Herfy chain shows appetite for growth

Kingdom's growing enthusiasm for burgers boosts profit margins

Herfy Food Services, Saudi Arabia's answer to McDonald's and Burger King, is expanding on the kingdom's growing appetite for burgers.

The company said yesterday its fourth-quarter net income rose 12 per cent, to 33.1 million riyals from 29.6m riyals a year earlier.

"The results were strong, they are doing well in terms of expanding restaurants," said Khaled al Ruwaigh, an analyst at Al Rajhi Capital. "Growth in sales is being driven mostly from the existing restaurants, which is also healthy."

The food franchise opened 20 restaurants last year, including two in the fourth quarter.

According to Al Rajhi Capital, Herfy's market share in the kingdom is second only to that of McDonald's. The number of restaurants is estimated to have reached 172 by the end of last year.

What is somewhat surprising about this strategy is not so much the number of stores that Herfy is opening but its geographical approach. In addition to growth in large cities such as Riyadh and Dammam, Herfy plans to expand in rural areas, suburbs and smaller cities where no other restaurant chains are represented.

This should not only drive the company's growth, but also enlarge the overall size of the burger market in Saudi Arabia.

International competitors such as McDonald's and Burger King are less likely to expand into less-populated areas because acceptance of western brands is lower. There were boycotts against some international chains in previous years after political events. If the outside chains decide to follow Herfy, the local chain will have the advantage of being there first.

Herfy locations offer a variety of items including chicken, beef and fish meals. Chicken items dominate the menu, as is typical of the Saudi fast-food market.

The company is also looking to expand its footprint elsewhere in the Middle East. Last year, it had six restaurants in Kuwait, three in Bahrain and three in the UAE.