Concentrating mainly on franchising of fast-casual, family-style and casual-dining concepts, a new generation of Canadian restaurant chains is penetrating the Italian, pizza, seafood and Asian-fusion
categories in the United States.

Following pioneers like the multiconcept dinnerhouse operator Elephant and Castle of Vancouver or Tim Hortons, the Ontario-based doughnut chain now owned by Wendy's International, the newly invading Canadian operators assiduously are staying away from fast food, however.

While the newcomers in general are cash poor when it comes to marketing dollars, they more than make up for that weakness with operational maturity, concept novelty and confidence to please consumers.

Although the cost of entry to the U.S. market is high, Canadian operators say their unit margins south of the border are more favorable than they are back home because labor, food and taxes are lower in the United States.

Some of the incoming Canadian concepts are 30 years old and older.

Take, for example, Mikes Restaurant, a 35-year-old dinnerhouse chain that could be the offspring if Applebee's and Pizzeria Uno ever had mated. The 120-unit Mikes plans to open its first U.S. outlet, a franchise, this summer in Las Vegas.

Unlike other chains that have opened branches in Las Vegas, Mikes will debut in a little-known residential area, chief executive Gilles Pepin said.

It seemed time to open south of the border, he explained, because Mikes has expanded in Canada about as far as it could go.

"There are more restaurants per capita in Quebec than anywhere else in North America," Pepin stated. "We are quite successful here, and our name is well-known and associated with high quality and good service.

"But we know that this market is saturated, and we are going to have to evolve in some new places," he added. "The only issue we face in coming to the United States is finding partners who share our values. We think our name will speak for itself once customers get to know us, and we get to know what they want."

Pepin said that, although the chain has opened units on Canada's Atlantic seaboard, Mikes chances for success in the western and central portions of the nation are compromised — a function of politics and not food or operations.

He contended that, to a degree that is little discussed in the mainstream, English-speaking Canada has a grudge against Quebec-based businesses. He said he believes that has to do with the province's attempt years ago to secede from the commonwealth.

"So it is about as difficult to open in British Columbia as it is in the United States," he suggested.

Best known for its pizza, pasta and Italian sandwiches, Mikes serves up a broad menu of well-established, crowd-pleasing favorites like burgers and steaks, and it competes in all three dayparts.

With a corporate marketing and franchising mantra to be "always close to you," the company operates 12 of the 120 units in the Mikes chain. Average-unit volumes are about $1.7 million, in the U.S. dollar equivalent.

After Las Vegas Mikes is negotiating to close franchise deals in Florida and Atlanta, Pepin said.

A much younger Canadian brand coming into the United States is Zyng, an Asian-fusion concept with a fast-casual menu centered on noodles and influenced by P.F. Chang's China Bistro.

Zyng, which started in Montreal, is being introduced into the United States by Fransmart, an Alexandria, Va.-based franchise development company that bought the majority ownership of the brand.

The chain has seven restaurants in Canada, but more than 100 development deals have been signed for the United States with multiple-concept American franchisees. Among them are HMSHost, which plans to put Zyng in at least three airport food courts before the end of the year.

The first American Zyng unit is expected to open in Wichita, Kan., in two weeks.

While many Canadian restaurant companies in the past have complained about the high cost of entry to compete in the U.S. market and the difficulty of recruiting American franchise partners, such complaints are waning, according to Fransmart president Dan Rowe.

"The problem is people tend to make too big a deal over Canada and the United States being separate countries when in fact they are both part of a bigger North American market," Rowe said. "I mean, people make a big deal about flying from the United States to Canada.

"But it takes me no more time to fly from Washington to Toronto than it does from Washington to Detroit."

Rowe also asserted that the current southward surge of Canadian brands may be the vanguard of an onslaught.

"There has long been this stigma attached to Canadian restaurant companies that somehow American franchisees thought that they were not as good, or there was some quality issue," he said. "But there are a lot of good companies up there. These guys have grown from 10, 20, 30 even 100 units, and you don't get to open 100 stores without doing something right."

Al Cave, vice president of development for 176-unit Boston Pizza International, a Vancouver, British Columbia-based dinnerhouse operator with a sports bar theme, said one of the attractions about expanding its Boston's concept south of the border is the typically lower cost of operations.

Canada, as a socialist nation with high tax rates and commodity boards that regulate the production of foods and protect farmers from imports, can be a costly place to do business, Cave said. Those tax and regulatory conditions artificially inflate the wholesale price of food in Canada, he explained.

On top of that, employers pay for their workers' health insurance, and the provinces impose extra taxes on alcohol sales.

"A pizza in Vancouver is $10, just as it is in the United States, but our cost of sales on that $10 is far higher in Canada," he said.

Although the cost of entry has been a barrier in the past, Cave argued that mature brands with confidence and capital can negotiate the hurdles, assuming they find the right franchise partners.

Boston's has 12 units in the United States currently and intends to open another 12 to 15 here in the next year and a half, mainly where it already competes — Oregon, Florida, Colorado, Nebraska, Washington and Alaska.

Meanwhile, miles from any coast and nestled incongruently in the heart of the Canadian Rockies comes a seafood concept, Joey's Only Seafood Restaurant.

The 98-unit chain, based in Calgary, Alberta, sold the exclusive American marketing and licensing rights to Embers America, a diversified restaurant company in Minneapolis.

With nine units in the U.S. market, the family-style Joey's has operations and service that focus on turning tables in 15 minutes.

Although the lion's share of its sales are derived from huge portions of batter-fried fish and chips, the chain will be offering more chargrilled and poached fish as it expands in the United States, according to Adam Kristal, director of marketing for Embers.

Kristal said Joey's Only Seafood has been operating in U.S. areas for at least 10 years but did not pursue a serious growth spurt until its deal with Embers. He said Joey's expects to grow by territorial subfranchising and have 15 to 20 new units in America within a year.

"This is the most successful seafood chain in Canada," Kristal boasted.

By Milford Prewitt

Source: zyng.com