MediaToday
Interview | Wednesday, 27 January 2010

McDonald’s Baltic expansion

Charlot Zahra speaks to Melo Hili, Managing Director, Premier Capital Limited, about McDonald’s operations in Malta and the Baltic States since the company took over as Development Licensee for McDonalds in Malta in May 2005. Today the company employs around 2,400 employees in four countries is set to grow with another seven restaurants in Estonia, Latvia and Lithuania in the next 2 years

Could you give a short overview of the company and how it operates in each of the four different markets?
We have four operating companies – one in Malta, one in Latvia, one in Lithuania and one in Estonia. We have got a parent company called Premier Capital plus a number of real estate companies in each of the companies in which we operate.
We have got a management board made up of nine people – a country manager for each of the four countries plus functional directors in terms of marketing, HR, supply chain (purchasing, logistics, distribution and quality) development (real estate, construction and equipment) and finance, plus myself. That the team that runs the Premier Capital operation.
Today the operation is made up of 30 restaurants, nine of which have McCafes, 15 of which are drive-throughs.
In terms of employment, we have just under 2,400 people spread across the four countries.
In each of the four countries there is a local management team reporting to the country manager. This group is responsible for the day-to-day operation of each of the restaurants in the area.

Is Premier Capital a family-owned business or a private company with shareholders? What was last year’s turnover and profits?
It’s both, really. It’s a private company which is owned by three brothers – myself, and two other brothers, Marin and Beppe. Last year’s turnover exceeded €50 million.

When were you appointed as Managing Director of Premier Capital? Premier Capital was set up in June 2005 and I was appointed Managing Director – the company became Developmental Licensee for Malta that same year. Subsequently, in 2007, we took over the Development Licence for McDonalds in 3 other countries – Estonia, Latvia and Lithuania.

What was the first challenge that the company faced when you took over?
Well, I suppose it’s building the team. Like many other businesses, this is a people businesses and you have to build a good team of people around you.
With more than 2,400 employees, both the structure at the top and those at the bottom have to be really spot on for it to work properly. But it’s a challenge which a like facing.

After focusing mainly on the local market for years, what led Premier Capital to venture into different overseas markets – was it a strategic decision or a once-in-a-lifetime opportunity? Could you kindly elaborate more in this respect?
It was a strategic decision. We had for some years operated a number of restaurants in Malta and had done well on the island.
Strategically we said we had to expand the business in a really large way, and opening restaurants oversees was the right step to give us the sort of growth we where after.

How is each local market managed and how does the local team report back to the top management in Malta?
Locally the country is managed by a Country Manager who is based in that country. Each Country Manager has a number of people responsible for marketing, operations, the full works…
Then those people report back to the International Management Team, who are scattered across the markets. In fact from the management team of 9, only four of us are based in Malta – the rest are based overseas.
We meet every month, and that’s how it basically operates.

How many employees does Premier Capital have in each market it operates in and at what levels – management, middle management, restaurant floor?
Out of the 2,400 employees, they’re more or less equally spread between 500-600 in each country. About 10 per cent of that is management, so the management element is 200 plus.

Why did Premier Capital choose to expand the McDonalds brand in the Baltic States – was it because of the market size in Malta and the Baltic States are rather similar, or because there was a strategic opening there?
I think the reality is threefold – I think that, yes, the McDonalds’ market size at that moment was similar – seven to eight restaurants, 500 people, the size of the business in each country is relatively similar at this stage.
Another is that the Hili family has had long connections with the Baltic States, so the family knows well the business climate in the area, therefore it’s not something new to us.
Moreover, at that time the opportunity to expand in the Baltics came to us – they’re all European countries that joined the EU in the same time that Malta did in 2004, so we felt the closest to the area.

What is the potential for expansion in the Baltic States?
The population in the Baltic States is much larger than that of Malta. The population of the three countries together exceeds 7 million, while in Malta we only have a population of around 400,000. Thefore the potential for expansion in the Baltic States for McDonalds is large.
In fact, last year we opened three restaurants in the area, while between 2010 and 2011 we plan to open an additional seven in the area, bringing the total number of restaurants in the area to 30.

How are the company’s operations in Malta and in each of the Baltic States currently faring? Could you kindly elaborate more in this respect?
I think their performance is good. Given the circumstances, the performance across the company is good.
Out of the four countries, I think Malta has been hit the least by the economic downturn, but in the other countries, even though the economic situation was tough, we continue to really build market share and this augers for the future.

After the Baltic States, does Premier Capital have any markets where it wants to expand the McDonalds’ brand or will it rather grow within each market?
I think it will stick to doing both. I think the priority is to expand in the markets we have, but we will surely look at opportunities in the near future for other markets if they become available.

Would the Balkan States be a possible avenue for growth in this respect or not? Why?
I think everywhere can be looked at for possible expansion – whether it’s the Balkans or whichever countries might crop up. Obviously, one has to keep his feet firmly to the ground and only do something which is within our reach.
However we do not exclude any market at this stage.

Does the company eye the North African market for its next expansion with the McDonald’s brand, or is the situation not ripe enough to expand there?
If not now, is the North-African market a longer-term perspective?
McDonald’s has a very successful North African operation. It has good operations in Egypt and Morocco, whether the business is thriving and doing very well.
Therefore I don’t think it’s an area we’re currently looking at – there are other system partners there. However it doesn’t mean that in the future we won’t look again at the area or some of it.
However it’s not an area we are looking at the moment.

What about possible operations in Libya?
At present McDonald’s is not present in Libya. However I wouldn’t know what plans the Corporation has for that country.

Besides operating McDonalds’ franchises in four different countries, does the company operate its own branded restaurants? If yes, where are these restaurants operating?
No.

Does Premier Capital plan to open other franchises besides the McDonalds’ brand?
Definely not. We are partners of the most recognizable restaurant brand in the world and we plan to expand and grow the McDonald’s brand.

With 2,400 employees a present and a turnover of €50 million last year, does Premier Capital have any plans to float on the Malta Stock Exchange (MSE) or not? If yes, when does the company plan to float on the MSE?
No, currently we not have any plans to float shares on the MSE. However we have plans to go to the bond market. We’re planning a bond issue in the local market.
We’ve submitted an application to the local authorities here and we plan to issue bonds within the coming of months.

Do you know the size of the bond issue?
The bond issue will be around €20 million, and the majority of that will be used to fund the expansion of the various restaurants and the re-modelling of others in the next 24 months.

czahra@mediatoday.com.mt

 

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27 January 2010
ISSUE NO. 618

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