KFC shocked the fast food world last month when it announced that it had plans to start selling its fried chicken in Mongolia, which has mostly remained terra incognita for global fast food brands. The previous international fried chicken chain to have tried its luck in Mongolia was Kenny Rogers Roasters', whose gamble on the country lasted only a few years.
Home to Asia's fastest-growing economy, Mongolia may make sense as the Colonel's next target for international growth, but the Financial Times has an interesting column about why the Mongolian market is such a tough one to crack, especially for fast food chains. From the FT:
The crux for franchises in Mongolia has been the challenge of delivering – in what is after all a distant and isolated location – the consistency and quality control customers demand. Relying on a single railway line from China and the absence of other transport infrastructure raises the cost of essential ingredients and drives prices beyond levels familiar to western consumers.
Though Mongolia has 14 head of cattle per person, meat producer Just Agro is the only one with facilities that meet export standards. Russia banned imports of Mongolian meat following outbreaks of diseases such as foot and mouth. The ban was lifted in November 2011 and the Mongolian government has since been looking at ways of selling its meat as a high-quality, speciality product.
“I’m very sceptical that chain restaurants will be able to provide the same low-cost service they can in the US in these developing markets due to ingredient scarcity,” says [Matt Jones, an associate at Mongolian Investment Capital Corporation a local investment bank], who has yet to find a franchise interested in coming to Mongolia. “To obtain high-quality and consistent products, you have to pay a higher price relative to the rest of the market.”
Jones says MICC’s biggest challenge is finding the right partner, willing to take the plunge and invest in a country that is still unproven. The risk for KFC is that it will follow its predecessors and be packing its bags before long. Or it could be about to grab “first mover” status in a transformed market, with the chance to dominate it for some time.
KFC is not afraid to make bold moves, having recently opened up its largest outpost in the world in a former train station in Baku, so it may very well be able to figure out the secret recipe for making it in Mongolia.