Brand expansion does not always yield positive results. One example of such a case is this article where Papa John’s, a well known and established American Restaurant company focused on Pizza , faced large amounts of revenue loss through expanding in China. Though the restaurant giant is making an honest profit of 7.7 percent this year in America, It is facing issue in the China market. This market is also the only one abroad where Papa John’s owns its own stores. This decision was made under the objective to better understand and cater to the Asian market. Though the extent to which this decision backfired on the Papa John’s franchise is worthy of notice. The CFO stated that the profits are way behind the projected for 2014, and that coupled with the large capital investment to acquire the Beijing stores, has created pressure on the business to find a profit producing solution fast. What’s interesting about this article is that even for a business as large as Papa John’s, it is possible to run into such problems as demand and revenue projection. The financial and income statements it made for profit predictions based on this decision were proved useless in the face of this issue. In my observation, this is an issue where the marketing and finance departments were not on the same page as the demand of the product itself in another country was not taken into consideration when calculating the expected revenue. The Papa John’s executives are on their way to Beijing to solve this issue, which may also be influenced by the expired meat scandal which occurred over the summer. This just goes to show that many industries link back to each other in terms of resources and these decisions are very complex with so many variables to be taken into account, and even after making these decisions, the result is never completely as anticipated.
Source:
http://www.businessweek.com/articles/2014-11-07/how-papa-john-s-turned-beijing-into-a-money-pit#r=lr-sr