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Is gourmet schnitzel the next Big Mac?

Written on the 6 February 2015

My Small Business, The Age
By Caroline James

The Dyduk family make a good crust from breaded meat.

In 2013-14 alone, their company Schnitz sold more than two million schnitzels and reported revenue of $41.7 million.

That's 207 per cent growth on the previous year.

This financial year the "fast casual" restaurant brand is forecast to turnover more than $70 million, says its chief executive Andrew Dyduk.

Dyduk is the eldest son of Polish born Roman Dyduk, who opened his first schnitzel restaurant in 1975 in Queen Street in Melbourne's CBD.

In 2009 his sons Andrew and Tom joined the business to help their father prepare for retirement. They trademarked the catchy name, sold the city outlet under a licence and by the third store Dyduk junior told his Dad, "I think it's time you considered franchising this business".

He isn't kidding.

Five years later and Schnitz has 32 branded stores, 23 of which are franchised and owned by 18 franchisees.

The franchisor owns and operates nine stores and opened its first interstate store, in New South Wales, in December.

More outlets in Melbourne and Sydney are planned this year. it expects to open stores in Brisbane, Perth, Adelaide and Canberra by the end of 2016.

But Dyduk's eyes see far beyond this seaboard. Schnitz has "invested heavily" in protecting its brand internationally in more than 60 countries.

"When I got involved I remember thinking, 'this has really got some legs'.

"There are about 30 countries with some kind of breaded meat so there's already this substantial familiarity with the product, and I could see the potential and spent about $250,000 early on securing trademarks in all these countries and engaging lawyers so that when the time comes, we don't have to face the pain Burger King did when they were ready to launch in Australia but couldn't use their established name and had to rebrand in this market as Hungry Jacks.

"It was a mistake this business was not about to make."

Dyduk candidly explains how and why his company is helping redefine the traditional fast food franchise business model.

He "absolutely agrees" major change is afoot in the restaurant chain sector and says that anyone who hasn't responded is already losing ground to a new generation of niche premium fast food traders including Schnitz, with its pan-cooked "authentic" schnitzels cooked to order and served in rolls or wraps, Mad Mex, Grill'd and Salsa's.

"There was obviously a fast food revolution in the 1970s led by McDonalds," he says.

"But if you look at how they, and others like them, are trending they are all moving towards a fast casual business model, introducing changes to how you order your meal, the menu, you are seeing more health-conscious, premium, vegetarian options.

"The new fast casuals are upping the ante and they know that if they don't react quickly they will be left behind by today's customers, who are very well informed, health conscious, mindful of where they spend their money and wanting quality food and experience with higher quality decor, lighting, table service, music and mood."

President of the Franchise Council of Australia, Kym De Britt says Australia's 79,000 franchisees are characteristically "positive" about 2015.

The latest Franchising Australia report by Griffith University found franchisee numbers have increased 8.2 per cent since 2012; 30 per cent have entered offshore markets.

Meanwhile the latest version of the Franchising Code of Conduct gives the ACCC greater power to conduct audits and issue infringement notices and fines up to $51,000 from November 1 for established businesses.

"It has more detail but there is nothing concerning (in the Code) if you are a good operator," De Britt says.

Stephen Gargano, senior industry analyst with IBISWorld concurs with Dyduk's thinking that the biggest challenge facing fast-food franchise outlets this year is consistently meeting consumer demand for "healthier" food and high quality product and service.

Australian franchising is a $159 billion industry and expected to produce $11.1 billion profit for its 1225 franchisors, forecast the IBISWorld industry report in 2014.

According to Gargano, fast-food outlets and coffee shops as a segment have "grown steadily" since 2010.

Smaller franchises, including Schnitz, are actively hunting a piece of global gourmet fast casual pie.

Aware of current trends, fast food pioneer McDonalds, which has more than 900 outlets in Australia, 70 per cent of which are franchised, "is expected to continue reviewing its menuover the next five years to ensure its products meet consumer expectations in terms of taste and quality", reports Gargano.

The perceived nutritional value of McDonald's products will be scrutinised.

"What is changing," Gargano says, "is today's customers are expecting higher quality products and services from fast food franchise outlets but will continue to expect low prices.

"Major fast food chains are busy changing menus and marketing, moving towards greater focus on healthier eating."

Andrew Benefield, managing director of Mrs Fields agrees fast food chains are rattled by fast-moving niche franchise fast food restaurant rivals.

The boss of the 50-strong Aussie arm of the United States freshly-baked cookie chain recently had "an interesting experience" in a Sydney fast food outlet when his burger arrived on a bread board, his fries in a basket.

"It left me thinking 'where has Maccas gone?'" Benefield says.

"We are all desperate to be trendy but as soon as someone does something new, everyone jumps on it and it loses its trendiness, which is why quality service from 'mum and dad' franchisees is important as it will always bring you to the fore.

"Franchises' biggest challenge is blending globalisation with localisation, meaning the cookie cutter approach to franchising is almost gone."

Read more: http://www.theage.com.au/small-business/franchising/is-gourmet-schnitzel-the-next-big-mac-20150205-12vefd.html#ixzz3QuspHTmk

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