Ample opportunities still exist in Peru
Peru has colorful traditions and great sights, but it’s also home to earthquakes and volcanoes. When going there on business, be sure to give yourself time to get acclimated to the high altitude.
KFC has a large presence in Peru, even with local competition from Pardo Chicken, a successful Peruvian franchise that is expanding beyond its borders to nearby countries and the U.S., including a unit in Miami. Other fast-food franchises have made the trek and found success in this Latin American country, even though one of the setbacks is a highly stratified society with a wealthy class and poorer mestizos, persons of mixed European and Amerindian heritage.
About 45 percent of Peru’s 30.4 million people are Amerindians, while 37 percent are mestizos, according to the CIA World Factbook. On a positive note, poverty rates fell by more than half from 56 percent to 23 percent from 2005 to 2014.
Peru’s natural beauty and historic sights, like Machu Picchu, an Incan citadel set high in the Andes Mountains, attract tourists from all over the world. Which as franchisors know is a plus for U.S. brand recognition.
In the 10-year period from 2003 to 2013, Peru was the South American country with the highest GDP average annual growth—more than 6 percent. It also had the lowest inflation during that same time period, 2.9 percent, according to the U.S. Commercial Service’s website. It is the second highest-ranked Latin American economy after Chile. The World Bank calls it “one of the best performing economies in Latin America,” according to its website.
A recent story in the Andina, a Peruvian news agency, reports the vital minimum wage has been raised from US$221 to US$251 (don’t worry, that’s not the hourly wage).
Attractive lifestyle malls are being built, which is excellent for U.S. brands going there, says William Edwards, founder of EGS, a California-based company that takes franchise brands internationally. However, until the presidential election is completed in Peru, investing in brands has slowed down, he added.
While fast-food chains have been first in, sandwich chains provide familiar fare. Called sanguches, “Peruvians have sandwiches for breakfast, lunch and dinner,” according to LimaEasy, a travel website.
There is no national franchise law in Peru, says Fernando López de Castilla Elías, founding partner, Grupo Nexo Franquicia, a consultancy in Peru. “Actually, very few countries in Latin America, like Argentina and Brazil, possess legal framework for the franchising industry,” he says.
The biggest challenge for franchisors coming into the market, he says, is the “informality” of business deals. Like all Latin American countries, business is based on having a personal relationship first. And they tend to be more comfortable dealing with individuals, rather than corporations.
And whatever you do, warns the business etiquette book, Kiss, Bow or Shake Hands, do not switch your company’s players during negotiations or you may find that the Peruvian business people will call a halt to the process.
“This is why American brands prefer to enter markets such as Peru through us, since the Latin American culture is not only very different from the American culture, but there are a lot of challenges to deal with in cross-cultural negotiations,” he says.
“Nevertheless, the benefits are huge, since Peru’s franchising industry, for example, is 10 times less developed than the region’s average. So there is a lot of opportunity for global brands, still.”
When asked which types of industries would do especially well in Peru, he responded in an email that food and beverage brands do very well in Peru, “and there is still a lot of room for new brands, and not only within the fast-food category, but in the fast-casual and casual-dining categories as well.”
For the most part, the retail and services categories are totally undeveloped, he adds.
The Peru Trade Promotion Agreement with the U.S. six years ago eliminated tariffs on 80 percent of U.S. exports, with the remaining tariffs phased out over a defined time period, says the U.S. Commercial Service.
While there are three major ports, shipping supplies to Peru can be difficult. This, along with limited highways outside of the capital Lima, can make getting proprietary items to the stores in a timely manner more difficult.
Since no one wants to offend the people they’re doing business with, here are a few of the protocols to follow in Peru:
- Giving gifts is a normal part of business protocol; if you’re not comfortable doing so on the first meeting, offer to buy lunch;
- If you are invited to dinner, expect to eat late, perhaps as late as 10:30 p.m.;
- Make appointments about two weeks in advance;
- Print your business cards and materials in both English and Spanish;
- Peruvians are close talkers; don’t back away.