Brands: Moving Overseas to Move Upmarket

Consumer goods regarded as workaday in their home countries often gain luxury cachet when launched in a foreign land

When Cui Tao, a 24-year-old resident of Tianjin, China, was looking for that special place to take his girlfriend on Valentine's Day a few years ago, the choice was obvious: Pizza Hut. They had to wait an hour for a table, and the meal cost more than a quarter of his monthly income at the time, but it was worth it, says Cui. "She likes to eat there," he says, adding that they still go for dinner a dozen or so times a year.

In the U.S., Pizza Hut is a fading fast-food chain; the number of stores slipped by 17, to 6,127, in the first half of 2008. In China and other overseas markets, though, Pizza Hut is fashionable and booming, adding 50 stores through June for a total of 526. And it's not the only seemingly moribund brand that has found a new life on foreign shores.

Retailer F.W. Woolworth, for example, was a fixture of Main Street America until the last U.S. store closed in 1997, crushed by Wal-Mart (WMT). But, under different ownership, the Woolworth name still adorns Main Streets in such unlikely places as Cyprus, Germany, and New Zealand. And remember Eastpak? The no-frills backpacks are tough to find in the U.S. these days, but they're all the rage among French and German teenagers. In fact, Eastpak, which traces its roots to a company that once made backpacks for the U.S. Army, is the biggest-selling day pack worldwide. In recognition of where the buyers are, Eastpak has moved its global headquarters to Belgium.

New Personalities

You could call them David Hasselhoff brands. The onetime star of the TV series Knight Rider resuscitated his showbiz career in the late 1980s with a hit single in Germany, becoming a symbol of unlikely overseas reinvention. Long before Hasselhoff's schmaltzy Looking for Freedom stirred Germans in 1989 as the Berlin Wall crumbled, smart marketers knew that brands could acquire new personalities when they crossed borders.

The brand pros call it "country of origin effect." For decades products have made a step up in status when they traveled. Heineken (HINKF), a mainstream brew in the Netherlands, became a premium beer after the Dutch company began exporting it to the U.S. in the 1950s. To Germans, Mercedes is not only a maker of upscale autos but also delivery vans and heavy trucks. But Americans perceive Mercedes as a pure luxury brand—one reason why strategists at parent company Daimler (DAI) are thinking hard about whether to export the mid-market A-Class and B-Class models to the U.S. They fret the fuel-efficient compact models could dilute the Mercedes image.

Sometimes, though, companies are so successful overseas that they neglect the home market. Pierre Cardin is all but dead in Europe, though it remains a premium brand in places like Pakistan. Burberry's classic rainwear is huge in Asia, but in Britain the brand lost its cachet a few years ago after an oversupply of checked caps and other garb—some of it counterfeit—became fashionable among football hooligans. "One of the big lessons is that in your local market you have a greater duty to stay fresh. People become bored quickly," says Jez Frampton, CEO of consultancy Interbrand. (Burberry is now making a comeback in Britain as well.)

Overseas Reinvention

Products have to move upscale when they travel in order to justify the higher costs of exporting. But thanks to the Internet and cheap air travel, word gets around if a company overdoes the upgrade. Gap (GPS), known for cheap chic in the U.S., failed as a premium brand in Germany. AmBev's (ABV) Stella Artois, a distinctly working class brew in Britain, has struggled to achieve the same premium image in the U.S. as Heineken. "If the differences in positioning are too big, you risk destroying the brand," says Andreas Bauer, a partner at Roland Berger Strategy Consultants who specializes in consumer goods.

The master of overseas reinvention, the David Hasselhoff of the fast-food business, may be Yum! Brands (YUM) The Louisville company owns Pizza Hut as well as KFC, Taco Bell, and several other venerable brands, all of which are surging overseas. KFC, formerly known as Kentucky Fried Chicken, is closing stores in the U.S. but has been building them in China at the rate of almost one a day—148 through June, for a total of more than 2,700. Part of the secret, company execs say, is to offer a mix of standards with local favorites. So KFC in China sells not only its trademark fried chicken but also breakfast rice porridge. Pizza Hut in India offers a tandoori topping. "The fast-food and casual dining markets in the U.S. are crowded," says Graham Allan, president of Yum! international operations. But in places like Brazil or even France, he says, "we still have massive room to grow."

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