17 386

$70,000-$79,999 113 7 122 119 7 442 118 7 397

$80,000-$99,999 148 13 161 135 12 500 153 12 482

$100,000 and above 143 23 155 165 26 612 156 25 526

Type of household

Married couples w/o children 93 20 100 93 20 346 89 19 302

Married couples, oldest child

under 6 121 6 131 152 7 561 149 7 504

Married couples, oldest child 6-17 137 18 148 154 20 569 167 21 563

Married couples, oldest child 18

or older 153 11 165 135 10 501 144 10 487

Single parent with child under 18 91 6 99 85 5 314 117 7 394

Single person 62 18 67 58 17 213 46 14 155

Race and ethnicity

Asian 110 4 119 128 4 475 119 4 403

Black 92 11 110 90 11 332 102 12 343

Hispanic 137 16 149 122 14 453 107 12 362

Non-Hispanic white and other 95 73 103 98 75 364 99 76 333

Region

Northeast 132 25 143 95 18 350 90 17 304

Midwest 72 16 78 85 21 316 98 22 332

South 97 35 105 104 38 385 98 35 331

West 106 24 115 114 23 421 114 25 386

Note: The index is the spending ratio by segment in relation to the overall population. For example, an index of 100

indicates per household spending by a segment equal to that of the average household. An index of 150 indicates

spending by a segment 50 percent higher than the average household. The market share is the percentage of total

spending by each segment

Source: Miller and Associates (2011, p. 416)

Table XIII. Demographic assessment of consumer spending for breakfast, lunch and dinner at limited-service restaurant

1670

MD 52,9

Some customers, approximately 15 percent of the population, saw quick service as the most important factor. They were usually single and had no children. They visited restaurants by themselves at least three times a week, so the limited-service restaurants met all their needs. This group represented 4 percent of total spending on QSR/FC. Household income was generally US$30,000 or less or between US$50,000 and US$100,000. They usually spent about US$6 at QSRs, and they rarely visited the fast- casual restaurants, where they spent US$8.

About 12 percent of the population looked for healthy food and were concerned about the restaurant doing something good for the world. Committed to corporate social responsibility and sustainability, they analyzed options in detail before making a decision. This segment made up primarily of couples without children and with annual household income ranging between US$50,000 and US$100,000, represented 6 percent of total spending on QSR/FC. They visited quick-service and fast-casual restaurants three days per week and spent US$13 and US$20, respectively.

The last segment identified was made up of the new urban family, estimated at 7 percent of the population and representing 33 percent of total QSR/FC spending. This segment is comprised of parents aged 26-55, most with two children, and belonging to the white or Hispanic ethnic group. With household incomes over US$100,000, they visited a restaurant about seven times per week and spent between $63 at QSRs and $67 at the fast-casual ones.

The problem at hand In 2010, it seemed that CUSA might not be able to achieve the targets that the Board of Directors established for it back in 2007. As President and COO, Denegri needed to define a strategy and propose a concrete plan to the CEO and the Board of Directors of Pollo Campero Corporation in Guatemala. After revising the reports produced by ABC Consulting, Denegri had to make some clear choices: should CUSA continue the growth process based on the current brand and company positioning in the USA, or should it change its positioning in the near future? Specifically, should CUSA expand its customer base to include not only Central Americans, but also Hispanics from other parts of Latin America and Americans who do not perceive themselves as Hispanic? If so, what changes should be made for Pollo Campero in the USA?

Notes

1. At the time of the case, Juan José Gutierrez was Pollo Campero Corporation’s CEO. Denegri was the President and COO of CUSA and, thus, reported to the CEO of Pollo Campero Corporation and to its Board of Directors.

Source: InterBrand Design Forum. “Segmentation and Brand Strategy”, Pollo Campero, June 18, 2010

Party size Frequency of visits

Spending habits

Offers filling meals Gets me in and out quickly

Offers food with a lot of flavor Has food that tastes home-made

Is a great restaurant for a family Uses technology in their restaurant

Offers a more adventurous experience Is an expert at preparing their style of food I know what to expect from the restaurant Supports non-profit organizations Has a high-energy atmosphere Has a wide variety of food options Offers good value for the money Provides an ethnic experience

Offers a simple menu Offers high quality food

Place for my kids Place for adults

Segments Demographics

GenderSegment 1

Segment 2

Segment 3

Segment 4

Segment 5

Segment 6

Age

Income

Ethnicity

Marital status

Children in Home

Employment

Education

Drivers Behaviors+

Figure 5. US mainstream

customers: drivers and behaviors

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Pollo Campero in the USA

2. ABC Consulting Co. is a fictitious name since we were not allowed to use the real name of the consulting company.

References

Arndt, M. (2010), “At Pollo Campero, growth is on the menu”, Bloomberg Business Week, available at: www.businessweek.com/magazine/content/10_12/b4171072640171.htm (accessed February 5, 2012).

Campero USA Corp (2011), Franchise Disclosure Document, Campero USA Corp., Dallas, TX.

Chipotle Mexican Grill (2012a), “La compañı́a”, Chipotle Mexican Grill, available at: www. chipotle.com/es-MX/menu/ingredients/ingredients.aspx (accessed March 5, 2012).

Chipotle Mexican Grill (2012b), “Restaurantes”, Chipotle Mexican Grill, available at: www. chipotle.com/es-MX/restaurants/the_chipotle_experience/the_chipotle_experience.aspx (accessed March 7, 2012).

Church’s Chicken (2012), “Company”, Church’s Chicken, available at: www.churchs.com/ company-history.html (accessed March 11, 2012).

Daily News (2008), “Pollo Campero Franchise expanding to Wal-Mart”, Daily News, available at: www.nydailynews.com/latino/pollo-campero-franchise-expanding-wal-mart-article- 1.332342#ixzz1rfiknQxD (accessed April 7, 2012).

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