CHANG’S SEEKS PROTECTION
Crowded ‘ethnic’ market one reason
TORONTO A bankruptcy protection filing from P.F. Chang’s Canadian owners illustrates the difficulty of launching mass market “ethnic” cuisine in a country already brimming with its own independent ethnic eateries.
In a climate of rising food and restaurant operating costs, it is becoming increasingly tough for a new big restaurant chain to get a solid footing in this country, industry experts say.
But the predicament of P.F. Chang’s China Bistro, opened by Canadian licensee Interaction Asian Restaurants LP in 2012, also reflects shades of Target’s epic failure in this country, and an underlying business assumption that big and popular U.S. brands will perform well in Canada.
Interaction filed a notice of intention to make a proposal to its creditors on March 27 in Montreal, and last week outlined a list of creditors to whom it owes about $5.2 million. Its three locations — one in Toronto, two in Quebec — remain open during the restructuring process as it looks for a strategic partner or buyer.
“When Target came, there was immediately an assumption that it would do well,” said George Minakakis, chief executive at Toronto-based Inception Retail Group Inc. “A lot of times companies believe that because Canadians speak English and watch the same media and may even love a brand when they travel to the U.S. that (the brand) would do well in Canada. But I don’t think a lot of them have done enough research into our market and its differences. A lot of these businesses only work in very select, touristy areas.”
In the United States, P.F. Chang ’s has more than 200 locations, and the brand has long ranked in the top 10 in sales per square feet among restaurant chains — likely a big selling point for prominent Montreal businessmen and experienced restaurateur Michael Aronovici, chief executive of Interaction.
“Many Canadians have expressed to us, both in person and over social media, how much they love P.F. Chang ’s and wished it was closer to home,” Aronovici told the Jewish Tribune at the opening of the restaurant’s first Canadian outlet in Toronto in 2012. “Given this existing fan base, a commitment to fresh, Chinese-fusion flavour combinations in a distinctive dining setting, we have no doubt that this bistro experience will resonate with Canada’s sophisticated dining population.”
Planet Hollywood closed down laggard locations in Vancouver and Toronto, and has only one outlet in Canada now, in Niagara Falls. Krispy Kreme opened to Canada in 2001 with plans to open 40 locations but closed more than half of its 18 stores four years later, mired in red ink. Today six Canadian locations remain.
Robert Carter, executive director at market research firm NPD Group, says Canadians are used to eating international cuisine from existing Asian and Indian restaurants.
“We are much more ethnically diverse in Canada than the U.S., particularly when it comes to Asian culture,” he said. “There is just not as much demand for a big-scale American ethnic-style chain.”
In addition, major mainstream food operators including Boston Pizza, Milestones, even Swiss Chalet, have incorporated ethnic flavours onto their menus in the past few years.
There are about 18,344 Asian restaurants in Canada, an increase of 337 new units since 2009, NPD says. Meanwhile, Asian menu items have been growing at a rate of three per cent per year for the past five years.
“You can see how P.F. Chang’s would struggle in the Canadian market,” Carter said.
Beyond that, brands that fare well in the U.S. face higher operating costs in this market, which has higher taxes, a higher payroll, higher food costs and very different liquor laws. “All of those market conditions were against P.F. Changs,” Carter said.