Copycats: FedEx and UPS battle for the small business market across Latin America.

Global courier FedEx's decision late last year to buy the privately held Kinko's copy chain for US$2.40 billion in cash earned the logistics giant 1,200 stores worldwide but only one in Latin America--in Mexico City.

Now, FedEx is laying plans to expand in the region, and it must create from scratch a retail chain big enough to compete with Mail Boxes Etc. (MBE), the entrenched and growing subsidiary of rival UPS.

UPS bought Mail Boxes in April 2001 for a comparatively paltry $185 million, and it is now the world's largest franchiser of retail shipping, postal and business service centers with 4,800 locations worldwide. The company has 90 franchises in Latin America, including 30 in Mexico, 38 in Venezuela and 10 in Colombia.

Both companies plan to open more storefronts in Latin America to attract walk-in package shipments from small businesses and individuals while they use copying and printing services. The two companies are focusing for now on Mexico, where the shippers are looking to grab packages wherever they can to feed growing logistics networks. "The market in Mexico is very fragmented and looking for more access points to UPS service. MBE provides that," says Luis Arriaga, General Manager of UPS Mexico.

Executives at FedEx, which operates the world's largest cargo airline, hope the Kinko's acquisition will boost its ability to compete with UPS for ground shipments in the region. "The stores are magnets for small businesses because we offer them not only transportation of packages but a total solution as a one-stop shop," says Eduardo Lopez, FedEx's director of planning and administration for Mexico, Central America and the Andean Region.

FedEx has a lot of catching up to do. The Mexico City Kinko's opened in November 2003, before the FedEx purchase. At that time, Kinko's said it planned to open several locations in Mexico City over the ensuing 18 months and that it would consider adding stores in other cities. Kinko's also then announced plans to quadruple the total number of stores outside the U.S. over five years.

FedEx says it still plans to open several stores in Mexico over the next 18 months but hasn't determined the final number and locations and the company says it isn't ready to disclose details yet. Expansion plans for the test of Latin America, as well as a marketing strategy, are also under development, says Lopez.

Meanwhile, Atlanta's UPS is aggressively widening its lead. The company plans to add 1,000 franchises in Latin America over the next seven to 10 years, says Kenneth Landau, CEO of Red Postal Latino Americana, which owns the master franchise for Mail Boxes in Mexico. The expansion includes 400 outlets in Brazil and 200 in Argentina, markets the company will enter by the end of the year, and 300 in Mexico. To fuel the growth, Mail Boxes recently opened a large franchisee training center in Mexico City.

Red Postal Latino Americana plans to expand beyond Mexico's business districts into middle-class areas. The company will open outlets in less affluent neighborhoods that will offer basic, non-business services. "We are adding prepaid cell phones, wire transfers and pay telephone booths, which can be very profitable in those particular centers" says Landau.

A similar strategy worked in Venezuela, where Red Postal Latino Americana expanded the Mail Boxes network earlier this year. Stores in Venezuela average $28,000 in sales per month and Landau plans to incrementally bring Mexico store sales to the same level. The goal is $25,000 per month per store by 2006, he says.

Direct mail. In Mexico, as in the United States, Mail Boxes and its franchisees collaborate on marketing and advertising campaigns. The parent charges each store 3% of every dollar sold to finance a marketing fund. The money pays for direct-mail kits for franchise owners, while Mail Boxes helps negotiate rates for customer databases. The marketing fund also pays for sales training to Leach franchisees how to negotiate deals with small and medium-sized businesses and for advertising in newspapers and on television and radio. The fund should have enough to finance national advertising when the number of franchises there reaches 225, says Landau.

FedEx and UPS are two of the planet's most recognized brands. Yet both companies have been cautious about slapping their names on their retail outlets outside of the United States. FedEx recently renamed its U.S. outlets FedEx Kinko's Office and Print Services, but the company has not announced plans to do so at stores outside the United States. "It's not clear yet what name or combination of names the Mexico operation will have." says Lopez. FedEx must first evaluate the impact of a name change on brand recognition and market share in the United States, he says.

UPS decided in early 2003 to rename its U.S. franchises The UPS Store after testing the name at a handful of locations. But many U.S. franchisees didn't like the decision and filed a class action suit to stop the change. They feared that the UPS plan to offer only its shipping service at discount prices would lower business volume. But UPS sweetened its incentives and most U.S. stores have now adopted the new name and UPS as the carrier.

Outside the United States, however, store signs still read Mail Boxes Etc. In Mexico, it's unclear whether the name will change, says Landau, mostly because franchisees remain chilly to the idea. Here's why: UPS is far from the dominant carrier in Mexico, accounting for about one-third of shipping at most UPS stores. Many franchisees offer up to five carriers, including FedEx, and want to continue benefiting from price competition among them.

UPS won't push franchisees to adopt the new name, but the company is trying to entice them. "We want them to retain control over carrier options. But we want to be their carrier of choice and we give them preferential and very competitive rates," says Arriaga.

TOTAL PACKAGE

Global shipping giants look beyond big accounts to walk-in business.

                       FedEx            UPS

Purchased (Year)       Kinko's (2003)   Mail Boxes Etc (2001)
Amount                 US$2.4 billion   US$185 million
Stores worldwide       1,200            4,800
Stores Latin America   1                90
Expansion plan         10-15 (Mexico)   1,000 (Brazil, Argentina,
                                          Mexico)
SOURCE: Company reports, LATIN TRADE

DEREK REVERON * MIAMI