When Alison Nelson opened Chocolate Bar, a New York eatery and candy store, her plan was to eventually open stores in Chicago, Miami and Los Angeles.
But six years later, she ended up expanding to a more distant -- and unexpected -- place: the Middle East. In October, a Chocolate Bar will open in Dubai, followed by locations in Qatar, Egypt and elsewhere across the region.
"I figured for expansion I'd benefit from similar urban areas" in the U.S., says Ms. Nelson, adding that London seemed a reasonable spot for her first foray overseas. She hadn't even considered the Middle East -- writing it off as a violence-riddled region with little need for stylized, high-end chocolate.
But a call from a Dubai-based investor opened her eyes to a modernizing consumer class in the region -- one that's eager to buy products carrying brand names from the U.S. and Europe.
With American consumers cutting back on discretionary purchases like chocolate, and increasing food costs eating into profit margins, Ms. Nelson now says she would rather operate in the Middle East than place her bets on strapped American consumers. Chocolate Bar, which posted $2 million in revenue last year, has two New York City locations and one in New Jersey. Other U.S. cities are off the drawing board for now.
Small companies typically venture abroad once they have saturated the U.S. market and need a new, fresh customer base. But more businesses are forgoing plans to expand their domestic reach amid the shaky U.S. economy and falling dollar. Some also are eschewing European countries that typically would be a small company's first foray overseas -- many of those nations are experiencing economic woes of their own, are expensive to operate in and already are saturated with well-known consumer products. Instead, an increasing number of small businesses are heading to the less-developed markets of the Middle East and Asia, which offer access to a growing consumer class.
Small companies that successfully tap into an unmet need in such markets could grow much faster than they would just catering to a domestic market. And the move can help buoy a business during tough times back home. The big risk, however, is spending lots of time and money creating and hawking a product that really doesn't mesh with a nation's needs and tastes.
Laurel Delaney, founder and president of GlobeTrade, a Chicago management consulting company that helps small companies expand abroad, cautions that before small-business owners hang a shingle in Qatar, Pakistan or any developing market, they need to do plenty of due diligence, starting with demographic research on sites such as buyusa.gov, which is sponsored by the U.S. Department of Commerce. The World Bank offers "ease of doing business" rankings for many of the world's nations.
Ms. Nelson's journey began when a Dubai-based investor decided the region's increasingly worldly consumer class was a prime market for stylish, high-end chocolate. "The Arabic consumer is becoming more globalized," says the investor, Mary Ghorbial. Not only do more Middle Easterners travel abroad, but they're linked to Western culture through satellite TV and the Internet.
Ms. Ghorbial did an Internet search for chocolate, and found the small New York company. So in early 2006, she called Ms. Nelson and suggested a partnership -- Ms. Ghorbial knew the Middle East market and Ms. Nelson knew chocolate.
But, Ms. Nelson says, "I told them, 'I'm not interested.' My first mental image was the [Iraq] war." She says she recalls thinking, "I haven't opened a store in Los Angeles. How am I going to open [one] clear across the globe?"
Nevertheless, Ms. Nelson was curious. She had spent recent months watching chocolate futures rise -- an indication that her costs were going to keep increasing. The U.S. economy was looking shaky. Ms. Ghorbial had mentioned that despite international turmoil, consumers in many parts of the Middle East were drawn to the cachet of existing American and European brands.
The two parties negotiated for nearly nine months. And in August 2006, Ms. Ghorbial and her husband, Osama Sorial, structured a with a Dubai-based partner, Belhasa, who will open 30 stores across the Middle East over 10 years, starting with Dubai. Ms. Nelson received an undisclosed upfront fee and will earn a percentage of the new stores' daily sales.
With the ink dry on the deal, Ms. Nelson turned her attention to adapting her products and company to a completely new and unfamiliar market. By structuring the deal as a licensing arrangement, rather than a franchise, Ms. Ghorbial was free to adapt the stores' interiors and menus to each country's needs.
Middle Easterners eat a lot of chocolate, which is used to celebrate engagements, the births of babies and other occasions. So Ms. Nelson created big platters for gift-giving.
Her new customers' palates are different, too. While dark chocolate has gained popularity in the U.S. and Europe in recent years, that's not so in the Middle East. So, Ms. Nelson added more milk to her products, as well as more white-chocolate items -- something that hardly sells at her New York stores.
And after visiting Dubai for the first time, Ms. Nelson saw that figs and dates were "everywhere I went -- it's the quick snack there." Hoping to invoke a bit of familiarity for the locals, she added chocolate-dipped versions of the fruits to the menu, as well as a fruit-and-nut bar.
"We wanted to have ordinary things they eat every day," Ms. Nelson says, "but do something special with them."
Other changes: Because most Muslims don't eat pork, prosciutto was removed from the company's signature salad. Ms. Nelson also planned for more feta and olive flavors in the salads and sandwiches.
Some alterations were more cultural. The Chocolate Bar's two planned Dubai locations were originally designed like the company's New York cafe, with long banquettes designed for sharing with fellow patrons. But Ms. Nelson and her designer went back to the drawing board after learning that many Arabs don't like sitting close to strangers. So the store will have smaller banquettes and tables, designed for individuals or small parties. And they feature gold leather and flashy chandeliers, a shout-out to Dubai's taste for opulence. In more conservative locations, cafes will feature secluded banquettes so women can be out of men's view.
Ms. Nelson also has had to make some adjustments to the way she operates.
A meeting with a supplier about buying a refrigerator and some chef's tables lasted four hours -- an eternity for a New Yorker who liked to get items quickly checked off her list. But "it's customary that you sit and have tea and talk" over every business meeting. It's a custom Ms. Nelson says she respects but expects will change in coming years as more Western companies bring their Western ways to the region.
Problems that could be solved with a simple Google search in the U.S. require hours of phone calls. It took Ms. Nelson several days of calling around to find a regional source for espresso grinders, for example. "It's like a treasure hunt to find all of the pieces we needed to open a Chocolate Bar without having to send everything from the States," she says. "In America, you Google or go to Superpages for an item, and you get a list." In the Middle East, suppliers aren't online as often. And sometimes, as with the case of the espresso grinder, many vendors had never even heard of the item.
So she's importing more to Dubai than she originally intended. Pretzel rods for chocolate-dipped pretzels have to be shipped in from the U.S. The first batches of cookies baked in the Dubai kitchen didn't come out right; Ms. Nelson realized the flour was slightly different. So now she's shipping premixed bags of dry goods for baking. Rather than mix flour, sugar and eggs, chefs will be instructed to mix the contents of bag #1, for instance, with eggs and milk. The upfront costs are borne by her partners.
Despite the additional time setup has taken, Ms. Nelson is more convinced than ever that expanding across the Middle East is the right move.
"If the economy got really bad here, it's great to think what we make [in the Middle East] can keep us afloat," Ms. Nelson says. "I think it'll be a great kind of American story -- a little company that didn't make it big in America but made it in the global marketplace. It's like going out West to mine for gold."