This Is The Company That Took Burger King, Applebee's And Starbucks To Eastern Europe

AmRest Holdings is an archetypal Central and Eastern European company.Forged in the post-communist fires by a young American abroad, this restaurant operator that brought pizza, burgers and fried chicken to western-starved eastern Europeans has outgrown its region and is now turning its attention to the fast growing BRIC markets.AmRest – which at the end of 2010 had 360 outlets of KFC, Pizza Hut, Burger King, Applebee's and Starbucks spread across six CEE markets, including Russia – is now looking to expand into India and Brazil over the next 12 months, the company's founder and chairman of the board, Henry McGovern, tells bne. "Of course, we'd also like to be in China. Our shareholders would like us to be there, and so I expect us to do it, but it's too early to say where, when or how," says McGovern, an affable, causally dressed American with an appetite for the restaurant business that shows no sign of abating, even though AmRest's success would allow him to give it all up anytime.Those shareholders are likely to trust management's instincts. Investors prescient enough to buy into the company when it listed on the Warsaw Stock Exchange in April 2005 saw their investment before the 2008 financial crisis reach a peak of PLN158 ($48), up almost 560% from the issue price of PLN24 and giving the company a market capitalisation of PLN3.3bn ($103m).Though the shares are now trading around PLN70 ($95), they have never fallen below their IPO price – not bad for a company that is, in McGovern's words, "in the disposable income business" at a time when household budgets are being squeezed. "Still, we're the last one into problems, and the first one out." Convergence at the dinner tableAt its most basic, AmRest is a leveraged play on the growth of the middle class in CEE, who are expected to flock in increasing numbers to its "quick service and casual dining restaurants." And despite the global crisis of 2008 and now the sovereign debt crisis in the Eurozone, that's just what they have continued doing.In the first half of 2011, AmRest reported a net profit of PLN24.8m ($7.6m), compared with PLN23.9m (7.3m) in the year-earlier period, while cash flow (Ebitda) was 55% higher at PLN62.4m ($19m). That followed a profit in 2010 of PLN2.8m ($800,000), a turnaround from the loss of PLN4.1m ($1.2m) the previous year.AmRest attributes the business' ability to hold up well in difficult times to its diversification across not only geographical lines, but also across business lines (though McGovern admits it's hard to get all four divisions – CEE , Russia and new markets, the La Tagliatella chain, and the US – moving at the same time).In addition, he says the company grew up in emerging markets, so is used to the wild swings that are part and parcel of operating in this part of the world.The recent half of the year, for example, was boosted by strong KFC and Pizza Hut sales in Russia, while it added PLN74m to its top line by consolidating sales from of its new Spanish division of 105 Italian casual dining restaurants under the La Tagliatella brand as well as 30 KFCs, which it acquired through its purchase of Restauravia Grupo Empresarial for around €200m ($271m) in April.While businesses all around it retrench and hunker down as the debt crisis takes its toll, AmRest has opened 48 new restaurants so far this year (35 in CEE) and plans to have a total of 80 new outlets by the end of this year."The way we structured the business is as a multi-brand business and so we are quite comfortable with segmented markets," says McGovern. "We have scale, points of attack, good industry margins and lots of cash flow – we see a lot of opportunity today."Many of those opportunities are in the large, fast-growing emerging markets, and it's the company's geographical diversification that will allow it to efficiently access these new markets. McGovern says it would be hard to run a business in Brazil out of its headquarters in the provincial Polish town of Wroclaw, so it will do so from its Atlanta regional HQ in the US.Likewise, the Indian operations will be run out of its Spanish office. McGovern won't say which restaurant chains AmRest is looking to open up in these new markets, but its US business is Applebee's, while its Spanish business is La Tagliatella and KFC (and KFC already exists in India).Growing at such a pace at a time like this takes guts, yet McGovern says AmRest throughout its existence "has been bolder than one would suspect" as it strives toward becoming one of the world's top-10 restaurant company in the world by 2020. If it achieves that goal, AmRest will have come a long way from its humble beginnings as a single pizzeria on a Wroclaw square.This post originally appeared at Business New Europe.Please follow Europe on Twitter and Facebook.Join the conversation about this story »See Also:Russia's Experiment With Budget Airlines Fails MiserablyThis Russian Trade Route Cuts The Distance Between Europe And Asia In HalfKyrgyzstan's Nationalized Companies Are Up For Sale

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