|Title:||Latin America top 15 franchises by number of franchised locations in units as reported March 2012|
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IN LATIN AMERICA
RANKED BY NUMBER OE
MCDONALD'S X,XXX SUBWAY X,XXX X-ELEVEN X,XXX CACAU SHOW (BRAZILI X,XXX BURGER KING X,XXX GRIDO HELADOS (ARG.) XXX KFC XXX BOB'S (BRAZIL) XXX PIZZA HUT XXX DOMINO'S PIZZA XXX STARBUCKS XXX CASA DO PAO DE QUEIJO (BRAZIL) XXX HAVANNA (ARGENTINA) XXX DUNKIN' DONUTS XXX TACO BELL XXX
Sources: Companies, Latin Trade
RIO DE JANEIRO -- The Kentucky Fried Chicken meals in this seaside city come with Brazilian staples: black beans, rice and farofa, the popular side dish of crushed and seasoned manioc 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," says student Rose Marconi, XX, as she eats a XX reais ($X.XX) 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 XX 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. 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 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 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 opened recently. But services also are growing, says Batista Gigliotti, who heads the franchise consulting firm Fran Systems. Real estate chains Remax and Century XX entered Brazil in 2008. Sunbelt Business Brokers has opened more than XX 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 XX billion reais (about $XX billion) in 2010, according to the Brazilian Franchising Association, which tracks domestic and international brands alike. The group estimates Brazilian franchising growth at XX percent last year and forecasts XX percent more in 2012.
Brazil now has more than X,XXX franchise brands, at more than XX,XXX outlets. That includes many homegrown brands, such as chocolate stores Cacau Show, with X,XXX outlets; hamburger Bob's, with XXX; and coffee shop Pao de Queijo, with about XXX stores. Brazil's franchise count dwarfs the number in Mexico (about X,XXX brands at XX,XXX outlets) and in Argentina (about XXX brands at XX,XXX outlets), according to their franchising associations.
But, like Brazil, other major markets in Latin America are posting double-digit growth. Mexico forecasts XX 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 X percent of the country's total economic activity, according to the Mexican Franchising Association.
Argentina expects XX.X 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 XXX franchised cards in Argentina and abroad.
The franchise growth extends into smaller Latin American countries, too, including Panama and Uruguay. Colombia's Juan Valdez Coffee started an international expansion in February 2011 based on a franchise model and has just opened its first international franchise in Panama, with XX 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 $X,XXX a year. This year a local franchisee opened Paraguay's first store for Spain's fashion designer Adolfo Dominguez and plans up to six across the landlocked nation.
OBSTACLES TO GROWTH
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.
"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 XX 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 XG Capital bought Burger King Holdings for $X 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 XX percent from a year earlier, to $XX 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: XX 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. 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 X,XXX franchises and XX company-owned stores as of last fall. Starting in 2011, its biggest franchisees--Alsea and Affiliates (XXX stores in Mexico, Argentina, Chile and Colombia); Caribbean Restaurants Inc. (XXX stores in Puerto Rico); and Geboy de Tijuana (XX 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 XXX 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 XX,XXX employees serve four million clients a day in nearly X,XXX McDonald's restaurants spread in XX countries and territories in Latin America and the Caribbean.
In 2011, Arcos Dorados opened XX new restaurants in the region, or one about every six days. Its revenues in the third quarter, adjusted for inflation, shot up XX percent from a year earlier, to $XXX million. For the year, sales were growing by double digits from $X 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.
EVEN A KOSHER MCDONALD'S