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Growing despite headwinds: Alsea, the Mexican restaurant and fast food company seeks to grow by opening more stores in Colombia, Chile, and Mexico.

Alsea, one of the two master franchisers in Latin America and of the leading Mexican restaurant and fast food franchises, has set itself some ambitious goals for 2017. It wants growth of 15% in sales, with a profit margin of more than 15%.

The challenge is that Mexico, its main market, expects consumption to drop, said Carlos Hermosillo, an analyst with Actinver bank.

The rest of the region also has its problems. "Some of the forecasts are that the recession in Brazil and inflation in Argentina will continue," said Maria Pia Medrano, an analyst with Fitch Ratings, "although a recovery in consumption in Argentina is being predicted." Alsea has 97 Burger King restaurants, 105 Starbucks coffee shops, and one P.F. Chang's in Argentina.

Nonetheless, Alsea is seeking to grow by opening stores in countries with the best performance, such as Colombia, Chile, and Mexico.

The company owns 14 franchised brands including fast food restaurants, coffee shops, and family restaurants. By March 2017, the company had 3,195 units, 69% of them in Mexico, 16% in Spain, and the rest in South America, in Argentina, Chile, Colombia, and Brazil.

"Colombia is one of the countries with the largest number of brands," said Veronica Uribe, an analyst at BX+ bank. "Last year they bought Archie's, which operates 39 establishments, and this could be one of the main drivers."

To reach its goals, Alsea is adopting intensive marketing strategies, with a loyalty program and mobile applications that are capturing more users, as well as the potential they represent, said Alexander Robarts, a Banamex analyst.

Other countries pose bigger challenges. In Brazil, not only is the economy in recession but also the company plans to move the only brand it has there, P.F. Chang, from Rio de Janeiro to Sao Paulo. "The company could leave Brazil if no attractive acquisitions come to the table, as it continues to analyze purchases in markets where it can improve scale and increase penetration in its global markets," wrote Antonio Gonzalez, analyst at Credit Suisse, in a report on Alsea.

Hermosillo says the company has posted positive results, with increases of 24% in sales in Mexico and 22% in South America. These markets have become defensive for Alsea because it has been able to maintain its position through adjustments driven by inflation.

In the future, meeting its goals will depend on the company's ability to minimize the effects of cost pressures and to implement intense marketing and manage promotion to respond to price adjustments needed given rising input costs.

"Some of their plans have changed right from the start," Hermosillo said. "They had thought of implementing a strong modernization strategy at Vips, and now they will move more slowly."

The investment plans under consideration involve spending between $204 and $229 million, which would include setting up an Operations Center and opening restaurants that would mean growth of 21.8% in stores in South America.


Caption: Fabian Gosselin Director Alsea International

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Author:Clavijo, Daniela; Bibian, Cinthya
Publication:Latin Trade
Date:Jan 1, 2017
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