Restaurant chains feasting in markets outside U.S.

The Americanization of the planet is evident in the restaurant world.

There's an Applebee's in Athens; a Papa John's pizzeria in Karachi; two Ruby Tuesdays in Bucharest; a Denny's in Christchurch, New Zealand; and a Chili's Grill & Bar on a riverboat on the Egyptian Nile. And then there are the outposts of McDonald's, Domino's and KFC that keep popping up.

As the domestic restaurant industry becomes increasingly dour, major brands are turning their attention abroad, where business remains relatively robust and growing middle classes are creating large pools of consumers eager to taste affordable American-style fare.

Newly arrived brands typically enjoy a novelty aura that attracts curious diners. And many franchisers sell operating rights to local businesspeople, who assume responsibility for the restaurants day to day and send royalty payments back to the chains' home offices, often giving the corporate owners a superior return on their investment.

"Trends continue to be in our favor," says McDonald's Corp. President Ralph Alvarez. "We're growing [abroad] because demand exceeds our supply."

Some investors in McDonald's and fast-food giant Yum Brands Inc. are holding the stocks because of perceived opportunities overseas.

This year Burger King Holdings Inc., McDonald's and Papa John's International Inc. are among chains intending to open more restaurants abroad than at home. And in laying out plans to combine Wendy's International Inc. with its Arby's sandwich business, Triarc Cos. said it sees substantial possibilities abroad, where both brands have relatively few outlets.

Yum, which owns Pizza Hut, Taco Bell and Long John Silver's along with KFC, estimates that within 10 years 70 percent of its profits will come from outside the U.S. Today about 55 percent does.

The company is an example of mining overseas potential. China, a market it entered 21 years ago, now delivers about 25 percent of the company's annual profits. Its KFC brand has more than 2,000 locations in 500 cities across the Chinese mainland, with restaurants that not only serve chicken but also congee soup and fried dough at breakfast.

With 15,000 of its 35,000 restaurants outside the U.S., Yum continues to seek out new markets. KFC soon will enter Nigeria, its 106th country. Next year Yum plans to test the popularity of its best-selling domestic brand, Taco Bell, in India. About 17,500 of McDonald's more than 31,000 restaurants are located in 117 countries outside the U.S.

Casual-dining operators also are trekking abroad in search of profits. Chili's parent Brinker International Inc., which said its long-term vision is to become the "dominant, global casual-dining restaurant portfolio company," last year signed development agreements to expand in Australia, Canada, Ecuador, Honduras, Peru, Portugal, South Korea and Turkey.

As in the U.S., finding the right location is McDonald's biggest challenge abroad, it said. Prime real estate targets are increasingly in suburbs ringing cities of Europe, Asia and Latin America.

While McDonald's Alvarez says "we're not looking for new countries" to enter, rival Burger King has been. In fiscal 2007 the No. 2 hamburger chain went into Japan, Poland, Egypt and Indonesia. In the past two years it opened 34 restaurants in 14 cities in Brazil alone.

Another dominant U.S. player abroad is Domino's Pizza Inc., with some 3,500 stores, or about 40 percent, outside the U.S. That 25-year overseas presence recently helped offset disappointing domestic results; in its most recent quarter international comparable sales -- away from the intense competition that has roiled the U.S. pizza market -- rose 8.8 percent from a year ago while Domino's domestic business suffered a 5.2 percent drop.

Some restaurateurs modify their menus to cater to local tastes. In some parts of Asia McDonald's serves rice burgers: shredded beef between rice patties. Customers in the Netherlands can order a deep-fried patty of beef ragout. In India, its Big Mac -- called the Maharaja Mac -- is made with chicken rather than beef. But, says Alvarez, "our core menu is still what you know in the U.S. People come to McDonald's because they want an American product."

Overseas success isn't a sure bet. Papa John's stumbled on its first foreign sojourn, when it entered Mexico in 1998. "We didn't have our act together," said David Flanery, president of the pizza company's international operations. "We had the wrong franchise partner."