Wendy’s (US) Franchisees Spot Opportunity in Central Asia

When Samson Pkhakadze first called up the franchise development department at Wendy’s and told them he wanted to bring the brand to Georgia, he was told no, the state was already fully built out.“I said no, no, the country of Georgia, not the state,” recalled Pkhakadze of his early efforts to put the Republic of Georgia, a country of 5 million people tucked between Turkey and Russia, on the Ohio-based restaurant chain’s radar. The confusion later cleared up, Pkhakadze signed an agreement with Wendy’s and opened the first Georgian restaurant in 2014 in Tbilisi, the country’s capital.

Pkhakadze and his Wissol Group, one of the largest commercial companies in Georgia with petroleum, auto service, supermarket, real estate and advertising subsidiaries, added another 12 Wendy’s in subsequent years, including the opening in May of a drive-thru only restaurant at a Wissol gas station in the Gelovani district of Tbilisi. The performance of those locations, said Pkhakadze, prompted Wissol Group to sign a development agreement to open more Wendy’s units throughout Georgia and also to partner with Kusto Group to introduce Wendy’s in Kazakhstan and Uzbekistan.

As countries that until 1991 were part of the Soviet Union, Georgia, Kazakhstan and Uzbekistan have spent the past 30 years building their own independent economies, becoming, especially in recent years, more attractive markets with a desire to introduce American brands.

“There was no private ownership of anything before with the Soviet Union,” said Pkhakadze, but after it dissolved, “there have been lots of opportunities—after we got through many obstacles.”

Pkhakadze founded what was then Wissol Petroleum Georgia in 2000 and began diversifying its portfolio in 2006; the group is also a Dunkin’ franchisee with more than 40 locations.

Pkhakadze, who has a master’s degree in public policy from Harvard University and called the U.S. his “second home,” said he thought Wendy’s would be a good addition to the group’s real estate and retail portfolios, though there were some challenges early on.

Wendy’s, said Pkhakadze, “had no brand recognition,” and while giants such as McDonald’s and Burger King have a handful of locations in Georgia, fast food is far from ubiquitous. Wissol, he noted, heavily marketed the brand early on, “and now the brand equity of Wendy’s is there.”

What’s also there now that wasn’t in 2014 is a local supply chain. Initially, Wissol had to use frozen products, which didn’t align with the fresh beef branding of Wendy’s. “This was a big problem,” said Pkhakadze, and “we heard right away from customers that they didn’t like the frozen product.”

The company eventually established a network of local and regional suppliers and as a result, “our sales phenomenally went up,” said Pkhakadze. Now the restaurants are performing better than in 2019, he added, as, like many QSRs in the U.S., the group’s locations benefited from having drive-thrus to make it through the COVID-19 pandemic. Four more drive-thru-only units are in development, and Pkhakadze also touted the quick introduction of third-party delivery services such as Glovo and Bolt Food with helping grow sales amid the pandemic.

“Just three months ago we were totally locked down,” said Pkhakadze as he noted a 9 p.m. curfew was in place. “But our delivery business is still strong and drive-thru is still strong.”

The opportunity to introduce Wendy’s to consumers across the Caspian Sea in Uzbekistan and Kazakhstan came about after Pkhakadze got connected with Yerkin Tatishev, Kusto’s founder and chairman who sees the expansion of a U.S. restaurant franchise as key to his vision of transforming the region.

Two markets on the rise

Kazakhstan, the ninth-largest country in the world at more than 1 million square miles and with the leading economy in Central Asia thanks mainly to its vast natural resources, is one Tatishev said deserves to be part of the international development plans of companies in the U.S.

“To good U.S. companies I say, ‘Please come,’” said Tatishev. “American entrepreneurs should think about Kazakhstan.”

Born there in 1976, Tatishev came of age following the dissolution of the Soviet Union and said as a lifelong entrepreneur his path has involved numerous industries, starting in the late ‘90s with the turnaround of state mining assets. He launched Kusto Group in 2002 and eventually diversified into oil and gas, real estate, construction materials and agribusiness, later creating a fuel and convenience store chain, Compass. The company added Burger Kings and KFCs to some of its Compass stores and Tatishev said he views the development of Wendy’s restaurants ultimately as a way to deepen the social impact focus of Kusto Group.

“Wendy’s has a high level of standards” and an emphasis on local sourcing, said Tatishev, which aligns with one of his missions to support farmers in the region. Kusto Group has a livestock division, KazBeef, and owns pasture land and feedlots in the Akmola region, along with a meat processing facility. It’s working on a project with Tyson Foods to build another high-tech processing plant and is partnering with Nebraska-based Valmont Industries to bring precision irrigation equipment to Kazakhstan.

“We want to transform the country by transforming agriculture,” said Tatishev, and having restaurant outlets for producers to sell to is one component of that transformation.

Kusto Group opened the first two Wendy’s in Almaty, Kazakhstan’s largest urban area with nearly 2 million people, earlier this year to go along with two locations in Uzbekistan. Tatishev plans to open another 10 stores in 2021 and noted development of the franchise serves yet another social impact goal of creating jobs.

“Our focus is on the most vulnerable parts of society,” he said, namely a subset of women in the country who he said have limited access to employment opportunities outside of low-wage manual labor.

In Uzbekistan, where Kusto Group has Wendy’s restaurants in the capital of Tashkent, Tatishev said the opportunity for growth is appealing given the country’s larger population. With more than 30 million people it’s “almost double Kazakhstan,” which has a population of about 18 million. “It’s already a hot place for business,” he continued, and awareness of American brands is high as many younger Uzbekistanis travel and study in the United States.

Building a global brand

Of more than 6,800 units, only about 950 Wendy’s restaurants are located outside the U.S. But Abigail Pringle, the company’s president of international and chief development officer, said the brand has “aspirations to grow that significantly.”

As one of three strategic growth pillars (others are breakfast and digital growth), the company identified international development as a priority in 2019. In June Wendy’s opened its first United Kingdom restaurant, a company-operated location in the city of Reading, about 40 miles outside London. The brand plans to open about 20 corporate units in the UK, Pringle said, as it also works to sign franchisees.

“We don’t have any restaurants on the continent of Europe,” Pringle continued as she explained the opening of corporate locations will allow Wendy’s to establish brand awareness and its supply chain ahead of franchise expansion.

The international footprint for Wendy’s, which accounts for 14 percent of the system, is considerably smaller than that of primary competitors McDonald’s and Burger King. By comparison, about 64 percent of the nearly 40,000 McDonald’s stores are outside the U.S., while for Burger King about 60 percent of its 18,800 units are international.

“We are, at our heart, a challenger brand,” said Pringle, meaning Wendy’s isn’t afraid to enter a market where other fast-food brands already have a robust presence. “We may not be the biggest, but we deliver a high-quality experience.”

In the case of Georgia, Kazakhstan and Uzbekistan, Pringle said there’s familiarity with QSR concepts but not a dominate player, and the existing relationship with Pkhakadze and Wissol Group gave the company confidence to expand. “As Dave Thomas used to say, you earn your right to grow,” which Pkhakadze and Tatishev have done, she said.

As it builds its global footprint, Wendy’s is also learning from its international partners. In India, where the company has an agreement with franchisee Sierra Nevada Restaurants and ghost kitchen company Rebel Foods, Pringle said Wendy’s will learn from a multi-channel approach opening traditional restaurants and delivery-only kitchens. Sierra Nevada launched Wendy’s in India in 2015 and operates four restaurants and five cloud kitchens; it will develop 150 traditional units and partner with Rebel on about 250 Wendy’s cloud kitchens under a new deal.