Franchise companies are announcing plans to open Latin American locations, and they mean more than just Mexico. While Mexico is still a strong market for franchises of many restaurant chains, franchisors are now announcing openings in other countries that show economic promise.
Molly Harnischfeger, a director in the restaurant and foodservice practice at AlixPartners in New York City, said several factors make Latin America more attractive than ever to North American restaurant franchises. U.S. markets are saturated with certain franchises, so companies are looking overseas. Five years ago China and India were hot. “But then the supply chains were hard to figure out,” she said. “There’s been a shift toward Latin America.”
Brazil is especially appealing, as it will host the 2016 Summer Olympics and the 2014 FIFA World Cup soccer tournament. “From a restaurant standpoint, those events are huge in terms of advertising and building up their presence in Latin America and Brazil,” Harnischfeger said.
Several chains are working hard to build this presence.
“We see Latin America as a tremendous growth opportunity for Dunkin' Donuts,” said Jeremy Vitaro, vice president of international development for Dunkin' Brands. “Building out growth for Dunkin’ Donuts in Latin America is one of the keys to our international growth strategy.”
The Canton, Mass.-based chain has more than 300 restaurants in Chile, Colombia, Ecuador, Honduras, Panama and Peru. Late last year Dunkin’ Donuts opened its first location in Guatemala. The company, which has 10,000-plus units worldwide, also announced expansion plans in Chile, Colombia and Peru, and said Brazil is a potential new market in the future.
John Reale, chief operating officer of Atlanta-based Focus Brands International, agreed that Brazil is among the promising markets. Focus Brands International is a division of Focus Brands Inc., which is the parent company of the Auntie Anne’s, Carvel, Cinnabon, Moe’s Southwest Grill and Schlotzsky’s chains.
“Right now Brazil is a market we are focused on for Auntie Anne’s,” Reale added.
The country has an emerging middle class, so people are shopping at malls with food courts, which presents an opportunity for Focus Brands, especially for its snack brands that offer impulse purchases with low price points.
“We usually lead in to a new country with snack brands first,” Reale said. “We go in with Cinnabon or Auntie Anne’s, which have a smaller footprint, lower investment costs and an easier supply chain.”
He added that even Cinnabon’s Makara cinnamon from Indonesia is easy to import to Latin America and is inexpensive because the stores use small quantities of the spice.
Shopping centers have another positive feature, increased security. People feel safe at a mall, Reale said, plus malls in Latin American also have grocery stores for one-stop shopping.
Bob Wright, president and chief operating officer of Columbus, Ohio-based Charleys Grilled Subs said malls are a good location for the chain because of the climate in Central and South America.
“It’s always hot, and there is no air conditioning in many homes, so families go to the mall for the entire day,” he said. He added that people do want a hot sandwich once they are in the air-conditioned building. “You would think they want cold food, but they want hot steak.”
They also want spice, Wright said, so in some areas, the toppings stations feature more hot peppers. Charleys has 500 locations worldwide, including a total of 15 in Brazil, the Dominican Republic, Guatemala, Honduras, Panama, Puerto Rico, and Venezuela. The cheesesteak and grilled sandwich chain plans to open locations in El Salvador soon.
In other areas, consumers prefer sweet foods. Vitaro said Dunkin’ Donuts offers Manjar and Arequipe, or Dulce de Leche, donuts in several Latin American units, as well as an Iced Chicha Coolatta, made with Peruvian purple corn, in Peru.
The key is to listen to franchisees who live in the region and know their customers’ preferences. Steve Dunn, senior vice president of development for Spartanburg, S.C.-based Denny’s, said the franchisee in the Dominican Republic suggested the chain add plantains to the menu to respond to customers’ requests.
“It is a very common dish there, so we had to offer plantains,” he said.
Franchisees have to know not only the local flavor preferences, but also the ins and outs of building a store in the area. That’s why Denny’s, with approximately 1,700 locations worldwide, recruits franchisees who live in the market, and are also experienced operators of other American retail, hotel or restaurant brands.
“We don’t like to parachute someone into the country,” Dunn said. “We wouldn’t pick you up in Mexico and say, ‘Now go to Chile.’” Denny’s has five franchises in Mexico, and the Chile unit will be the chain’s first in South America.
Local franchisees also know about idiosyncrasies concerning the different dayparts. While Denny’s is a big player in breakfast in the United States, people in Latin American countries typically do not dine out for skillet breakfasts. They do, however, eat dinner late. That works well for Denny’s, which is open 24 hours. Consumers can have their late lunches and their 9 p.m. dinners.
Focus Brands’ Reale said the recipe for success is to have franchisees who live in the market, understand the market, and in Brazil, speak Portuguese.
“We look for partners that have capital, have access to real estate, understand the business and understand the business model of the franchise,” he said. Last year Focus Brands opened more than 40 units in Latin America, and has more than 100 Cinnabons and 30 Auntie Anne’s there. Soon the company plans to open locations of Moe’s Southwest Grill in Latin American markets as well.
For others, the franchisee can be a former local. Wright said a Charleys Grilled Subs franchisee in South Florida, who is originally from Venezuela, wanted to bring the brand to his native country. “They have to know the market and they have to know the customer base,” Wright said. “They have relationships with real estate companies, and they know which food providers meet our stringent quality standards.”
Harnischfeger of AlixPartners said other countries show promise too. Panama is expanding the canal, Argentina might be getting its political and economic issues settled, Colombia has wealth from coffee and oil, and other countries are generally seeing upbeat economic forecasts because of improved trade agreements with the U.S.
Of course things change, and often a local would know how to handle a situation. Dunn said just before the Denny’s in the Honduras opened, there was a government coup. “It delayed us, but our grand opening was one of our best,” he said.