Case 18

Nando’s International: Takingchicken to the world

Re-printed with the kind permission of De Wits Business School

Late in the day of 27 April 1997, Robert Bro-zin, chairman and chief executive officer ofNando’s International, reflected with satis-faction on the successful listing of Nando’sSouth Africa on the Johannesburg StockExchange (JSE). One rationale for the listinghad been to insulate Nando’s flourishingSouth African operations from the capitalcosts and losses that could follow from therestructuring and planned expansion of Nan-do’s international operations. Brozin’s inter-national management team was confidentthat the global infrastructure and the strate-gic policies that had been developed wouldallow countries in which Nando’s conductedbusiness to reach ‘critical mass’ by the year2000. Beyond 2000, international growth andprofitability were expected to increaseexponentially.

Nando’s had been growing rapidly andperforming well in its home market. Thebenefits of reaching critical mass in SouthAfrica were beginning be felt. In February1997, the turnover of the South African oper-ation had reached R 218 million (In April1997, US$1 ¼ R 4.44), and the 1995 losshad turned into a net income of almost R 9million (see Exhibit 1). Brozin believed thatNando’s success in South Africa was basedon their strong culture and the skills devel-oped over the past ten years. He pondered:Will we be able to transfer our corporate

culture and high level of skills worldwide,or would we be better off focusing our effortsat home? Have we chosen the right countriesto enter? Can we find the right partners andthe finance to achieve our global vision?

Origins and expansion inSouth Africa

Brozin, B.Com (Wits), was the entrepreneurwho created the Nando’s concept. His staffsaw in him a highly creative visionary whoenjoyed working with people. His manage-ment style and personality reflected a pas-sion and enthusiasm for all aspects of thebusiness. In 1987, Fernando Duarte intro-duced Brozin to a humble Portuguese res-taurant in the Johannesburg suburb ofRosettenville, and to their succulent, spicy,flame-grilled chicken. Duarte, a personalfriend, was born in Oporto, Portugal. Hisfamily moved to South Africa, where hetrained as an audio technician.

Brozin had no background in the foodindustry, but felt that there was great potentialin marketing both the product and the Portu-guese dining experience – the warm colours,the lively music, and the friendly and warmambience. Despite being warned by bankersand analysts that the fast food sector was

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unprofitable, due to too many players, Brozinwas undaunted. As he recalled, ‘we had thevision to take this chicken to the world.’

Brozin and Duarte bought the restaurantfor about R 80 000, and immediately startedplanning the expansion of a chain of outlets,first to the Portuguese community in Johan-nesburg, then to the rest of South Africa, andinternationally. The more effort they put in,the more rewards appeared. The fast foodindustry worldwide looked only for reason-able quality. Brozin wanted to provide bothtop quality and speed.

Growing from the single restaurant in1987, Nando’s expanded to four outlets in1990, one in Portugal, and the other threein Johannesburg. In doing so, Nando’s rede-fined service levels for the industry in SouthAfrica. In 1991, to finance rapid expansion,Brozin partnered with the South African-based Hollard group. Each new outlet wasoperated as a separate company, and thebusiness functioned on a joint venture basis,with the Brozin/Hollard partnership retaininga controlling interest. This structure, how-ever, soon proved to be unwieldy and ineffi-cient. A re-structuring process in 1995 led tothe joint venture partners being bought out byNando’s. By this time there were 45 outlets inSouth Africa and an additional 17 in othersouthern African countries (Namibia, Bot-swana, Zimbabwe and Swaziland).

By 1997, Nando’s South Africa (including thecommon monetary area) had grown to encom-pass 117 stores. The pressure from interna-tional competitors, however, began to increasein South Africa after 1995 (see Exhibit 2), raisingquestions about Nando’s future competitiveposition and growth prospects at home.

Corporate cultureBrozin was aware of the key role that Nan-do’s culture played in all of Nando’s activ-ities. This culture was reflected in an easymanagement style, particular partner selec-

tion criteria, and an informal approach tostaff in general, and was deeply ingrainedin all of their operations. In 1996, Jane Humewas appointed Human Resources Executive.A well-spoken, vibrant, blonde Australian inher mid-thirties, Hume had worked withNando’s on a consulting basis since the early1990’s. She saw her role as ‘chief custodian’of Nando’s culture, with a vision of Nando’s‘to be the best . . . not the biggest . . . the bestquick food chain in the world’.

Nando’s mission statement and valuesembodied their culture. The mission wasexpressed in terms of ‘The Nando’s Experi-ence’ which Nando’s strove to give each cus-tomer (see Exhibit 3). Underlying this missionwas a belief that Nando’s was not just aboutchicken. Nando’s five core values, whichbecame an internal mantra, were pride, pas-sion, courage, integrity, and family.

Nando’s encouraged an entrepreneurialspirit and the taking of ‘ownership’. Headoffice set the parameters and guidelines,but the Patraos (store managers) ensuredthat the stores embodied Nando’s values.The corporate culture was also disseminatedthrough a ‘Covenant’, which was distributedto all stores (see Exhibit 4).

The management philosophy at Nando’sreflected a view that occasional failureswere valuable learning experiences. Brozinsummed up the attitude:

Our nature is one of ‘ready, fire, aim’. If wemiss the bulls-eye with the first shot, we’llhit it with the next shot. Early on, Brozinsaw an opportunity to differentiate Nando’sfrom its competitors by providing superiorservice. Service delivery was thought tofollow from and build upon the stronginternal culture at Nando’s.

Application of the culture influenced staffselection and training, as well as career andperformance management. These humanresource functions were largely up to thePatrao. The downside of the resulting culturalhomogeneity was that there was little oppor-tunity for dissenting views to emerge.

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At head office level, selection and trainingof key staff was a lengthy process. Seniormanagers were sent frequently on interna-tional courses and to conferences to exposethem to the latest international trends. Theimportance placed on imparting their cultureto new hires could place Nando’s underpressure to socialize people rapidly in theevent of strong international growth. It alsomeant that senior management could bespread very thin in turbulent times.

Nando’s believed in giving staff membersthe opportunity to improve themselves.However, being a rather flat organization,management and senior management levelpromotions could present a problem.

Advertising

From the outset, Brozin identified the impor-tance of marketing as a key factor in Nando’sstrategy. In 1992, he hired Josi McKenzie asdirector of Nando’s marketing efforts. Youngand vibrant, McKenzie had extensive experi-ence with an international advertising agencybefore she joined the company.

Partly due to limited budgets in the earlyyears, Nando’s developed a unique and irrev-erent style of external communications. Thisirreverence allowed them to stand out fromtheir more conservative competitors and toachieve greater effects at lower cost. Nan-do’s advertising was rooted in a deep under-standing of the local psyche and sense ofhumour that would be difficult for outsidersto acquire. It may also be difficult for Nan-do’s to acquire such a deep understanding inforeign markets.

McKenzie explained Nando’s approach:

Our marketing efforts focus on establish-ing our distinctiveness. We identifiedadventurousbrand building as a core com-ponent of our strategy. Our advertisinghas always been provocative, topical andinteresting, generating public commentand debate.

Nando’s managers believed strongly in thepower of their brand name and focusedmuch of their energy on building brandequity. The Nando’s brand was positionedabove their mass-market counterparts inthe minds of consumers, with premium pri-ces and aspirational messages.

Over the years Nando’s won many mar-keting and advertising awards in SouthAfrica and abroad, including several LoerieAwards for press, television and outdoormobile units campaigns, a London Interna-tional Advertising Award, and an Interna-tional Advertising Festival Award in Cannes.(for examples of Nando’s advertising, seeExhibit 5). Nando’s marketing also extendedto the community level where each store wasencouraged to be involved in local promotionsthat supported the community, whilst at thesame time promoting the Nando’s image.

Going abroadNando’s African initiative began with an out-let in Swaziland in 1991. Later, outlets wereopened in Namibia, Zimbabwe, Botswanaand Mauritius. Further international expan-sion followed in response to requests fromnew operators. By early 1997, 46 Nando’soperations had been established in eightcountries outside the South African mone-tary union, including Australia, the UnitedKingdom, Canada, Israel and Portugal (seeExhibit 6). With the exception of Zimbabwe,however, none of the foreign markets wasprofitable. Brozin reflected on Nando’s initialinternational expansion:

Several people who had emigrated fromSouth Africa approached us about takingNando’s to Australia, the United Kingdom,Canada and Israel, on a franchise basis. Themove wasn’t successful at all. We went inwith people that were working with very tightcapital constraints, inexperienced in thefood industry, and not committed to theNando’s philosophy or the Nando’s way.Admittedly, too, we probably gave themthe wrong kind of support.

Case 18 Nando’s International: Taking chicken to the world 3

Toward the mid-1990s, entrepreneurs fromsoutheast Asia began to show interest inNando’s. One influential Hong Kong busi-nessman, representing a major food chain,was particularly serious. He loved the prod-uct and the Portuguese ambience, but madeit clear to Brozin that Nando’s did not havethe infrastructure to handle a global expan-sion successfully.

Meanwhile, the South African operationshad grown and the structure was becomingincreasingly difficult to manage. Brozin real-ized that this called for a change in approach.

Formation of Nando’sInternationalIn 1995, Nando’s International was formed toleverage international business. Nando’sSouth Africa, the flagship of the organization,had its own strong management structure,and it was considered necessary to do thesame on the international side.

Mike Denoon-Stevens, an engineer withan MBA, joined Nando’s in 1995 as a groupdevelopment strategist. He had previouslybeen managing director of various compa-nies. He was made directly responsible toBrozin for the formulation and monitoring ofglobal strategies, and the development ofsystems, models and manuals. At the sametime, international responsibilities withinNando’s were realigned into clear areas ofresponsibility (see Exhibit 7).

Denoon-Stevens’ challenge was to giveNando’s the infrastructure necessary to makethe new international strategies effective.Drawing from Nando’s South African resour-ces (see Exhibit 8) a team was assembled.The combined skills ranged from opera-tions, restaurant design, retail expertise,marketing, and human resources, to finance,information technology, communications,entrepreneurship and strategic planning.

Denoon-Stevens and the internationalteam spent more than two years buildingmodels, writing operational, training and

marketing manuals, and putting an interna-tional information technology system inplace. They used these new methodologiesto restructure and re-focus the existing mar-kets in Australia, the United Kingdom, Can-ada and Israel.

When exchange controls began to relaxin South Africa in the mid-1990s, Nando’sbought out the existing overseas franchi-sees. Nando’s then took a direct equityholding in those countries. The internationalmanagement team saw this change in own-ership as providing the basis for acceleratedgrowth towards critical mass and countryprofitability. It would, at the same time, allowrapid implementation of the new global infra-structure. The global infrastructure, in turn,would facilitate the ongoing global strategicprocess and provide optimal support for the‘Nando’s Way’ internationally.

Nando’s had no intention of tacklingMcDonald’s or Kentucky Fried Chicken,which had 20 000 and 10 000 outlets respec-tively world-wide, but they did want toremain the best in their niche internationally.

Challenges

One of the biggest challenges for Nando’swas seen as how to retain their culture andvalues while expanding abroad. As JaneHume related:

My key task is to keep our cultureburning within the expanding SouthAfrican and global context. We want tobe global but local, big but small, anddecentralized with central reporting andcontrol. Above all, we must retain ourclose family centred culture, our corevalues, in the process of globalization,yet adapt to very different cultures.

A second challenge for Nando’s lay in how tobuild critical mass in foreign markets. Storesoverseas had to begin with simple storemarketing, just as South African stores didwhen Nando’s began. In most countries,people were not familiar with Portuguese

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food, and their advertising had to be a lotmore educational than was the case in SouthAfrica. Nando’s wanted this education to bedone with the same tone, fun and irrever-ence that was typical for the brand at home.

Recognizing the potential pitfall, however,McKenzie noted that no attempt was made totranslate humour from South Africa to othercountries.

They have to find their own level ofhumour. It is very much a cultural thing.Their advertising should be topical. Onlythey know the burning issues in theircountry, the areas that would attractmost attention. But it must be packagedin the Nando’s way.

It was assumed that humour and irreverencewere sound positioning strategies world-wide.

By 1997, only Australia had started creatingnational brand awareness, by putting up stra-tegically placed billboards. Zimbabwe usedSouth African developed promotions, includ-ing television advertisements. In the UnitedKingdom nothing had been done on a nationalbasis. Consideration was being given to whatcould be done on a limited budget in the Lon-don area only.

McKenzie felt that it was better for theoverseas countries to begin marketing atthe store level as it taught them more aboutthe people in the country and allowed themto build on a solid base. It helped them todevelop the necessary instinctive feel for themarket, which only comes through an abso-lute knowledge of the local environment.

Two of the manuals that were given to thestores worldwide were marketing manuals.They were very much ‘do it yourself’ kits. Themanuals contained Nando’s concept of mar-keting, their six Ps (people, product, person-ality, promotion, public relations and place),and Nando’s brand, product and marketingvision. One volume dealt with local market-ing, including a section on new store open-ings. Customer care was also covered.McKenzie stressed, however, that these

were guidelines. In each country, eachPatrao was expected to adapt marketing cre-atively to the local circumstances as long asit remained true to Nando’s core values – theculture, the product and the brand.

The international management teambelieved that Nando’s culture was ‘trans-portable,’ and saw their basic values as uni-versal. They believed that Nando’s couldcross country boundaries, although suchtransfer was recognized to be easier in somecountries than in others. What was less clearwas the extent to which Nando’s could obtainas deep an understanding of the local con-sumer psyche in different countries as it hadat home. Jane Hume elaborated:

The basic rule is remain true to the cul-ture, the product, and the brand. Beyond thatwe ‘glocalize’ – we have got to meet theneeds of the local market. As we expandfurther into totally different cultures, I expectthat the manifestations of Nando’s culture,the way Nando’s culture is interpreted inother countries, will differ. The challenge isto remain true to the core.

Structures, models andsystemsTo aid in planning, Denoon-Stevens devel-oped two tools: a Store Model and a CountryModel. When looking at a new country, aninitial feasibility study was done and certainassumptions were made, for example, theprice at which the chicken could be soldwhilst still remaining competitive and theexpected growth rate in the market. The costprice of chicken, rentals and labour costswere particularly critical. The individualStore Model (see Exhibit 9) was basically apro forma income statement, detailing sales,cost of sales and all operational expensesbased on the above assumptions.

In order to judge the feasibility of openingstores in a particular country, Denoon-Stevens would first look at a break-even

Case 18 Nando’s International: Taking chicken to the world 5

situation and second at an EBIT of 12%. Herecognized, however, that a model was only asgood as the assumptions. While the uncer-tainties and risks in the countries where Nan-do’s had already been for several years wereseen as relatively small, going into new coun-tries would put pressure on management toprove that their judgement was right. Thebottom-line for Nando’s lay in howmany chick-ens they needed to sell per day. From experi-ence they found this number to be around 100.

The Store Model formed an integral partof the Country Model. This consisted of threesections. First the assumptions were shown.The second part presented a typical individ-ual Store Model projected over 4 years, start-ing with a loss in year one, break-even inyear two, and gradually increasing in profit-ability. Finally the number of stores fromyears 1 to 10 was consolidated.

Nando’s Group Finance Department usedthe Country Model to prepare a 10-year cashflow forecast. The results made it clear thatNando’s was in a long-term business, andthat it was of key importance to achieve crit-ical mass. Denoon-Stevens defined criticalmass as the number of stores needed in acertain country to support a regional headoffice and, in addition, to show a profit. Thenumber would differ from country to country,but would usually be between ten and fifteenstores. One of the most important factors inachieving critical mass was sufficient finance.

Listing on the JSE andrestructuring

Prior to listing Nando’s Group Holdings(NGH) – the South African operation – onthe Johannesburg Stock Exchange, a newholding company, Nando’s InternationalHoldings (NIH), was formed. NIH held 54%of Nando’s Group Holdings (NGH) – the bal-ance being made available to former jointventure partners and members of the public.

NIH also held 100% of the internationaloperations unit, Nando’s International (NI),which was responsible for global activities,and Nando’s International Investments (NII),the international ‘banker’ (see Exhibit 10).

The main purposes of the share offer andlisting were to facilitate restructuring of thegroup and to increase its capital base. Therestructuring had become necessary inorder to insulate the South African operationfrom potential losses that could be incurredduring the international expansion. The Bro-zin and Hollard groups, together with theinternational partners, were to procure thefunding for NII, and thereby enable the expan-sion of Nando’s internationally. NGH wouldhave a 30% participation in the net royaltiesflow from NI, to compensate NGH for theexploitation of Nando’s intellectual property(name, brand, design of store, operating pro-cedures etc.) outside South Africa, giving NGHan upside on international operations.

The listing was deemed to be a success,with the offering 25 per cent over-sub-scribed. Listed at R1.00, Nando’s share pricepeaked at R 1.80 shortly after listing, andthen settled around R1.25.

The Nando’s International managementteam, were confident that the internationalinfrastructure they had put in place, and theongoing strategic planning process, had crys-tallized into a tangible medium-term plan in1996, and would allow Nando’s countriesglobally to achieve ‘critical mass’ by the endof the year 2000. After that, they expectedinternational growth and profitability toexplode exponentially, with concomitant ben-efits flowing through to NGH.

Nando’s based the new financing systemon equity participation with their partners.The per centages differed, depending on thepartners and legislation in particular coun-tries. Only in very few countries, particularlywhere the size of the operations would makeshared equity holdings unprofitable for thepartner, was financing through franchisingseen as preferable.

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Nando’s International developed twoagreements with prospective partners: aMaster Franchise Agreement and a Share-holder’s Agreement. The Master FranchiseAgreement governed the brand integrity,the obligations of the new venture, and thefees that had to be paid up front and on anongoing basis. These fees were for using thename and Nando’s intellectual property, fortraining and for the support of the interna-tional infrastructure that Nando’s had cre-ated. Fees and royalties varied from countryto country depending on its market size andpotential. A Master Franchise Agreementcould demand as much as US$ 1 million fora large country, and require a royalty fee ofup to 6% to be paid. The ShareholdersAgreement covered the usual financial andlegal obligations and rights of the partners,encompassing the number of board mem-bers, policies on gearing, pre-emptiverights on each others’ shares in case of abuyout, voting powers, rules regulating dis-solution and others.

International structure

To ensure optimal functioning of the globaloperations, the international team developedan organization structure, involving separatedivisions for mature countries, developingcountries, and research and development. Amature country would typically have at least12–18 stores with a full head-office structure(i.e., a chief executive, and finance, market-ing, operational and human resource execu-tives). A mature market would typically havebeen functioning for at least three to fiveyears, and employees would fully understandthe Nando’s Covenant and its application.Only South Africa, Zimbabwe, the UnitedKingdom and Australia fell into this category.In the future, Nando’s International antici-pated providing only strategic guidance andmotivational support to these countries. All

other countries were classified as developing,including the new markets Nando’s would gointo and those that did not yet have a fullhead-office structure. The latter includedCanada, Israel, Portugal and most Africancountries.

Denoon-Stevens explained:

We need to put a lot of energy into thesecountries. They have to go through alonger training period to fully understandthe Nando’s culture and the Nando’s Way.

The third division of Nando’s Internationalwas research and development. R&D wasintended to cover the complete spectrum ofthe business from marketing, to global indus-try trends, incentive schemes, new technol-ogy, new products, store design, and IT.Research would generally be done at thecountry level, so that there would be a prac-tical arena to test things, but all results wouldbe for the use of the whole global family.Nando’s International would keep in touchwith global trends and advise the countriesaccordingly.

The heads of each country were regardedas a critical part of Nando’s International’smanagement team. Although 90 per cent oftheir time was devoted to their own country,country heads also had a responsibilitytowards the global operation.

In their early years, Nando’s communica-tions had been highly informal and personal.While this had been effective for a smallorganization, global growth mandated anew approach. The risk, however, was thatNando’s would lose the personal touch.

Denoon-Stevens saw an InternationalCommunications System as a key factor toensure an optimal global operation. He devel-oped an Intranet system, ‘The Nando’s Ring ofFire,’ to facilitate such communications in thefuture. The system is structured very muchlike an organogram. Each functional head ofNando’s International will use a page, cover-ing about ten different disciplines, such asfinance, operations, marketing, human rela-tions, store design, information technology,

Case 18 Nando’s International: Taking chicken to the world 7

purchasing and retail. The functional execu-tives in each country will use sub-pages. Thechief executive, heads of countries and seniorstrategic members of Nando’s Internationalwill use their pages to communicate inter-nally. Library pages were envisaged to containthe best of Nando’s advertisements, theCreed, Nando’s Covenant, important specifi-cations and other relevant information.Denoon-Stevens related:

There used to be duplications, due tolack of communications between thedifferent countries. It is hoped that thisnew system will create tremendoussynergies in areas ranging from how tosell Nando’s chicken from caravans in asports stadium, to fighting bacterialdisease, exchanging special recipes,and videotaping store design. Eachdiscipline has a bulletin board todiscuss current projects and exchangeinformation. An audit sheet will addcontrol and assist each country head toimprove communications.

The Nando’s International top managerswere also committed to frequent informal,personal meetings with the country headsand local managers.

Choosing partnersThe choice of the right international partnerswas recognized as being of crucial impor-tance to the success of Nando’s International.The local partners would run the business atthe country level, with the local Patraos tak-ing on the responsibility at store level.

To date, partner selection had been a veryhaphazard process. Brozin expanded on howprospective partners were identified:

Some approach us, some we approach.Third parties, such as stock brokers ormerchant bankers will come to ussuggesting a good partner. Frequentlyforeigners who have enjoyed eating inour restaurants approach us. We speakto everybody. Any contact could presentan exciting opening.

Nando’s had established criteria for theselection of international partners from thiswide pool, but little though had been given toactively soliciting new partners with speci-fied characteristics. Most important to themwas shared values and culture. The secondkey issue was financial strength. The part-ners had to be able to hold out until criticalmass was reached, which could take up tothree years. The third criterion was the part-ner’s networking ability within their localsociety, and the fourth was commitment.

As Denoon-Stevens explained;

This business is eighteen hours a day,seven days a week, fifty-two weeks ayear. You never stop. When you are notmaking any profit for three years, youare under great pressure. You needcommitment and focus. Knowledge ofthe industry is not essential, expert staffcan always be employed.

Nando’s International saw their competitiveadvantage in the fact that they were sellingan experience, not just a product. They sawtheir strengths in a focus on a single busi-ness, their flexibility, their culture and theiroutlook on people. In their view, in a world ofhigh technology, anybody can make achicken as good as the rest; the differencewas going to be in the people doing it.

Entering Southeast AsiaNando’s vision was to have 800 stores world-wide by the year 2005. The critical questionthat the Nando’s International team began tograpple with in 1996 was in which countriesto locate these stores. Nando’s key decisioncriteria for market selection were: (1)chicken must be an acceptable food; (2) con-sumers must like spicy food; (3) the Nando’sExperience must be acceptable to the coun-try’s lifestyle; (4) the country must be Englishspeaking; at least to the extent that Nando’scan easily communicate with the partnersand local management; and, (5) the rightpartners must be available.

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The team agreed in 1996 that SoutheastAsia appeared to offer the ideal new mar-kets for Nando’s to enter. Brozin felt thatthere was a definite pull towards southeastAsia:

That market jumped at us. A lot of ourAustralian, London and South Africancustomers come from southeast Asia. Anumber of businessmen from southeast Asiaapproached us. We did a lot of research.These countries are great chicken eatersand they love spicy food – the most success-ful Kentucky Fried Chicken operation is inMalaysia.

It was felt that if they wanted to take onthe world, the Pacific Rim was a very goodplace to start in 1996 – it was a fast growingmarket, and the product was right for thatmarket. Considering their limited resources,the Pacific Rim seemed like a good place tofind partners with sufficient finance. Therewas also generally no problem with English,and Nando’s felt comfortable with the east-ern family business culture.

Nando’s did not feel ready for the UnitedStates, the home of fast food restaurants.They felt that they lacked the resources, theexperience and a sufficient understanding ofthe market. They were, however, determinedto tackle the United States at a later stage.

Latin America also appeared to Nando’sexecutives to be a tough market in which tooperate, particularly due to the language dif-ferences. McKenzie suggested that Nando’swould probably consider Latin America oncethey had established themselves in theUnited States.

The Nando’s International managementteam saw Europe as a mature market,expensive to operate in, and with a lot ofred tape. Language barriers also made it amore difficult market for Nando’s to enter.Nevertheless, they considered creating ahub in London and eventually breaking intothe European market from there. They rec-ognized the value of regional expansion andconsolidation as an essential way to create

synergies. In the same vein, further expan-sion in the Middle East was considered forthe future.

Brozin and Denoon-Stevens felt confidentthat their requirements were met in South-east Asia, in particular in Singapore, Malay-sia and Indonesia (see Exhibit 11). Otherswere not so sure, and felt that applying dif-ferent criteria could result in different coun-try choices and/or different partners.

Nevertheless, by early 1997, the negotiatingprocess in Singapore andMalaysia was alreadyquite advanced, while Indonesia was to followlater. Nando’s saw these markets as the firstprofessional new country openings. Denoon-Stevens and Brozin felt assured that all ofthe newly developed methodologies and stra-tegic criteria had been applied successfullythroughout the process.

In the early 1990s, an agent from Singa-pore had approached Brozin in London onbehalf of the wealthy Kua family, whoseinterests at that time were mainly in theproperty sector. Negotiations began in mid-1996. After several visits to Singapore, andmeetings with the Kua family, Brozin andDenoon-Stevens felt that a final agreementcould be signed following the listing of Nan-do’s South Africa on the JSE.

An intensive two-month training period forSingaporean management and key staff wasanticipated before the opening of the firststore towards the end of 1997. Nando’s woulddownload their culture, systems and method-ology, as well as their extensive marketing,people and operational skills. Before and afterthe opening, South African operational staffwould assist in Singapore for a few months.A total of 20 stores was anticipated, under afull franchise agreement, to ensure profit-ability for the Kua family. With propertyrental rates in Singapore at the time beingvery high, however, the Kua family felt thatthey could not select an ‘A-rated’ site for thefirst store. It was also decided to simply openthe doors to business, without any precedingpromotions.

Case 18 Nando’s International: Taking chicken to the world 9

In Kuala Lumpur, Malaysia, Nando’s alsowent into partnership with a family that hadno food or retail business experience. Nego-tiations began in late 1996, with the processrunning parallel to that in Singapore. Signingthe final agreement was anticipated for early1998, and the first store was expected to openin mid-1998. Compared to Singapore, therewere several important differences in Malay-sia. In Malaysia, Nando’s would participatedirectly with a 30 per cent equity stake (themaximum foreign share holding that wasallowable). Due to a much larger population,the potential in Malaysia was seen as 150stores. An ‘A-site’ was chosen for the firststore, and initial promotional activities wereplanned. Nando’s International decided tointensify the training before the opening andprovide more operational assistance in thefirst store in Kuala Lumpur. A South Africanmanager would help run the store for thefirst year.

April 1997

Brozin’s thoughts went back to the strategicdecisions that Nando’s International’s man-agement team had made in 1996. Consideringthe unprofitable position of the internationaloperations and the exciting growth in SouthAfrica, one possible option would have been toconcentrate on South Africa and abandoninternational activities. Growing competitionfrom international players coming into SouthAfrica would certainly put a strain on Nando’shome base.

Brozin, Denoon-Stevens, McKenzie, Humeand Sacks, however, all felt that this wouldnot only have been against Nando’s originalglobal vision and their entrepreneurial style,but that it would have been detrimental forNando’s South African operations. It was theinternational exposure, they believed, thatforced them to look at the latest trends intheir business world-wide, helping themto be proactive, and confident in meeting

the increasing foreign competition in SouthAfrica.

Another option would have been to firstconsolidate the existing international mar-kets, before venturing into new countries.Growth without such consolidation couldput the entire international plan in jeopardy.The Nando’s International managementteam, however, felt that the spirit of Nando’swas expansionary, and that their characterand style were entrepreneurial. The risk offailure was discounted in the excitementlevel in the group. Continuous innovation,they felt, was what kept Nando’s dynamicand encouraged their flexibility. Sacks madethe point: ‘It is the global experience thatgives us credibility, confidence and continu-ity. We could easily saturate one, or evenseveral markets. We can’t saturate theworld’.

Denoon-Stevens expanded on the sameissue:

In this world today you can no longer bejust local. If your vision is to grow, in ourkind of business, there will sooner orlater be a saturation point in any market.There must be ongoing stimulation andmotivation for the people; they must alsobe able to grow.

The mood at Nando’s head office in Johan-nesburg in April 1997 was jubilant. Every-thing looked just right, and the internationalteam felt that ‘this chicken is going to fly andconquer the world!’ Nando’s had decided tofirst consolidate the existing countries andthose beginning in Southeast Asia, in Singa-pore, Malaysia and Indonesia, before goinginto any other new ventures, except if a reallypropitious opportunity should arise. Never-theless, Brozin felt apprehensive, and couldnot help wondering:

Should we have remained only in SouthAfrica and consolidated our existing interna-tional markets or was it the right decision togo into southeast Asia at this juncture? Dowe have what it takes to make it work?

10 Part four Cases

Discussion questions

1 Why are Nando’s International service personnel also called Boundary Spanners?

2 Why is culture important to Nando’s?

3 Nando’s have a very strong international brand. How has advertising and brand identityhelped them achieve their success?

4 Despite being an international organization, Nando’s still has a local feel – how havethey achieved that?

5 Consider yourself to be the Marketing Manager for a Service organization. Thatelements of Nando’s success would you include in your strategy for moving yourorganization onto the Global scene?

Exhibit 1: Nando’s Group Holdings:Financial information (R 000)

Income Statement

Year ended February

1997 1996 1995 1994 1993

Turnover 218 261 181 989 123 492 63 494 30 998

Operating income/

(loss) before interest

17 855 14 313 2 109 2 335 (792)

Net Interest paid 3 826 4 604 3 420 2 391 1 497

Operating Income/

(loss) before taxation

14 029 9 709 (1 311) (56) (2 289)

Net income/(loss) 9 119 6 311 (1 311) (56) (2 289)

Attributable to outside

shareholders in

subsidiaries

484 262 240 (33) –

Pro forma earnings

Attributable to

ordinary shareholders

8 635 6 049 (1 551) (23) (2 289)

Case 18 Nando’s International: Taking chicken to the world 11

Balance Sheets

Group1997

Group1996

Company1997

Company1996

CAPITAL EMPLOYED

Total ordinary shareholders’ funds 35 053 2 307 31 888 9

Convertible loans 29 960 61 840 29 960 61 840

Outside shareholders’ interests 356 218 – –

Deferred taxation 436 218 – –

Long-term liabilities 11 225 10 413 – –

Total capital employed 77 030 74 996 61 848 61 849

EMPLOYMENT OF CAPITAL

Fixed assets

54 849

38 649 – –

Trademarks

66 603

66 603 – –

Investment in subsidiary

–

– 62 542 62 542

Total fixed assets 121 452 105 252 62 542 62 542

Current assets

Inventory

6 391

4 187 – -

Trade Debtors

4 246

2 712 – –

Other debtors and prepayments

7 296

7 007 – –

Bank balance and cash

460

1 501 – –

Total current assets 18 393 15 407 – –

Current liabilities

Trade creditors 16 914 12 646 – –

Other creditors and provisions 15 026 20 388 689 688

Current portion of long-term liabilities 4 981 1 987 – –

Taxation 3 218 669 5 5

Bank Overdraft 22 676 9 973 – –

Total current liabilities 62 815 45 663 694 693

Net current liabilities 44 422 30 256 694 693

Total employment of capital 77 030 74 996 61 848 61 849

12 Part four Cases

Exhibit 2: Major playersin the fast food businessin South Africa (1997)

Exhibit 3: Nando’sexperience

Pleasure Foods

Wimpy 224 outlets

Juicy Lucy 45

Mac-munch 6

Steers

Steers 202

Blockbusters 45

Mighty Pies 15

Spur

Spur (National) 170

Panarottis 32

King Foods

Bimbo’s 36

Chicken Licken 275

King Pie 260

Nando’s 117 (includingcommon monetaryarea countries)

Pie City 120

Mochachos 60

Foodgro

Black Steer 43

Flame Diners 11

Max Frangos 3

Don Group

Guiseppe’s 9

Pepsico

KFC 290

Pizza Hut 28

McDonalds 15

Source Fast Foods and Family Restaurants, March 1997.

We will take you on a journey,your own voyage of discovery.

You will come to discover howspecial it is to belong to the Nando’s family

You will experience our traditionalhospitality, warmth and fun.

Your senses will be fired with theunique products and taste of Portugal –all prepared with pride and passion.

And here, you will be touched bythe magic that is the Nando’s Way.

Case 18 Nando’s International: Taking chicken to the world 13

Exhibit 4: Nando’s covenant

This covenant is the binding promise that is made by all Nandocas to uphold and protectthe beliefs and procedures that have made Nando’s what it is, and will determine what wecan become.

Only by being true to the Nando’s Covenant can we create themagic that is the Nando’sWay –this is our guide to delivering the Nando’s Experience.

Our People

Demonstrate your commitment to the Nando’s Creed

The values of Pride, Passion, Courage, Integrity and most of all Family must be reflected inevery aspect of managing your Nandocas.

This extends to the recruitment, the selection, the placement and particularly the inductionof personnel. Every Nando’s University course will embrace these values.

Create and nurture a communications culture

Open and honest two-way communication is mandatory to realize the empowerment of allNandocas.

Implement formalized human resource information and personnel systems

To nurture the Nando’s culture a relevant Human Resources plan encompassing manpowerplanning, Personnel role definitions, sound Industrial Relations and an IT data base must allbe implemented within a realistic budget.

Commit to your own personal development and the development of your Nandocas

An investment in our people through training and development is the most powerfulinvestment of all. Only through the growth of you and your Nandocas will Nando’s grow.

Use the Nando’s University to provide a framework for the training and upskilling of all –every Nandocas has the right to fulfil his individual potential.

Our Marketing

Position the Nando’s brand as aspirational

Nando’s is positioned above other mass market value driven brands. This must be reflectedin all ways:

l Our menu always has as its main focus, Nando’s core product – flame grilledPortuguese style chicken in lemon and herb, mild or hot peri-peri.

l Any new menu must enhance the Nando’s Experience.

l In every country Nando’s is competitively priced, but to keep our aspirational positioningwe are always priced above our competitors.

l Nando’s promotions give our customers added value, never discounts. Added value isgiven through side items – never core products.

l Our media usage is aspirational and we are always first with new and innovative media buys.

14 Part four Cases

l Nando’s natural packaging enhances the Nando’s Experience to our customers. It isalways made of biodegradable food quality paper, card or plastic and bears theNando’s emblems, brand identity and Escudo promise. Any eat-in packaging mustenhance the Nando’s Experience.

l Store design, decor and staff uniforms contribute to Nando’s aspirational brand image –these must conform to the Nando’s specifications.

l Nando’s stores are always located exactly where our customers expect to find them –in convenient, but upmarket areas and premises.

l Our service levels set us apart from the competition – they must be consistently highand measured regularly by customer care and mystery shopper programmes.

Apply the Nando’s Brand Identity

l Remain true to the core values of the Nando’s brand to manifest our personality, attitudeand heritage in all communication.

l Consistently apply the advertising look and style, pay-off line, colours, logo and otherelements that make up the Nando’s corporate identity to build global brand recognition.

l Focus the advertising message to core product combined with brand intrinsics andbalance of flavour range to establish Nando’s peri-peri flame grilled chicken as thepremium brand in all markets we enter into.

Commit to Ongoing Brand Building

l A brand building strategy, local marketing strategy, community involvement strategy(with a social responsibility aspect) and an internal marketing strategy with clear cutobjectives will form the basis of a solid marketing plan.

l Brand building the Nando’s Way needs a committed marketing budget – this is madeup of a % of projected sales allocated to a central fund. This should never be less thanthe accepted international norm.

l Marketing effectiveness measures the success of the marketing plan. Use the dimensionsof net sales relative to budget, customer counts, ticket averages, menu mix, effect ofpromotions and new product introductions on sales to assess how you stretch $1 into $3.

Our Stores

Enhance the Nando’s experience through your ‘Casa’

l Adhere to the specifications for store design, decor and accessories they all have animportant role in creating the Nando’s magic.

l Match your internal colours and store decor to Nando’s internationally recognized look –this will build global brand recognition.

l Ensure all external signage is as per specifications in the Nando’s manual.

l An instantly recognizable menu board and menu offering are key to creating theNando’s Experience use the menu board concept and layout as specified.

l To protect the brand integrity all store concepts, layouts and finishes must be approvedby Store Development.

Case 18 Nando’s International: Taking chicken to the world 15

l To uphold the high quality of our food all kitchen equipment used must be as specified.Ensure that the space in meterage allocated to the location of any new store is suitable.

Our Operations

Ensure that the methods and procedures of preparation and cooking Nando’s foodconform to our high standards

l Follow our current best practices recommendations using the specified equipment andproducts.

l Achieve the quality service standard that Nando’s demands by not dropping below theminimum recommended staffing levels.

l Ensure the quality and presentation of all food meets Nando’s famously high productstandards – remember the Escudo is on everything you serve.

Set the Industry Standards

l Make sure that the quality revolving around your Place, People and Product meet theset criteria we have all agreed upon.

l Take the local industry requirements into consideration as well as the criteria forNando’s safety standards and practices.

l Conduct all micro testing and product analysis according to Nando’s agreedstandards. Use only Country Head approved suppliers.

Follow the Right Procedures for New Product Development

l Test any new products developed in your country with NI Operations to ensure hygieneand quality production methods and procedures.

l Ensure that any new product complements our core product and adds to the Nando’sExperience.

Our Reporting Systems

Provide comprehensive monthly financial, operational and marketing data by keepingyour information systems up-to-date and up-and-running

l Apply the Nando’s World Standard for the capture of basic data and supply of reports.

l Set up systems that enable the NI to access your data

Ensure that an Annual Strategic Business Plan and Budget is Agreed Upon

l Set realistic, but challenging goals.

l Ensure that the allocated responsibilities are accepted by both parties.

Guarantee the Smooth Operation and Communicationwithin the Nando’s Global ‘Family’

l Install Nando’s own Back of House (BOH) and Point of Sale (POS) software into eachstore to form the basic platform for data collection and control.

16 Part four Cases

Exhibit 5: Examples ofNando’s advertising

Case 18 Nando’s International: Taking chicken to the world 17

Exhibit 6: Nando’sInternational – Storelocations (April 1997)

Exhibit 7: Internationalresponsibilities (1997)

R. Brozin (Chief Executive Officer)

South AfricaUnited KingdomAustralia

F. Duarte (Director)

AfricaPortugal

M. Denoon-Stevens (Director)

Pacific RimCanadaIsrael

Exhibit 8: Functionalinfrastructure (1997)

Marketing (J. McKenzie)

Human Resources (J. Hume)

Operations (J.M. Bloch)

Trading (J.C. Datt)

– non-food

– clothing

– kitchenware

Retail (A. Yannoukos)

– sauces

– marinades

– dressings

Finance (L. Perlman)

Information Technology (outsourced)

CountryFirst store

openedNumber of

stores

Australia 1991 13

Botswana 1993 3

Canada 1994 6

Israel 1993 4

Mauritius 1995 3

Portugal 1989 1

United Kingdom 1992 6

Zimbabwe 1993 10

Total 46

18 Part four Cases

Exhibit 9: Store model (example)

Case 18 Nando’s International: Taking chicken to the world 19

Exhibit 10: Corporate structure

NER

Investments

(Hollard Group)

Max BrozinInvestment Corp.(Brozin family)

| |67% 33%

||_________________________________________________|

||

BROZENT|

100%||

Nando’sInternational

Holdings| |

Management, vendors | |And general public | |

| | | 46% | __________________| |__________________

| | | || | 54% | 100% | 100%| | | |

Nando’s Group | |Holdings | |

| | |

-------------------� Nando’s International Nando’s International

Investments30%

participation

in net royalties

Exhibit 11: SoutheastAsian Markets (1996)Singapore

Singapore had an open economy with strongservice and manufacturing sectors, andexcellent international trading links derivedfrom its historical connections. Singaporeenjoyed extraordinarily strong fundamentalsand had key attributes of a developed country,such as high productivity, a good infrastruc-ture, applied technology, capital investmentand labour discipline.

MalaysiaDuring the late ‘80s and early ‘90s, expan-sion into export-orientated electronicsand electrical machinery was the chiefvehicle of growth. Malaysia had made sig-nificant changes in the area of deregulationand reducing tariff barriers, to encourageinvestment and promote exports. Duringthe period 1988–1995, Malaysia’s annualGNP growth rate averaged 8.5 per cent,inflation and unemployment were low,and investors were ebullient about thecountry.

20 Part four Cases

IndonesiaIndonesia had long been praised for itssound macroeconomic management andspectacular growth. For thirty-two yearsPresident Suharto appeared to provide the

country with strong and stable leadership.For three decades it averaged a GDP growthrate of 6 per cent annually. With industry asthe primary driver of growth, Indonesia’smanufacturing sector had expanded andagriculture had steadily increased.

Key economic indicators (1996)

NotesThis case was prepared by Dr. Liesel de Blois, withProfessor Saul Klein. This case is not intended todemonstrate ineffective or effective handling of anadministrative situation; it is intended for classroomdiscussion only.

Country

Area

square

km

Population

million

GDP

$billion

GDP

Growth rate

percentage

Inflation

rate

percentage

Unemployment

rate

percentage

Singapore 647 3.5 86 6.0% 0.9% 1.70%

Malaysia 329750 20.9 98 8.4% 3.5% 2.60%

Indonesia 1919440 212.9 225 7.8% 7.9% 3.20%

South Africa 1219912 42.8 123 3.0% 8.9% 33.00%

Copyright ª 2000 Graduate School of BusinessAdministration, University of the Witwatersrand. Nopart of this publication may be reproduced in anyformat – electronic, photocopied, or otherwise – with-out consent from Wits Business School. To requestpermission, apply to: The Case Centre, Wits BusinessSchool, PO Box 98, Wits 2050, South Africa, or e-mailchetty.l@wbs.wits.ac.za.

Case 18 Nando’s International: Taking chicken to the world 21