Brazilians Welcome U.S. Fast-Food Chains in Slow Times
U.S. restaurants see opportunities among middle-class consumers despite Brazil’s economic downturn
SÃO PAULO—Eager for a bigger slice of South America’s largest dining market, many U.S. restaurant chains are expanding in Brazil despite the country’s moribund economy.
Subway, Dunkin’ Donuts, Hooters, McDonald’s, Johnny Rockets, Sbarro, Outback and Domino’s Pizza are among those opening new stores in the midst of weak consumer spending and what is shaping up to be Brazil’s first economic contraction since 2009.
Banking on better times ahead, U.S. companies are taking advantage of the down market to woo new franchisees, snag bargain leases and expand while many local operators are pulling back. The draw: a Brazilian middle class estimated at more than 100 million people, many of whom love to eat out and have an affinity for U.S. brands.
Brazil’s economic difficulties “make it more challenging, but it’s also an opportunity,” said Patrick Murtha, president of Tampa-based Bloomin’ Brands Inc.’s international division, which runs the Outback steakhouse chain in Brazil. “The Brazilian economy will improve, and we’ll be in a position to take advantage of that.”
This year, Outback plans to open a dozen outlets in Brazil, the most in any of its foreign markets. Bloomin’ Brands currently has 64 Outbacks and one Abbraccio Cucina Italiana restaurant in Brazil, all company-owned and accounting for a third of its international presence.
Strong sales at its Outback unit helped Bloomin’ Brands post second-quarter profit of $32.2 million, up 22% from a year earlier. Over the past year, its shares have risen about 31%.
Selling sirloin steaks in Brazil, one of the world’s largest beef producers, might appear to be like taking coal to Newcastle. But Brazilians have developed a taste for U.S. restaurant chains, in part because they increasingly travel to North America. The U.S. is the No. 1 foreign destination for Brazilians, with nearly 2.3 million visiting in 2014, more than triple the tally for 2007, according to U.S. government figures.
Elisama Lorenzo, 42 years old, said her children like the novelty and perceived cachet of eating at American-style places. They recently stopped for burgers at the newest Johnny Rockets location in a São Paulo mall, where lunchtime waits at the 1950s-themed diner can reach an hour or more.
“I come to the American places because my daughters insist,” Ms. Lorenzo said.
Still, it takes more than a U.S. nameplate to be successful abroad, says Charles Bruce,president and chief executive of Johnny Rockets Group Inc. Owned by the private-equity firm Sun Capital Management, the Aliso Viejo, Calif., chain operates in 27 foreign markets, which are home to about 40% of the company’s 340 stores. Its Brazilian franchisee currently has nine locations, with three more planned this year.
Mr. Bruce said Johnny Rockets looks for franchisees with retail experience, real-estate acumen and the financial means to open multiple units, which can cost anywhere from $500,000 to $750,000 each. Such operators tend to have the wherewithal to weather economic downturns.
There can also be advantages to setting up a business during tough times, such as those now bedeviling Brazil, a market known for its high costs and red tape. Real estate, among the biggest expenses, has become more affordable. And rising unemployment has made hiring qualified workers easier.
“You’ll probably get better employees, and they’ll stick with you,” Mr. Bruce said.
The number of franchised food chains operating in Latin America’s biggest economy has almost doubled since 2009 to a total of 685 chains at the end of 2014, according to the Brazilian Association of Franchisees. The group couldn’t provide a breakdown by country of origin, but confirmed that the presence of U.S. brands is growing.
Papa John’s International Inc. was among the U.S. chains trying to recruit operators at a recent franchise fair in São Paulo. The Kentucky-based pizza chain already has stores in Chile and Colombia. It is now looking to break into South America’s largest market, where pizza has long been a staple, thanks to waves of Italian immigrants.
“Brazil is a logical next step for us,” said Michael Measells, vice president of international business development for Papa John’s. “The pizza-eating demographic here is huge.”
Still, a big market doesn’t ensure success. Arcos Dorados Holding Inc., which operates more than 2,100 McDonald’s restaurants in Latin America and the Caribbean, has struggled with a weakened currency and declining foot traffic in Brazil, which accounts for roughly half its sales. The Buenos Aires-based company recently posted a $7 million profit for the second quarter, following losses in both the year-earlier period and this year’s first quarter. Second-quarter revenue for its Brazil unit dropped 24%, hurt in part by the depreciation of Brazilian real.
Dunkin’ Brands Group Inc. closed its doughnut shops in Brazil in 2005 because of problems with its franchising model and a weak supply infrastructure, company officials said.
The doughnut chain returned this year with an ambitious plan to open 150 stores in the next few years. It has retooled its franchising and supply models, and it tweaked its menu to appeal to Brazilian tastes.
Its first new store in Brazil’s capital of Brasília has attracted long lines of customers since it opened in May. Daiana Kmiecik, 27, a congressional aide, braved the queue on a recent afternoon. “It’s my third time here, but they had run out of doughnuts the other two times,” she said. “I think I’ll buy a box with a dozen.”
—Paulo Trevisani contributed to this article.
Source:WSJ
[author] [author_image timthumb=’on’]http://sandropiancone.com/images/SAN_D2-1.jpg[/author_image] [author_info]Sandro Piancone[/author_info] [/author]
