Entrepreneurship Zone: 07 November 2022 :: Egypt: Start-up investor shares his experiences building a fast-food chain

Mon Nov 7 10:37:12 CAT 2022

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Entrepreneurship Zone: 07 November 2022 ::  Egypt: Start-up investor shares his experiences building a fast-food chain

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Farouk Kadous returned to Egypt in 2017 after completing his business degree at Northeastern University in Boston, US. Initially, he worked in his family’s companies: his father owns export-oriented textile factories, while his mother’s family founded the multinational energy products and services company, Elsewedy Electric.

Kadous became interested in venture capital (VC) investing. He and a friend began a small US$1 million fund to invest in early-stage start-ups. At the time, the region’s VC industry was much less developed and company valuations were lower than they are today. Many of the fund’s investments went on to achieve significant growth. For instance, it exited the on-demand trucking platform TruKKer for 10x the initial amount.

However, he was eager to open his own business and gain operational experience, which would help him to better assist his start-up investments. An idea by his sister, an artist, to open a boutique art café, eventually turned into a fast-food brand called Chickin Worx. Kadous admired American restaurant chain Chick-fil-A and wanted to try something similar in Egypt. The first Chickin Worx outlet opened in mid-2019.

Jaco Maritz speaks to Kadous about his journey so far and the nuances of Egypt’s restaurant industry.

Targeting the mass market

Kadous wants to build a restaurant chain catering to the mass market rather than only the affluent. He says Egyptians who have studied or travelled abroad often want to replicate high-end restaurant concepts they’ve experienced in the West in the local market. However, owing to low-income levels, these ventures have a limited market. “It talks to a very small number of people in Egypt.”

Chickin Worx targets those earning upwards of 5,000 Egyptian pounds (about $210). According to Fitch Solutions, the average household income in 2021 was about 6,300 pounds per month. The country has a population of over 110 million. Considering a meal for a family of four costs about 400 pounds, dining at Chickin Worx once a month is a considerable expense for households earning 5,000 pounds. “Egyptians first look for value, so you need to offer quality at an affordable price,” he explains.

Finding the right location

It took some time to find the ideal location in Cairo, a sprawling city with over 20 million people. Chickin Worx’s first outlet was in New Cairo, a purpose-built urban area meant to alleviate the congestion in downtown Cairo. The first outlet did well and the company was about to sign two additional leases when Covid-19 struck. The related restrictions on restaurants forced Kadous to regroup. He closed the first branch and cancelled the other two prospective leases, which cost the company a lot of money.

Once restaurants were allowed to trade again, he opened an outlet in Cairo’s Heliopolis neighbourhood, which had a much lower rent than the previous store and targeted a broader group of customers. While the location was good, the layout wasn’t optimal and problems surfaced with the ventilation system; smells from the kitchen filtered through to the restaurant.

Farouk Kadous

A real estate broker alerted him of a site that would prove a game changer for the fledgling business. Located next to a busy highway on the edge of New Cairo, tens of thousands of cars pass it every day. Having the company’s branding next to this busy road alone was worth the rent. After some negotiation with the landlord, the location was secured. Kadous views this as a prototype for the brand’s stores going forward. It also has drive-through facilities and has raised awareness of the brand. Several landlords have since come forward with potential new locations. (The Heliopolis outlet has since been shut down.)

People come for dine-in meals

In other parts of the world, fast-food restaurants cater for people on the go. Yet, in Egypt, a large percentage of customers prefer to sit down, viewing it as a family outing. Dine-in currently accounts for 60% of Chickin Worx’s sales. Kadous estimates the recently launched delivery service will eventually be responsible for 20–30% of sales.

Streamlining the menu

Despite being modelled on Chick-fil-A, which specialises in burgers, Chickin Worx initially sold only bone-in chicken. However, Kadous soon discovered it took too long to fry, about 11 to 14 minutes. The alternative was to prepare the chicken in advance and put it on the rack until purchased but many Egyptians don’t perceive this as fresh.

This, along with a looming price war as more bone-in chicken restaurants opened, prompted the switch to chicken breasts with a much shorter frying time. While removing the bone-in chicken received some pushback, it was the correct decision as the service speed improved and sales picked up.

Chickin Worx experimented with various other menu items, including Egyptian delicacies, but trimmed its offering to concentrate on chicken burgers and tenders, served with fries and a soft drink. Everything is fried but there are plans to release grilled items. “Our menu must satisfy 90% of the customer base. When there is a group of five people, two usually want to eat grilled chicken, so they end up going somewhere else.”

On his travels to the US, Europe and Dubai, Kadous often samples other chicken restaurants. He says that although the quality of the chicken is important, the best places he has come across serve very good bread. Chickin Worx struggled to find a decent bread supplier but has since partnered with daily-essentials e-commerce start-up Breadfast, which has its own bakery, to supply it with potato buns. (Breadfast is one of Kadous’ VC investments.)

Building a data-driven business

Chickin Worx is strongly focused on collecting as much information on its customers as possible. It has QR codes on its tables that customers can scan to complete a survey for which they receive a reward. The company also asks patrons for their phone numbers, which enables it to build customer profiles and monitor retention rates.

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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