‘Zors see opportunity in Brazil despite economic turmoil
The Sao Paulo skyline in Brazil, which has a fragmented political system, a challenged economy—and for some franchisors, plenty of opportunity as the sixth-largest franchise market in the world by number of units.
Lin Luo sees opportunity, perhaps where some others do not. The franchise sales manager for Korean fried chicken restaurant chain Bonchon is exploring development in Brazil, a country with a fragmented political system following the ouster of President Dilma Rousseff in August and whose economy continued to contract in 2016 after negative growth in 2015.
What is growing is the franchise sector—and a general sense of anticipation for new brands—which Luo saw firsthand during the International Franchise Association and U.S. Commercial Services’ trade mission to Sao Paulo and neighboring Montevideo, Uruguay, in September.
“In Brazil, people are very excited about new trends,” she observed. “People have more disposable income for things they see as upgrading their lifestyle,” such as Bonchon’s addictive twice-fried chicken and secret sauces—which are hand-brushed on, of course.
Believing the bottom is past, Luo has high expectations for a concept that began franchising in 2011 and already has more than 200 international locations, including 50 in the U.S. and others in countries such as South Korea, Singapore, Indonesia, Thailand and the Philippines.
Gathered during a franchise trade mission reception in Uruguay are, l to r, Josh Merin of the IFA, Mona Musa of U.S. Commercial Service and Lin Luo of Bonchon.
Numbers from Associacao Brasileira de Franchising, the country’s franchise association, reinforce Luo’s optimism as the sector grew 8.3 percent in 2015 with total revenue at R$ 139.6 billion (US$ 35 billion). The country has an estimated 3,073 franchise chains with nearly 140,000 franchise units, making Brazil the sixth-largest market in the world (in number of units).
“I think this is the time for us and for investors,” Luo said. “It’s on the upswing and now is the time to really build the relationships, even if we don’t open locations for a couple of years.”
Bonchon’s international growth strategy is one requiring careful consideration as it seeks master franchisees who are as committed to the brand as founder and CEO Jinduk She, who opened the first location in Busan, South Korea, in 2002.
Bonchon’s plan would be to open 25 stores over five years in Sao Paulo and surrounding cities, a “reasonable” development plan for a master franchisee, Luo said, versus expecting 200 units to open within that same timeframe. Feedback from the trade mission confirmed Luo’s feeling that the casual, sports bar-leaning model Bonchon employs at its restaurants in the U.S. is a better fit than the fast-food approach it takes in Singapore.
“Sports are so big” in Brazil, “so people have chicken and a beer and so they stay to watch the games,” she explained. Bonchon also emphasizes its status as a global brand, one with roots in Korea but that was developed in the U.S. People in Brazil see U.S. brands as having higher quality products, Luo noted, and they’re willing to pay for them.
Brazil is very much attuned to U.S. culture, agreed Josh Merin, IFA’s director of international affairs.
“Absolutely. Overall, investors and consumers are favorable in reception to U.S. franchises,” he said. Some brands require more localization than others, but regardless of the concept Merin always advises franchises to go heavy on the due diligence as they consider potential partners.
“These people are you in that country,” Merin said, “and their reputation is your reputation.” Given its regulatory challenges, Brazil can be complicated for new franchises breaking into the market, Merin said. Its familiarity with the franchise model helps.
Switzerland of South America
September’s trade mission also took participants next door to Uruguay and its capital, Montevideo. Bordering the South Atlantic Ocean, Uruguay sits between much larger Argentina and Brazil and has long been considered more affluent than other countries in South America, especially given its advanced education system, liberal social laws, free market economy and high level of social spending.
These characteristics earned it the nickname “the Switzerland of South America.” While initially limited to food-related services, the franchising sector has grown to include outlets in clothing, healthcare, IT and several other industries. Unlike in Brazil, there are no legal restrictions on operating a franchise in Uruguay, and Merin noted its stable economy is another draw.
Continued economic growth and a steady increase in purchasing power has translated into more Uruguayans traveling and being introduced to franchise brands, according to a briefing report from Michael Schreuder, political-economic counselor at the U.S. Embassy in Montevideo. Uruguay in 2012 also became a high-income country by World Bank standards, with a 2015 gross domestic product of more than $53 billion.