In the second of a two-part column on expansion in the US, Jasper Reid looks at the possibilities for operators in the home of the brave – just don’t forget to swot up on the costs and logistical hurdles you’ll face.

Many years ago, I was on an American Airlines flight out of Atlanta. “What can I get you?” asked the flight attendant with the drinks trolley. “I’ll have a Coke” said I. “I’m sorry dear, we don’t have any cake on this flight,” she replied.

Flummoxed, I realised my Coke was her cake and was mildly appalled at my strangulated public-school vowels. Like Sebastian Flyte, at 28,000 feet. The point is, America is different.

With another random analogy behind us, we turn to this sequel edition of Going Global and tackle some of the dryer themes of US market development. If the last article was all A-Team, this is more Arrested Development. But, as George Bluth Sr found out, riches soon turn to rags without a grip on the basics.

First up, development capital. When advising an investor on taking a sushi brand stateside, we estimated the market-entry table stakes at about $500,000 (pre-build). After the initial gulp (and a year’s work), the brand decided instead to acquire an established US chain.

Unusually for UK restaurant players, they realised that tackling the US is expensive and were better off going the whole hog/Hamachi. Whatever you do in the US, don’t think it’s cheap.

As with all markets, it’s all about the numbers but the false-friend is thinking a US P&L is similar to the UK. As John McEnroe would say, “you cannot be serious!”

It’s a different numbers game

US restaurant numbers can be very different. Take labour costs. In New Jersey, the minimum wage is $8.85 an hour, but the state allows a tipped credit of $6.72 an hour, making the minimum $2.13 an hour. Just across the Hudson, in New York City, the minimum wage is $15 an hour with no tipped credit allowed.

Countrywide, anybody paid by the hour, working more than 40 hours, is eligible for overtime at time and a half (with social tax implications). All clear? You better be buster.

And menu pricing is, inevitably, different with a tendency towards lower absolute prices vs the UK. This can mean higher COGS and scale may be needed to get purchasing power and bring the P&L in line with ROCE.

The good news is that scale in America, of all countries, is eminently possible for the competitive and ambitious, as Alison Vickers (ex CFO YO! Sushi) explains:

“Take a random chain like Fazoli’s with over 200 units and based in Lexington, Kentucky. Elevated Italian QSR (it’s a thing apparently) and the brand doesn’t have a single location in New England, New York, New Jersey, Washington DC, but has around 100 locations in Indiana, Kentucky, Tennessee and Wisconsin.”

A brand like Fazoli’s, with 217 units, shows it’s often a numbers game. The way Fazoli’s gets scale is by franchising, with the company owning about a quarter of the estate and three-quarters licensed to big, sophisticated restaurant groups.

If you think the P+L is kooky, check out capex and real estate.

While UK building generally self-regulates (plans approved and off-you-go), capital projects in the US are highly regulated, making the build process twice as long. Vickers attributes this, in part, to the litigious nature of the States, meaning sign off ‘by the city’ is imperative.

Every area from electrical, plumbing, fire and food hygiene has to be approved by regulators. She expands:

“I’ve seen cases where you book a fire inspection in NYC ten weeks before completion and the fire department cannot inspect until three weeks after your planned opening”.

“And let’s not even mention union labour which prevails across NYC, Boston, Chicago and Philadelphia. If you break with this, trucks won’t deliver materials, janitors won’t accept deliveries, construction workers won’t work with ‘scabs’ and giant inflatable rats may well appear outside your building.”

Union labour, moreover, commands high wages with overtime after 40 hours. To cap it all, there’s often a short supply of trades due to other jobs.

Get your math right

All in all, get your maths right. I mean your math. Will Beckett, soon opening Hawksmoor in NYC, sums it up: “I can’t overemphasise how much you need to get your head around the costs, the business model and how much these change.”

All too hard? Man up! The good news is that the US is at the cutting-edge of restaurant disruption and P&L transformation. Delivery is going nuts as are dark kitchens. Automats and vending, whose previous heyday was the 1950s, is roaring back with equipment costs plummeting. Robot kitchens are on the march.

It doesn’t end there. US food halls are expanding sixteen times as fast as restaurants. Food trucks are everywhere. Branded contract catering is huge and represents a $53.6bn market (7% of food not eaten at home). The point is, there are many news ways to skin the American cat/cougar.

Business models and maths aside, there are two big, philosophical reasons to try one’s luck in America.

The first is that America celebrates have-a-go-heroes. Timothy Melgund, Paperchase’s deputy chairman, says: “Americans are enthusiastic about trying new things and new ways of doing old things. They firmly believe in test-and-refine and are comfortable with the concept of change”.

The second reason for crossing the pond is that the US is one of the world’s great centres of hospitality. Timothy puts it this way: “Service is in another league and based upon the concept that to give and receive ultra-high service is one and the same thing.

“To work in a service industry is valued much more highly in America than most other places; it shows and is genuinely meant. Think waiters who tell you their name, recite specials off-by-heart and take orders from multiple customers without writing anything down”.

As with all good international expansion, brands learn, improve and export the new knowledge back to the old country. And this is the great, sometimes hidden benefit of Going Global. Worried about Brexit? Go west, young man.

That’s all folks. These articles are hungry work and it’s 4pm. I think I’ll have some tea and Coke.

Jasper Reid is the founder of IMM, which advises brands on international expansion and owns the Wendy’s and Jamie Oliver restaurant chains in India