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Franchising boom in Latin America and the challenge of adapting to local tastes.


RIO DE JANEIRO -- The Kentucky Fried Chicken Fried chicken is chicken which is dipped in a breading mixture and then deep fried, pan fried or pressure fried. The breading seals in the juices but also absorbs the fat of the fryer, which is sometimes seen as unhealthy.  meals in this seaside city come with Brazilian staples: black beans, rice and farofa, the popular side dish side dish
A dish served as an accompaniment to the main course.

Noun 1. side dish - a dish that is served with, but is subordinate to, a main course
entremets, side order
 of crushed and seasoned manioc manioc: see cassava.  root. But the U.S. brand says its franchises are taking off since their 2011 start because few competitors sell fried chicken.

"I only find this at KFC KFC Kentucky Fried Chicken (restaurant chain)
KFC Kenya Flower Council
KFC Kitchen Fresh Chicken (Kentucky Fried Chicken motto)
KFC Kung Fu Cult (Cinema)
KFC Kitchen Fixed Charge
," says student Rose Marconi, 24, as she eats a 15 reais ($8.50) lunch of chicken, with a Pepsi to drink. Marconi says she eats regularly at the fast-food chain and orders delivery when she can't make it to the restaurant.

In just months, KFC has opened 13 units in Rio and four in Sao Paulo, and the company has six more to debut soon. It's a sign of the franchise boom across Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. . Strong economic growth and a surge in the middle class have more people turning to franchises as a way to tap rising consumer demand. And franchise companies from the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area.  and Europe are eager for opportunity overseas when their own markets are growing slowly, industry specialists say.

Not every franchise will succeed in Latin America, where markets differ widely in their buying power Buying Power

The money an investor has available to buy securities. In a margin account, the buying power is the total cash held in the brokerage account plus maximum margin available.

Also referred to as "Excess Equity.
 and ease of doing business. Consumer tastes vary across nations. And management must carefully operate franchises to cover costs from start-up fees to royalties.

But Rio de Janeiro and other big cities in giant Brazil now rank as top growth targets. KFC says more middle-class consumers mean more meals outside the home. And Brazilians traveling to the United States already recognize the brand.

"If you compare Brazil to more consolidated markets, Brazil still has a lot of opportunity," says Flavio Maia, KFC's director in Brazil.

Food is an obvious area for Brazil's franchise boom--restaurant chain Applebee's and frozen-yogurt brand Yogen Fruz Yogen Fruz is a world-wide chain of frozen yogurt stores. Yogen Fruz serves a variety of other treats focusing on healthier alternatives.

In 1986, two young brothers opened their first retail outlet at the Promenade Mall in Toronto, Canada.
 opened recently. But services also are growing, says Batista Gigliotti, who heads the franchise consulting Franchise consulting, a specialized category of professional assistance for investors, entrepreneurs, and enterprises, is a field which has arisen from the increased popularity and profitability of franchising.  firm Fran Systems. Real estate chains Remax and Century 21 entered Brazil in 2008. Sunbelt Business Brokers has opened more than 15 offices in Brazil since 2010, and Mail Boxes Etc. operates in six cities since launching in Sao Paulo in 2006.

"Many American and European franchisers didn't have any presence in Latin America" before the global recession in 2008, says Gigliotti, who is also the franchise coordinator at the Center for Entrepreneurship and New Businesses at the university Fundacao Getulio Vargas. The Brazilian market is particularly receptive to other Western brands, he adds: "Among the BRICs (Brazil, Russia, India and China), Brazil is possibly the country that is most culturally similar to the franchise countries."


The growth rate is astounding. Brazil's franchising sector has tripled in revenue over the past decade as the middle class blossomed. Franchises brought in 75 billion reais (about $43 billion) in 2010, according to according to
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

 the Brazilian Franchising Association, which tracks domestic and international brands alike. The group estimates Brazilian franchising growth at 15 percent last year and forecasts 15 percent more in 2012.

Brazil now has more than 1,800 franchise brands, at more than 90,000 outlets. That includes many homegrown brands, such as chocolate stores Cacau Show, with 1,126 outlets; hamburger Bob's, with 739; and coffee shop Pao de Queijo, with about 400 stores. Brazil's franchise count dwarfs the number in Mexico (about 1,300 brands at 54,000 outlets) and in Argentina (about 500 brands at 25,000 outlets), according to their franchising associations.

But, like Brazil, other major markets in Latin America are posting double-digit growth. Mexico forecasts 13 percent gains this year, thanks in part to its home-grown brands, such as doughnut maker Beleki and Dental Perfect clinics. Franchises in Mexico now employ nearly half a million people and generate about 6 percent of the country's total economic activity, according to the Mexican Franchising Association.

Argentina expects 10.5 percent expansion this year, according to consultant Carlos Canudas. He's on the board of the Argentine Association of Brands and Franchises. Canudas is bullish because more shopping centers are opening in smaller Argentine cities. They're attracting such chains as Argentina's own baked-goods and coffee-shop veteran Havanna, which has 213 franchised cards in Argentina and abroad.


The franchise growth extends into smaller Latin American countries, too, including Panama and Uruguay. Colombia's Juan Valdez Juan Valdez is a fictional character that has appeared in advertisements for the National Federation of Coffee Growers of Colombia since 1959, representing the Colombian coffee farmer. He typically appears alongside his mule Conchita, carrying sacks of harvested coffee beans.  Coffee started an international expansion in February 2011 based on a franchise model and has just opened its first international franchise in Panama, with 10 more stores planned in five years.

And Argentina's ice cream chain Heladerias Grido plans to open a dozen shops in neighboring Uruguay by spring.

There is even growth in lower-income countries, such as Paraguay, which has a per-capita income of about $3,000 a year. This year a local franchisee opened Paraguay's first store for Spain's fashion designer Adolfo Dominguez Adolfo Domínguez is a galician fashion designer. Early life and education
He was born 1950 in Ourense, Galicia in northern Spain. He studied design and cinematography in Paris, with further studies in London, England.
 and plans up to six across the landlocked landlocked adj. referring to a parcel of real property which has no access or egress (entry or exit) to a public street and cannot be reached except by crossing another's property.  nation.



Still, there are hurdles to expansion. Violence on the Mexican border is turning off some U.S. companies from entering Mexico, although sophisticated ones are starting up farther south in the sprawling nation. And a left-leaning government makes Venezuela unattractive for a U.S. start-up, franchise specialist Bill Edwards, from Edwards Global Services in California, tells Latin Trade Latin Trade is a monthly magazine covering global business in Latin America and the Caribbean. Similar to Forbes and Fortune Magazine in coverage, the magazine was founded in 1993 and now publishes 87,000 copies 1 each month in Spanish, Portuguese, and English. .

"I would not have anything to do with entering Venezuela now. You can't get dollars out. And an American brand would be a (political) target," Edwards says. "But my experience in this business for 40 years is that Venezuela will come back as a market for U.S. franchises."

Growth presents its own challenges too. In Rio de Janeiro, there are not enough qualified workers for all the restaurants now opening, says Pedro de Lamare, president of Rio de Janeiro's Hotels, Bars and Restaurants Syndicate (SindRio) and a partner in the domestic franchise Guia Guia, a casual-dining chain. Many migrants to Rio from Brazil's less-developed northeast are returning home as opportunities improve there. And Rio's real estate bubble is pricing some workers out of the city while also boosting prices for labor.

"The shortage of workers in Brazil comes from lack of investment in education, in specialization," de Lamare says, citing problems in finding trained cooks. "You have a lot of demand and few people to work. I think this is something international brands will face."


Perhaps nowhere is the franchise boom more evident--and competition more fierce--than in hamburgers. Opportunities to expand in Latin America are among the reasons that Brazil's investment group 3G Capital bought Burger King Holdings for $4 billion in late 2010.


Burger King's new owners are already cashing in. In the first nine months of 2011, revenue from the company's Latin American and Caribbean region jumped 14 percent from a year earlier, to $95 million. Sales dropped in every other world region. What's more, the Latin American area had Burger King's highest profit margin on operations of any region: 42 percent, company reports show.

Miami-based Burger King had a head start in entering Latin America: It opened outside the U.S. mainland in 1963, in Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. . And the company was an early burger arrival in Mexico. But, in recent decades, Burger King's growth has foundered on repeated ownership and management changes.

"I think the new owners ... will do what we always wanted to do at Burger King--expand internationally", says Nelson Marchioli, who ran the company's international division in the 1990s.

The King has plenty of room to add Whoppers. Its Latin American region included just 1,079 franchises and 97 company-owned stores as of last fall. Starting in 2011, its biggest franchisees--Alsea and Affiliates (196 stores in Mexico, Argentina, Chile and Colombia); Caribbean Restaurants Inc. (175 stores in Puerto Rico); and Geboy de Tijuana (66 in Mexico)--had no presence at all in giant Brazil.

To speed growth, the chain, in June, awarded its master franchise for Brazil to an affiliate of Brazil's Vinci Partners. Brazil had just 108 Burger King stores then, fewer than one for every million people.

McDonald's, in contrast, has been aggressive in Latin America for decades. Argentina-based Arcos Dorados- Spanish for "Golden Arches"--now ranks as the world's largest McDonald's franchisee. Its 86,000 employees serve four million clients a day in nearly 1,800 McDonald's restaurants spread in 20 countries and territories in Latin America and the Caribbean.

In 2011, Arcos Dorados opened 64 new restaurants in the region, or one about every six days. Its revenues in the third quarter, adjusted for inflation, shot up 20 percent from a year earlier, to $984 million. For the year, sales were growing by double digits from $3 billion in 2010.

Burger King and its biggest franchisee, Alsea, would not comment for this report. Arcos Dorados also would not provide specifics on future expansion plans, reflecting the tough rivalry.



One secret to Arcos' enormous success is clear: adapting to local tastes.

"One of our main focuses is getting to know our customers' needs very well," chief executive Woods Staton told Latin Trade.

Although you can get the signature Big Mac anywhere, you also can have breakfast with an arepa a·re·pa  
A baked or fried cornmeal cake of traditional Colombian cuisine.

[Cariban repa, maize.]
 corn bun in Venezuela or with a pao de queijo cheese-flavored bread in Brazil. And you can chew on a kosher Big Mac in Argentina, where many in the country's large Jewish community choose food prepared under strict Judaic rules.

"This is great," says Martin Rotem, 27, at the only kosher McDonald's outside Israel; it's at the Abasto shopping mall in Buenos Aires Buenos Aires (bwā`nəs ī`rēz, âr`ēz, Span. bwā`nōs ī`rās), city and federal district (1991 pop. . Rotem is cramming down a Double Quarter Pounder The Quarter Pounder is a sandwich sold by international fast food chain McDonald's. Along with the Big Mac, it is one of McDonald's two signature products. Product description , no cheese--kosher rules ban mixing meat and dairy--with fries topped with outrageous volumes of ketchup.

"Before they opened, we (young Jewish people) didn't have a lot of options to eat out," Rotem says.

His friend Ruben Katan, 22, who also wears a kippah, or skullcap skull·cap
See calvaria.

n Latin names:
Scutellaria laterifolia, Scutellaria baicalensis;
, gestures at the line of customers waiting to place an order. "It's always like this," he says, gulping down his McCombo. "This place is always full."

Also key to success: Arcos' focus on training, Staton says. Since 1997, Arcos has teamed with a McDonald's University in Brazil, where more than 52,000 people have taken courses to date. And Brazil hosts one of only two McDonald's recruiting centers--the other is in France, Staton says to Latin Trade.

Yet even with all its growth, mammoth Arcos sees plenty of opportunity to expand for decades to come. That's because Latin America is big, with 580 million people--more than the populations of the United States, Germany, France, the United Kingdom and Italy combined. One-third of its residents are young (15-34 years old), with prime income-earning years ahead. The region's economy is growing faster than those of richer nations. And franchise penetration remains low.



"Even if we were to double the number of restaurants," Staton says, "penetration would still be just two-thirds that of the North American North American

named after North America.

North American blastomycosis
see North American blastomycosis.

North American cattle tick
see boophilusannulatus.


Still, opportunities to grow don't guarantee profits for all companies. Franchising is a marriage between a brand and an operator, and not all marriages work, according to participants at Franchise Expo South, a trade show of the International Franchise Association held in Miami Beach Miami Beach, city (1990 pop. 92,639), Dade co., SE Fla., on an island between Biscayne Bay and the Atlantic Ocean; inc. 1915. It is connected to Miami by four causeways.  in January.

"We're looking for the right partner more than the right country," says Dan Collins, vice president of Hurricane Grill & Wings, a Florida-based chain with 46 U.S. outlets to date. Collins looks for a partner with multi-unit franchise experience, links to the local construction industry and a track record in real estate development "to find the right locations."


The Noodle House, a full-service restaurant chain expanding from Dubai, seeks a partner with strong food-and-beverage experience that can develop a deep understanding of its brand.

"It can take a year to sign a deal, purely to make sure the relationship is right," says Phil Broad, managing director of Jumeirah Restaurants. The company is keen for a partner in Brazil, "with so much going on--the Olympics and World Cup coming," Broad says. But a Brazilian franchisee also must show a track record navigating the country's legendary bureaucracy and tax system, he says. Even with the right match, some experts don't recommend booming Brazil for franchises new to Latin America. The paperwork for a foreign brand to register and launch stores can take nine months to two years. And Brazil is pricey, says consultant Edwards. Colombia is a better option for U.S. brands now, he says. It's quicker and cheaper to start up there. Plus, the new U.S.-Colombia free trade agreement has U.S. authorities working to help U.S. franchise companies enter Colombia, Edwards says.

Arcos Dorados' success shows that in a good marriage, perseverance pays off. The company has resolutely invested in Latin America for decades, even when some rivals retreated during times of turmoil. Chief executive Staton welcomes other couples to join the growing market--researching, training and adapting to local tastes: "I see great prospects for Latin America and for the companies that persistently invest in the region," he says.

With David Haskel from Argentina and Joseph A. Mann Jr. and Doreen Hemlock hemlock, any tree of the genus Tsuga, coniferous evergreens of the family Pinaceae (pine family) native to North America and Asia. The common hemlock of E North America is T.  from Miami.

MCDONALD'S             3,350
SUBWAY                 1,804
7-ELEVEN               1,351
BURGER KING            1,079
KFC                      900
BOB'S (BRAZIL)           739
PIZZA HUT                700
DOMINO'S PIZZA           598
STARBUCKS                503
DE QUEIJO (BRAZIL)       400
DUNKIN' DONUTS           140
TACO BELL                100

Sources: Companies, Latin Trade
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Comment:Franchising boom in Latin America and the challenge of adapting to local tastes.(INDUSTRY REPORT: TOP FRANCHISERS)
Author:Barnes, Taylor
Publication:Latin Trade
Geographic Code:3BRAZ
Date:Mar 1, 2012
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