Kauai


Aloha from the Cape to Chicago
You might not expect Hawaii to reach the US via South Africa but that is just what will happen when Kauai presents its franchise model on the global stage, as managing director Herman Redelinghuys explains to John OÔÇÖHanlon.
The world of fast food is changing all the time. Quick service restaurants (QSRs) have been around for decades if not centuries in one form or another, but these days most people associate the sector with McDonaldÔÇÖs, Burger King and the like. While these establishments have been modernising and adapting to keep themselves topical (for example, by adding merchandise from the latest kidsÔÇÖ blockbuster films), many people think they are getting dated. All of their healthy eating or environmental credentials are add-ons to the basic context.

When Kauai was founded in 1996, it was the brainchild of three friends who had lived on the Hawaiian island of Kauai. There they started a bottled juice company while living in tents in a papaya field, and brought their dream of opening a sandwich and smoothie business to reality when one of them married a girl from Cape Town.
They had to develop a concept that would work in South Africa, explains KauaiÔÇÖs managing director, Herman Redelinghuys. In the US, niche markets are large enough to be viable; in the more restricted home market, it wouldnÔÇÖt have been viable to develop a chain of purely fruit and smoothie bars, so a broader portfolio was chosen, with fresh, healthy food prepared on the premises. This model has distinct advantages that will travel successfully into other markets, he believes.
However, before you can go global, it is vital to get the home market running smoothly. The years from 2004 to 2008 were a time of expansion for Kauai, during which the business moved from joint venture and company-owned outlets to franchisesÔÇönow almost the exclusive route for expansion. In South Africa, Kauai now has a total of 90 locations and a thriving alliance with Virgin Active, which operates around 90 health clubs in South Africa. Kauai has its In Motion stores in 47 of these, says Redelinghuys. ÔÇ£Some clubs are too small to be viable and some are in towns we donÔÇÖt cover yet, though we are developing that relationship.ÔÇØ As an example, KauaiÔÇÖs franchisee established at Port Elizabeth in 2009 is now in a position to start In Motion stores at suitable clubs in that city.
Kauai is thus moving from being perceived as a niche player in its home market to being seen as a mainstream QSR player. The expansion rate slowed during the recession, says Redelinghuys: ÔÇ£Operating margins came under pressure and consumer spending declined so during this time we concentrated more on consolidation.ÔÇØ Nonetheless, the expansion policy remains intact, and 2010 should see further strengthening of KauaiÔÇÖs position in the home market. Kauai has the advantage of having very little direct competition; while highly accessible to a large proportion of the population, it is perceived to be more up-market of the longest established brands.
KauaiÔÇÖs first global expansion will be seen in the US, where it plans to avoid major capital commitment by focusing exclusively on franchising, although Redelinghuys expects the company to stake its claim with one or two concept stores to fast-track the franchising process. This is the right time to move, he says. ÔÇ£Over the last five years the health food side has outgrown the traditional QSR market in the US.ÔÇØ The largest direct competitor over there, Jamba Juice, had stuck to juice, smoothies and a few snacks until 2009, when it too started down the healthy food offering. ÔÇ£They have an attractive offering but it is a little different because it is more like Pr├¬t ├á Manger in that the food is not made on the premisesÔÇöours is all freshly made.ÔÇØ
In collaboration with a partner, Edwards Global, Kauai is in the advanced stages of market research and checking supply chain issues in the US, as well as labour costs insofar as they affect the business model. ÔÇ£Edwards specialises in expanding American brands overseas and taking global brands into the States,ÔÇØ Redelinghuys says. ÔÇ£They have many yearsÔÇÖ experience in the franchising business, much of it in the food sector.ÔÇØ Negotiations put on temporary hold during the downturn are back on track, and it is hoped that one of the original founders of the company, himself an American, will personally set up the first concept store.
Redelinghuys is confident that Kauai has a unique offering. All food, sauces and dressings included, is fresh and prepared in front of the customer. The ingredients are kept as close to their natural state as possible. Transfats are banned, as are additives like monosodium glutamate and tartrazine, and no products are fried. All dairy smoothies can be made with GM-free soya milk for the lactose intolerant. ÔÇ£We always believed we have a very unique concept to take globally. That window is still open, and though there are others beginning to play in the sector, we are really confident that this is the time to take our brand into global markets.ÔÇØ
After the US, there will be plenty of potential in other parts of the worldÔÇöthe UK was considered prior to the recession, and may well be revived after it has pulled itself back into sustained growth. Meanwhile, the Middle East, where a number of South African brands have succeeded in the past, and Asia, with its future economic growth potential, is proving very attractive.
Of course this is the year that South Africa hosts the World CupÔÇöbut donÔÇÖt expect that to have much effect on KauaiÔÇÖs bottom line. While the matches are being played there will perhaps be a peak in business, but no greater than that experienced around Christmas, for example. ÔÇ£Events like this are a bonus for outlets that are close to the stadiumsÔÇöthey have a good week when thereÔÇÖs a test match nearby, or an event like the British LionsÔÇÖ rugby tour last year.ÔÇØ However, Redelinghuys will not be factoring in a major revenue boost from the World CupÔÇöits effect is too uncertain.
So expect to hear a lot more about Kauai, both in South Africa and overseas, as it builds capacity and innovates to meet consumersÔÇÖ changing needs. As Redelinghuys puts it: ÔÇ£We believe that in comparison to the major players, we have huge growth potential even in South Africa and as consumers seek to eat healthier food options, we can meet that demand perfectly.ÔÇØ