http://www2.qsrmagazine.com/articles/interview/125/douglas_foo-1.phtml
Growing Leaps and Bounds
Douglas Foo is set to make his brand the McDonald’s of sushi, and the financial crisis could help.
“Do you know the meaning behind our logo, the frog?” Douglas Foo asks quietly over the phone. The volume is up all the way, and his voice still isn’t much above a calm whisper. “The frog doesn’t walk, he hops,” says Foo, making an obvious reference to his own company’s explosive growth. It’s 10:30 p.m. where he is in Singapore during our phone interview, a 13-hour difference from the eastern U.S., and despite the late hour, Foo’s responses sound more like that of a sensei than a quick-serve executive.
But he is the latter—founder and CEO of Sakae Sushi, an international sushi quick-serve with 70 units across Asia, two in New York City, and plans for many more. The logo, it turns out, represents the company perfectly, not because of the importance of its Chinese characters, its lucky color, or its resemblance of a rice bowl. Instead, the logo’s design is the perfect example of the type of meticulous thought Foo puts into every business decision. Potential markets are put through rigorous research processes, suppliers are thoughtfully chosen based on a mix of green consciousness and bottom-line common sense, and even the number of chairs in the stores is down to an exact science.
While other quick-serve leaders scramble to secure capital and unload company-owned stores before the economic climate worsens, Foo is not worried, not yet extending franchising in the U.S., and not experiencing anything he hasn’t already weathered.
The brand was launched in 1997 in Singapore at the height of the Asian financial crisis. And now that he’s entered the U.S., at a time when expansion is seen as a fool’s errand, it seems a crumbling economy is the secret ingredient to Foo’s international success.
Through a series of e-mails and phone calls, QSR got to know Foo’s emerging brand. In this QSR Interview he opens up about the challenges of global sourcing, his stores’ cutting-edge technology, and where his frog will hop to next.
Where did the idea of Sakae Sushi originate?
We realized people were beginning to become very health-conscious, and Japanese food is very healthy food. Our idea was never to open just one restaurant, but to make a brand that was synonymous with sushi or Japanese food. That’s how we picked the name Sakae because it sounds like sake, and sake and sushi go together in a lot of places. What we were looking at is the global market. So when people think Sakae, they think sushi; like when they think hamburgers, they think McDonald’s; when they think pizza, they think Pizza Hut; and when they think fried chicken, they think KFC.
Is it possible for a sushi concept to be as successful as traditional fast-food chains?
McDonald’s was not loved by millions overnight. It took them years to get to where they are today. As it is, Asian food is fast gaining popularity over fast food because of health concerns. And this trend will gain strength. We believe strongly that one day Japanese food will be the preferred choice for meals and be as popular as, if not more popular than, other fast-food chains.
How are you able to serve sushi at fast-food prices?
The reason why we were able to do that is because we’re working directly with the suppliers, the source.
We try to always get our cost brought down, and we also have innovative ways to maximize raw materials.
But I don’t think we have a secret formula on how we were able to make sushi affordable to the masses or how we managed to grow the Sakae Sushi brand into a global brand. It was a matter of doing what we believe in—serving tasty Japanese fare with quality and fresh ingredients at reasonable prices.
Can you give an example of maximizing materials?
For example, when you buy a whole salmon fish, most people only use a couple parts of the fish but we use almost the whole fish. We actually get a much better use of the fish and are more environmentally friendly because there’s less waste.
Another way is when we opened our first outlet, most Japanese restaurants had a seating capacity of 50 for a 1,000-square-foot restaurant. We were able to double that by creating a longer conveyor that runs into the kitchen. For outlets that are odd-shaped, we were also the first to design belts that run and snake round the shape of the restaurant.
Is the menu the same at all Sakae locations?
Generally we have about 60 or 70 percent of the menu that’s similar at all the locations, so that we can have a brand identity. The rest, we check what’s happening in the market—the demand, the pace—and we fill those roles with the other parts of the menu.
Your stores use kiosks called Interactive Menus. What’s the advantage of using those?
It’s quite simple technology, and we just apply it to the restaurant environment.
When we first started, Japanese food was very new to the marketplace, so if our colleagues at the front of the restaurant are asked, ‘What is a California Roll?’ 20 times a day, on the 20th time they’re not going to be able to smile. But if you click on the computer 2,000 times a day, it’s always going to smile back at you.
That’s the reason we have it there, so people will take the time to learn about the menu. If you click on an item, you can see a picture and a description of the item and even the nutritional information so people can make healthy choices.
Are the computers really worth the financial investment?
When we started in 1997, it was very expensive. One unit would be about $2,000 to $3,000. The reason why we invested in that is because we were able to bring down the labor costs. We don’t need someone to take you to your table or take your order. Also, the computers offer great data mining. We took a lot of information about the customers. Over time, that way we were able find out how the tables were ordering and eventually bring down our costs.
Are your locations franchised or are they all company-owned?
We’re in seven countries and cover 12 cities—Singapore, Jakarta, Chiang Mai, Beijing, Chengdu, Hong Kong, Shanghai, Manila, Kuala Lumpur, Penang, Selangor, and New York City. Of these, Indonesia, Thailand, and the Philippines are franchised stores.
What do you look for in a potential new market?
Any textbook will tell you that you need to do a basic risk assessment looking into areas such as regulatory, legal, environmental, political, and financial. We also ensure that we have a good network of suppliers, regulators, and property owners before we enter the market. And while we exercise a lot of prudence before signing on the dotted line, we also look at the long-term potential of the market. And we do not mind entering it even if it may be deemed as high risk.
Do you look to develop one country or continent at a time or multiple stores in various top-performing markets?
We take one step at a time. We actually go to one country and try to build a substantial number of locations to make it viable and sustainable before we move on to the next. But we have so many inquiries from all over, so sometimes there’s the temptation to spread ourselves out. But really we need the correct structure and support system to keep costs down, so we’re very focused.
That brings me to sourcing. Is it challenging sourcing consistently to so many areas across the globe?
We take a two-pronged approach. We work with a core group of global suppliers, and we centralize purchases of selected items. This provides economies of scale for the group in general. On the other hand, if there are local suppliers who can provide a better deal due to proximity and quality, we will then work with the local suppliers. The two-pronged approach helps us to manage our costs and prices so that we give the best in terms of raw materials and the best prices.
Sourcing internationally raises concerns of quality control. How do you maintain a clean product?
We’re looking very closely at where our raw materials are coming from. We want to have a fit and healthy finished product so we’re looking for the right raw materials to go in there. We can only get the right raw materials from places that are farming the fish and growing the vegetables where we know the process they’re adopting and also their neighbors. You’re not going to be able to get great-tasting fish if the farm has the best practices but it’s located next to the marine shipyard.
Now that the international economy is weakening, are you changing your expansion plans at all?
After expanding aggressively in the past few years, it is a good time to take stock of our current situation. While we are still open to new markets and new opportunities, we will assess very carefully before going into the new markets.
As for our existing markets, we are consolidating and might close down stores that are not profitable. By releasing resources from unprofitable stores, we can then look into expanding in areas that have more potential.
In short, we will continue to expand prudently as we believe in being ahead so that when the economy recovers, we’ll be where the bucks are.
Having said all that, we will definitely be keen to explore new ideas and niche markets. We want to be there to tap the next wave of growth. In fact, we are very excited with the opening of the first sushi drive-thru in Singapore in November.
Are the poor-performing stores the fault of franchisees or the markets?
It can be multiple factors. Before we enter a market, we do a lot of research, but ultimately there is still risk. We need to manage that risk, but sometimes in certain markets in certain locations it’s just too early. Way back in 1985, conveyor belt sushi was brought to Singapore, and it was too ahead of its time and never took off. So we realize that even though we research the market, there are still unknowns. You can research anything you want, but sometimes ultimately there are some areas that you have to come to the conclusion that it’s too early.
Where do you project the brand to be in five years?
We hope to expand into several other markets, including the Middle East.
Is an expansion into the U.S. still on your agenda?
Yes, we do not plan to stop at two stores in the U.S., but we will focus on New York. We are definitely here to stay and hope to grow Sakae Sushi farther and build it into the Starbucks of sushi.
Why focus on New York?
Originally we wanted to enter the U.S. market in 2001. We were talking to someone in Los Angeles but we had to shelf that plan. Then a couple years ago I was speaking in Pennsylvania about the Asian business perspective and the conclusion at the end of the day was that Sakae Sushi should enter the U.S. market, No. 1, through Chicago and, No. 2, through New York and No. 3 California. I was much more familiar with New York, but Chicago was interesting because it came with a few recommendations in regards to the market competition and the price comparison. But we weren’t able to get a person over there who could open the market.
We found someone in New York, and most people say that that’s the toughest city. If we can make it there, we can make it anywhere.
So, we’re putting on the same crazy hat we did in 1997 while opening our store in Singapore during the Asian financial crisis.
Has there been any franchising interest from the New York locations?
We’ve had a lot of inquiries since opening, not just franchising but private equity. But with the current financial state, they have slowed.
We still think of ourselves as a very small enterprise but one with a very big dream. So in America, we’re still on the journey to spread our footprint. That’s why our logo is the frog. A frog doesn’t walk, he hops.
