World Partners: Au Bon Voyage
Picking the right franchise partner may help ensure Au Bon Pain safe travels as it expands to Japan.
By Margaret Littman, Contributing Editor -- Chain Leader, 5/1/2007
 For the past nine years, Thailand has been Au Bon Pain’s success story overseas. There are currently 25 bakery cafes in shopping malls and office buildings; 100 more units are planned in the next five years.
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It is easy to see why Warren Wadud’s peers thought his business plan was a little ill conceived. After all, it hinged on the success of an American concept with a French name entering a Japanese market already saturated with bakery cafes. But Wadud, owner of En Group International LLC, a foodservice consultancy with offices in New York and Toyko, was certain that Au Bon Pain was going to be the biggest thing in the Land of the Rising Sun since Hello Kitty.
Wadud, who has lived in both cities and, with his family, has run restaurants in both cities, imagined the Au Bon Pain concept catering to what the Japanese refer to as the "office lady" demographic. "The ‘office lady’ sets the food trends here," Wadud explains. "The ‘salary man’ stays in the office until he drops, but the woman will try things first, read about new things and drag him to new places."
With the right target demographic, the strong Japanese interest in bakeries ("You cannot throw a stone in Toyko without hitting a bakery," he says), and a Tokyo lifestyle that demands quick eat-in service as well as grab-and-go, Japan was perfect for Au Bon Pain, Wadud thought.
In hindsight, he was right. Today Japan is the market with the most aggressive expansion plans in the worldwide Au Bon Pain franchise network.
Uphill Battle
But at the time, Wadud didn’t actually have any connections at the Boston-based firm. He had merely eaten there and observed who else had done the same. And back in the summer of 2004, his fledging U.S.-Japan foodservice consulting firm had a limited track record. Plus, his industry contacts told him that there were already more bakeries in Toyko than the market could support. As he juggled 4 a.m. conference calls to accommodate time-zone differences, peers told Wadud he was "crazy."
Yet Wadud was undeterred. He placed a cold call to Au Bon Pain’s headquarters and said, "I want to take you to Japan."
The call came at the right time. The brand had restaurants concentrated between Washington, D.C. and Chicago, as well as in Thailand, South Korea and Taiwan. The company thought Japan was a logical market for expansion. Thanks to locations in airports and hospitals, Au Bon Pain has high awareness among foreign visitors. (The chain’s new franchisee in the Middle East approached Au Bon Pain after eating at the restaurant at the Cleveland Clinic.)
It took Wadud nearly a year of talking to potential partners for Japanese expansion. When Wadud called Au Bon Pain in summer 2005 with the names of interested prospective franchisees, the timing was right.
Ready To Spend
In August 2005 Au Bon Pain completed a management buyout, a change that CEO Sue Morelli says strengthens the company’s ability to look at long-range plans like international expansion. London-based Compass Group PLC, the concept’s former parent, retained a 25 percent interest in the firm, which Morelli says gives Au Bon Pain the best of both worlds. The company has the energy and freedom necessary to expand an established brand, but is not saddled with the level of debt most frequently associated with buyouts.
Wadud introduced Au Bon Pain Senior Vice President of Franchising Bernard Platt to REINS International LLC, a division of Rex Holdings Co. Ltd., a public Japanese conglomerate with $1.2 billion in sales in 2006. REINS is also the Japanese franchisee for Red Lobster; and owner of Gyu-Kaku, a Japanese barbecue expanding into the United States, and 1,400 convenience stores throughout Japan.
Platt says one of the strengths of the master franchise agreement with REINS is that the company already has experience with nontraditional locations, such as convenience stores and hospitals. Those locations are Au Bon Pain’s core strengths. In many markets, Morelli says, the company can predict "down to the dollar" what sales will be in a new hospital unit.
Nontraditional Demand
The first Japanese unit will open this summer in a Toyko business center that sees a mind-boggling 800,000 people pass through on a given day. That’s a lot of office ladies and salary men.
Franchisees in Japan will initially open three units in the first 18 months, with 300 total units in the next six-and-a-half years, according to the agreement signed in January. However, Platt believes that number could balloon to 875 if "things really work out." Those larger figures would include more restaurants in nontraditional locations such as airports, hospitals and convenience-store-like locations. "That will make it really worthwhile to their business," Platt adds.
The franchisees will tweak Au Bon Pain to adapt to Japanese culture, such as the addition of bean bread and melon bread to the menu and smaller portions. But "the food culture is changing here," Wadud says. "It is not miso soup for breakfast. Instead of eating rice, [the office lady] has some yogurt and some bread."
Other issues have come up in training the Japanese franchisees. For example, REINS had not planned to stock knives in the new restaurants, until trainers explained that they were needed so that customers could spread cream cheese on their bagels.
James H. Little, a principal with South Pasadena, Calif.-based foodservice consultancy Cini-Little International Inc., isn’t surprised that there is overseas interest in Au Bon Pain. The name, he says, should serve the company well, as French names connote quality in baked goods in almost every culture. In addition, the name may insulate the company from the backlash against American firms that sometimes occurs abroad, he adds.
Back at Home
Domestically, Morelli’s team plans growth that will dovetail with its overseas expansion. Au Bon Pain will open 100 units in the next five years. The majority will be the traditional urban units, but a new bistro concept will help give franchisees who want to expand in the suburbs a viable option.
Morelli says the company has the cash needed to expand. Same-stores sales year-to-date are up 10 percent. Lunch business, which is the category’s most competitive daypart, is up, too. Soups and stews sales increased 30 percent; sandwich sales were up 9 percent over last year. "The health of the concept could not be more obvious," she says.
Platt is confident that the aggressive growth plans for the 255-unit chain are achievable, because the company has been cautious in finding the right partners. "We always look for a partner that has the same culture as we do," he says. "As much as the funding and capital is important, if the partner does not feel the same way, it won’t work. Our partners are very much as enthusiastic as we are."
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