M.H. Alshaya: The mystery company importing Americana to the Mideast
FORTUNE — David Overton makes a point of trying to get to every one of his restaurant openings. In the 35 years since he founded the Cheesecake Factory in Beverly Hills, only a handful have kicked off without his discerning eye. So it surprised no one when Overton decided to travel halfway around the world for the Kuwait City launch of the 160th Cheesecake Factory.
Overton’s presence made this event just like every Cheesecake Factory opening. Indeed, it was Overton’s directive to his team that this launch and, more important, this restaurant be treated like any other. The tables were set exactly as they are in the U.S., the forks slightly staggered. The usual artist had designed the decorative murals featuring themes of mythology, history, and astronomy. The portions and the waiting times were just as abundant. “It feels like a Cheesecake, and it tastes like a Cheesecake,” says Heather Berry, director of beverage and bakery operations, who had traveled over for the launch.
Beneath the surface, though, restaurant No. 160 was dramatically different. Publicly held Cheesecake Factory (CAKE), known in the industry for its consistency and Overton’s attention to detail, owns all its restaurants in the U.S. But the Kuwait City outpost is licensed to M.H. Alshaya Co., a Kuwait-based group operating in 19 countries with more than 70 brands in its portfolio. In January 2011 the two companies signed a deal that allowed Alshaya to open 22 Cheesecake Factories over five years in the United Arab Emirates, Kuwait, Saudi Arabia, Bahrain, and Qatar. (Two Dubai locations opened in 2012.)
You may have never heard of M.H. Alshaya, which is exactly how the intensely private company likes it. Formed some 30 years ago by members of Kuwait’s Alshaya family, including current executive chairman Mohammed Alshaya, the retail-franchising operation manages dozens of international brands and thousands of stores. The closely held business declines to disclose any financial information, and executives rarely speak with the media, saying they prefer to let their brands and properties speak for themselves. And oh, what brands: Starbucks (SBUX), Pinkberry, IHOP (DIN), American Eagle Outfitters (AEO), Victoria’s Secret (LTD), Pottery Barn, and Williams-Sonoma (WSM) — all are mainstays in the Middle East thanks to Alshaya.
These retailers and many more are increasingly drawn to the region because of its well-heeled population of expats and globetrotting locals. (Qatar, Kuwait, and the UAE rank among the world’s top 20 countries in GDP per capita.) There also are few homegrown competitors to fend off; in fact, consumers in the Middle East seek out Western brands because they crave authentic American experiences.
But Kuwait City isn’t Kansas, and to bring a taste of the U.S. to places such as the UAE, multinationals need a local guide to help them navigate the cultural, religious, and regulatory protocols of the region. That’s where Alshaya comes in. Like many franchisees, Alshaya handles basics such as scouting locations and negotiating leases; it hires and manages employees who come from 110 different countries; and crucially, it helps eateries modify their menus to comply with Islamic dietary laws. As I discovered when I traveled to Kuwait City for a behind-the-scenes look at the Cheesecake Factory’s opening in November, bringing a Western restaurant chain to the Middle East is an exercise in patience, creativity, and strong execution. It also involves tasting a lot of food.
All roads lead to the mall in this part of the world. Over the past two decades, shopping culture in the Gulf region has migrated from the outdoor marketplace, the souk, to the destination megamall that sits at the center of social life. You can escape from the oppressive heat, browse brands from Armani to Zara, ski and ice-skate indoors, and visit one of the world’s largest aquariums. “When Alshaya told us, ‘You’re going to go in malls in the Middle East,’ we looked at them and said, ‘You don’t understand. We’re a cool New York urban brand. We don’t do malls,’ ” explains Randy Garutti, CEO of Shake Shack, based in New York City. “Then you witness it. The mall there is the piazza. It is the Union Square.” Garutti didn’t have to worry about whether the concept would translate. When Shake Shack, part of Danny Meyer’s Union Square Hospitality Group, announced plans to open in Kuwait, its Miami Beach location became a hotspot for Kuwaitis scoping it out on spring break. The Cheesecake Factory was also coveted by Middle Eastern consumers. For five years the restaurant ranked No. 1 in a quarterly survey asking patrons which American restaurant concept they’d like to see in the Dubai Mall, Overton says. When the restaurant opened there in August, it touted the line “The wait is over.”
Retailers who take the plunge into the Gulf are often rewarded with some of the best-performing stores in their systems. Take Scottsdale-based P.F. Chang’s: Three of its top-10 restaurants by sales are in the Middle East. With relatively small populations — Kuwait has just 2.8 million residents — the region’s blowout figures come with not only higher transactions but also a greater frequency of store visits.
Alshaya is the driving force behind much of the brand migration. “We are a willing investor, an aggressive investor,” Mohammed Alshaya tells me during my visit to Kuwait City. He had just finished touring the newly opened section of the Avenues mall with the U.S. ambassador to Kuwait; earlier that day he had cut the ribbon at the Cheesecake Factory opening with CEO Overton.
The Alshaya group of companies’ history dates back to 1890 and includes interests in real estate, construction, and hotels in the Middle East. In recent years the 30-year-old retail-franchising operation has started expanding beyond its Gulf region roots. In January 2012, Alshaya acquired 60 stores of lingerie shop La Senza in the U.K., and in 2007, Starbucks opened in Russia with Alshaya as its partner. “We had already established a great partnership with them” in the Middle East, explains Michelle Gass, president of Europe, the Middle East, and Africa for Starbucks. “The core skills they bring to the table — they believed they could translate that into Russia.”
International restaurant companies tried to woo the Cheesecake Factory for years, but Overton felt that the restaurant’s complexities made it hard to license. He wasn’t sure that he would ever feel comfortable taking his company global. It wasn’t until meeting Alshaya that Overton thought that an international partnership might work. Alshaya paid a visit to Overton in California and offered to show him around personally if he came to the region. In May 2010 Alshaya went with him to Bahrain, Kuwait, Qatar, and the UAE, showing him malls, where Overton was most struck by how closely stores mimicked their counterparts in the States. “I walked into Pottery Barn, and there’s no way you could tell that it wasn’t [the U.S.],” Overton tells me.
Alshaya’s core competency is cloning, replicating, duplicating — a sampling of the terms I heard used during my trip. The day the company launches a brand in the Middle East, it starts with the assumption that the retail experience will be identical to what a customer encounters in the U.S. Alshaya has no desire to reinvent; rather, it tries to understand a retailer’s core and reproduce it. Still, Alshaya makes appropriate tweaks when necessary. The most common changes stem from compliance with Islamic dietary laws. Serving a cake made with gelatin? It must be extracted according to halal guidelines. Other alterations are made to match regional tastes. At Shake Shack, you won’t find its pumpkin-pie frozen custard on the menu — customers may not be familiar with the flavor. More shower items than bath products line the shelves at Bath & Body Works because there’s a preference for bathing in running water. At Pottery Barn Kids, the chairs on display are personalized with Jaber rather than Max.
The process of creating uniformity across a brand is never easy in the restaurant business. Chains can copy aesthetics with little difficulty; it is much harder to get food to taste exactly the same every day in every location. One of the most fanatical guys in the industry when it comes to standardization is Overton. If you order his Over the Top Meatloaf Sandwich, covered in Guinness-marinated Swiss cheese and tomato-bacon jam, it should taste exactly the same in Boca Raton as in Phoenix or in Honolulu. When Overton decided to bring his brand to the Middle East, he insisted that his meat-loaf sandwich and the rest of the menu taste the same in Kuwait City and Dubai as well. The Cheesecake Factory did the initial work to make the recipes comply with Muslim dietary practices, and then reviewed the changes with Alshaya. So now that meat loaf had to taste exactly the same using halal beef, sans Guinness marinade and pork bacon in the topping.
Cheesecake Factory chief culinary officer Donald Moore’s initial reaction was alarm — especially when it came to limitations on pork. “I love bacon,” he says. “We put bacon in our salads and on our burgers and sandwiches.” He took a reconnaissance trip to the region, eating bacon everywhere. “I ate veal bacon, turkey bacon, beef bacon, you name it,” he says. The issue wasn’t just about taste. A lot of the bacons were jerky-like and lacked the texture of pork. Once his team found the right consistency, it matched the sweetness and smokiness, ending up with a beef bacon that Moore loves.
When it came to alcohol, some menu items needed only a simple fix. The cheese for the meat loaf, for example, now gets marinated in nonalcoholic beer. Some of the other substitutes were harder to come by. The Cheesecake Factory’s No. 1-selling item in the U.S. is Chicken Madeira, which calls for the eponymous wine. Moore’s team created gastriques — caramelized sugar with vinegar — to duplicate the flavor profile.
Every item had to pass Overton’s muster to make it onto the menu. (“I don’t believe in focus groups,” he explains. “I’m kind of our one-man focus group.”) It took Moore’s team a year to find a replacement for miso, which contains alcohol, before Overton gave the miso salmon his okay. Some items, like the tiramisu and Kahlua cheesecake, couldn’t be copied to the Cheesecake Factory’s standards. “We worked for months replicating the cheesecakes that we have, and doing it without alcohol,” says Berry, who runs bakery and beverages.
The afternoon before the Kuwait opening, I went out to the Avenues mall to talk to Scott Thomas, the Cheesecake Factory’s area director of operations. “My goal tomorrow is to make sure every guest that comes in here thinks that they’re in our brand in the United States, that there’s no difference,” he says. The biggest challenge for Thomas was the global nature of the staff. Many don’t speak English as a first language and were unfamiliar with the restaurant’s concept at first. Overton told me that he had talked to an employee from Russia who admitted that she was worried she was going over to Kuwait only to be exploited. She had thought she was literally coming to work at a cheesecake factory.
To help bridge the cultural and language gap, training went back to basics. Instruction ranged from the literal — making sure the wait staff knew that the Caramel Pecan Turtle Cheesecake didn’t actually contain turtle — to the figurative. One of the restaurant’s most popular salads is the Luau Salad, but many of the new hires didn’t know what a luau was. “It’s not the end of the world, but we wanted them to have a full understanding [of] why this salad looks the way it does,” Thomas says. “It’s a Hawaiian celebration in a bowl.”
For three days before the Kuwait City opening, the Cheesecake Factory held its “mocks” — a dress rehearsal for opening day, which the restaurant chain does before every launch. About 80 designated trainers had been brought over from the U.S. to work alongside the newly hired Alshaya staff. These test runs offer the chance to work out the kinks. “We’ve been cooking and eating and eating and eating, and that’s all I’ve done for the last two days,” Moore tells me. As a result of the sampling, Moore realized that a wine-free mustard in the herb-crusted salmon had failed to give him the perfect note. He needed to find a replacement mustard, so he bought every Dijon on the shelf at Dean & Deluca, another food retailer Alshaya brought to the region.
It wasn’t the only improvising he would do that week. Some ingredients that the Cheesecake Factory imports hadn’t made it over in time. Fresh corn had missed a flight. A special dough flour got stuck in another part of Kuwait, so tamale cakes were taken off the menu. “If we can get something local that would be the same or better, we would serve it,” Moore says. Berry was waiting for a couple of juices that hadn’t made the boat. She had come up with a backup recipe using a local fresh juice in case the shipment didn’t arrive, but she was reluctant to hand it out. With all that the staff already had to learn, she didn’t want to further complicate their training.
Sourcing will only become more complicated as the restaurant chain’s expansion continues. Lebanon, for example, requires that imported products come directly from their country of origin; if the Cheesecake Factory uses shrimp from Mexico, the shellfish must come to Lebanon directly from Mexico.
The team had a sense of what to expect in Kuwait thanks to its Dubai Mall launch in August. The restaurant opened during Ramadan in order to be ready for Eid, the celebration marking the end of the month of fasting. Like its location in Kuwait, the first Dubai Cheesecake Factory sits on prime real estate, in this case across from an aquarium. At opening, the wait for a table stretched to more than 150 names (large parties had to wait as long as three hours), and mall security eventually made the restaurant set up stanchions for crowd control.
Every customer was ordering cheesecake, with dessert making up 25% of sales. Berry had to write a whole new policy and procedure for handling the cheesecake mania. “It looked like I was writing a line of scrimmage,” she says. “I had X’s and O’s and seven bodies.” “Mocktails” and bottled water were so popular that beverages as a percentage of sales matched those in the U.S. — amazing considering the absence of liquor sales in Dubai. The Cheesecake Factory says every Alshaya-licensed restaurant open for a year represents a penny in earnings per share, which translates into about half a million dollars in profit. Analysts expect the company to report about $1.8 billion in revenue and $105 million in profits in 2012. A third Middle East location, the largest Cheesecake Factory in the world, opened in Dubai on New Year’s Eve.
I ate most of my meals on the trip at the Cheesecake Factory with Donald Evans, the company’s genial chief marketing officer. He worked his way through ordering a long list of items that he and his colleagues thought I should sample — primarily dishes that had been tweaked for the market, like Chicken Madeira, Chicken Piccata, and Herb Crusted Filet of Salmon. (Evans judiciously had only a bite or two of each dish, and I eventually caught on.)
There is something a bit odd about spreading this part of American culture around the world — the desserts, the burgers, the hefty portions. But when I got back to the U.S. and went to my local Cheesecake Factory, I couldn’t help being impressed by how flawlessly Alshaya and its partners do it. Everything was nearly identical: the friendly service, the lighting — even the restaurant’s neighbors (Victoria’s Secret, Express, Bath & Body Works). But I was most focused on the food. I wanted to compare a sampling of menu items to what we had eaten in Dubai and Kuwait. And so, in the name of research, I tucked into White Chocolate Raspberry Truffle Cheesecake, Shrimp Scampi, and Hawaiian Pizza.
While I can’t claim to have a particularly discerning palate, the food tasted exactly the same. The real moment of truth came when my server brought out the Chicken Madeira. One forkful, and I felt like I was transported to Kuwait.
This story is from the February 25, 2013 issue of Fortune.