Spreading Their Wings in the Fast Food Market

With hamburger chains struggling to make a comeback and coffee bar chains opening new branches everywhere, many in the fast food industry wonder what will be the next big hit. Some say the answer is one of the country's favorite foods - chicken.

Kentucky Fried Chicken (KFC) is renewing operations in Israel after having failed in its first attempt to win the hearts of the local populace. Crispy, a relatively new chain, is planning rapid expansion and McDonald's is planning new chicken offerings.

The coffee shop sector is expected to continue its growth over the next few years, including the opening of new branches of Arcaffe, Hillel and Aroma throughout the country, according to Pe'er Nadir, CEO of the Azrieli shopping malls group. At the same time, however, Nadir predicts that fast food restaurants specializing in chicken will begin to spread their wings, while the hamburger chains will continue to appeal to children and teens.

Three Crispy restaurants, which specialize in chicken snacks and other deep-fried foods, are already operating at Azrieli malls, and a fourth branch is set to open soon. Crispy currently operates five restaurants, and plans to open two more by the end of the year and an additional 12 in 2004.

The new branches mainly will be located in malls, with the cost of each, including the franchise fee, set at about NIS 450,000. A source at Crispy reports that average monthly revenues per branch are NIS 200,000. New CEO Noam Singer, who is winding up his job as general manager of the Sha'ar Rishon shopping mall, has been hired to help with the chain's expansion.

The local KFC franchise belongs to the Dor Alon energy and food group, which is owned by David Weissman. The group has set up a new company to operate restaurants together with Smart Investments in a partnership that includes Avi Wertheim, Gil Vargon and Udi Shamai, the former general manager of Omni food brands - the local franchisee for Domino's Pizza. Dor Alon owns a 19 percent share of the operating company, while Smart Investments owns the remaining 81 percent.

Shamai says that Smart acquired the KFC franchise from Weissman, including the equipment from six restaurants he had been operating here. Smart is currently operating three KFC branches, and is due to open another branch by the end of the year.

"We will be judged on flavor and service," says Shamai, who plans to operate 20 branches, but will not undertake an advertising campaign until he feels the time is right. "The window of opportunity in Israel is narrow, and our initial goal is to get the chain on a firm footing from a product quality and service perspective."

Surveys conducted for KFC show that the chains' previous operations in Israel "left the public with neither good nor bad memories," so Shamai does not anticipate any image problems now. He says the new menu will be adapted to Israeli tastes: the chicken products offered will be produced by Tiv Taam (Israel's largest non-kosher food chain), and frozen and partially prepared products will be purchased from Of Tov, a subsidiary of Osem. The main item on KFC's previous menu was deep fried chicken.

Not everyone, however, is enthusiastic about chicken. The head of Africa Israel's malls division, Benny Cohen, notes that previous fast-food endeavors have failed, adding that Israelis are sensitive to fat content and are interested in food that looks good and healthy and is not fattening. He believes the next fast-food trend will be health food.

The CEO of McDonald's Israel, Eitan Ben David, agrees with Cohen, pointing out the similar trend throughout the world. Even so, Ben David notes that Israeli consumers have different habits than other consumers. He says that McDonald's branches around the world are now offering fresh salads with chicken, which has been warmly received, particularly in the United States. Ben David believes that Israel will follow the "American trend" for now, and in five years, organic foods will also be added to the menu.

Burger Ranch CEO Yossi Lubaton disagrees. He believes that health foods take up more space in the newspapers than in consumers' shopping carts, and says that the salads at McDonald's is a short-term solution for declining sales. Burger Ranch also offers salads and baked potatoes for those looking for dietetic food, but its core menu items will remain hamburgers and pizza.

The general manager of Domino's Pizza in Israel, Asaf Greenberg, sounds like a man who has reconciled himself to the healthier food trend. He says that the chicken wings and salads offered by Domino's are a popular alternative to pizza, and more than one-third of all orders at the chain include a portion of wings.