So how much does it cost to make a hamburger — in Nigeria? Turns out, it costs more than you might realize (Burgers Face a Tough Slog in Africa, Dec 10, Wall Street Journal).
This is the breakdown for a Johnny Rockets burger and some of the numbers might seem out of whack — Why should iceberg (!) lettuce costly nearly five times as much in Africa as New Jersey? The answer is simple: It’s imported. Why import lettuce? Because the local supply chains are simply not sophisticated enough to support the quick service business.
But that quest is straining a supply chain that is short on the refrigerated trucks and warehouses needed to keep patties and vegetable toppings fresh. And in many places, Africans are consuming beef at a faster clip than cattle ranchers can deliver new cows, meaning beef prices keep climbing. That is testing the limits of what the continent’s young urbanites can afford.
And this is not just about Africa. A different Wall Street Journal article looks at what Tyson is doing to be competitive in selling chicken in China (Inside China’s Supersanitary Chicken Farms, Dec 9).
Instead of buying chickens from independent farmers, as Tyson long has done world-wide, the company is spending hundreds of millions of dollars to build its own farms in China. The effort is aimed at making inroads in a crucial growth market by addressing one of the country’s most vexing problems: food safety. …
In the U.S., where Tyson is the largest meat processor by sales, the company contracts with 4,000 farmers to raise the chickens that Tyson processes. The farmers raise about 100,000 birds at a time, shouldering the risk and navigating the logistical hassles.
But that doesn’t fly in China, which is dominated by small-scale farms. Small poultry farms, which may have only a few hundred birds each, are hard to monitor to prevent disease and deter excessive use of the feed additives that speed animal growth.
There is also a pretty nice video that goes with this report here.
I find both of these stories really interesting since they reflect how firms from established markets need to adapt their basic operating models when expanding in developing nations. This often means having a more integrated approach. There are other examples along these lines. I was part of a Kellogg faculty trip to China earlier this year (more on that here). We met with some execs from General Mills who were talking about launching a yogurt brand in Shanghai. Sounds simple enough, but the plan started with developing a dairy farm so they could be certain of the quality of their milk.
To some extent this is an example of what is an order qualifier versus and order winner. In the US, food quality (as in “it won’t make you sick”) is an order qualifier. We all take it for granted, and no one can last in the market if they can’t execute basic food safety at a very low cost. Things are different in, say, China where food safety is significant concern for city dwellers. They rely on a network of suppliers to get their food but that supply chain is opaque and poorly regulated. A firm with demonstrated commitment to safety can then charge a premium.
That at least is the plan. Pulling it off is going to require some work. The Journal reports that the Domino’s franchisees has had to dig a well and install water purification systems for each of his restaurants. But the payoff is growth. Africa is still wide open for quick service restaurants and China is growing wealthier each year.