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Thursday 11th August, 2022

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Why invest in Latin America?
Why invest in Latin America?

Insight

Why invest in Latin America?

With its exponential growth and wealth of worldly consumers, Latin America is worth investing in encourages Fernando Lopez de Castilla

Franchises have changed the course of the world and the world, in turn, has changed the course of franchises. With the United States of America leading as the current mecca of the industry and Asia providing a clear glimpse into the future, Latin America has swiftly begun climbing the ranks, too.

This collective group of countries encompasses more than 605 million people, and each consumer – no matter their region of birth or economical standard of living – has grown up watching American TV, reading European literature and using Asian technology. As a result, they are a citizen of the world and are constantly looking for new experiences as a means of both social and personal improvement.

When we talk about the Latin American market of franchises, we are referring to over 5,500 brands, with a regional average of 40 units per brand in each country. If we compare this average against the 200 units per brand that exist in the United States, we not only realise how incipient the market is but also its future potential, taking in to account that from this total of brands, only some 200 are international, despite the fact that it contributes to more than 70 percent of the total units.

The gross domestic product (GDP) of Latin America grows at a rate of more than 5 percent annually, encouraged by an emerging middleclass that is anxious of consuming and climbing the social ladder.
For a Latin American, there is no better way to show status than by purchasing goods and services, especially those that come from foreign origin. The act of walking down the street in a city like Lima in Peru, or Santa Cruz in Bolivia, with a coffee from Starbucks in your hand is without doubt a symbol of status, considering that a coffee from this brand is on average three times more expensive than that of a local coffee shop.

However, the opportunity for development in Latin American is often lost in the fog. If you ask a high executive from an international division of a global brand about their strategy towards the region, you’ll hear something that could probably work in the United States or Europe, but not in Latin America – even though the opportunity for growth is staggering.

Did you know that Chile, although it has four times the amount of shopping malls than Peru and a GDP that doubles it, is 25 percent less developed in the franchising sector? And did you know that the additional 25 percent more development in Peru, still makes it 10 times less developed than the regional average? Peru, along with Panama, has an average of just four units per brand, unlike Mexico that borders 70 units per brand.

Many think that markets such as Paraguay or Bolivia are too small to start an expansion. But by visiting the recently opened shopping malls in Asuncion or Santa Cruz, you would soon change your mind. In fact, these two countries have the highest growth rates in the region, which will likely be maintained for the next 20 years. Think that San Jose in Costa Rica is only a destination for bird watching or retirement? Well, you would probably be surprised to know that the franchise sector of this country exponentially surpasses the growth rate of other Central American countries and South Americans too, such as Guatemala or Argentina.

Latin America is a region that is ready to be conquered, once again. The brands of the first wave, such as McDonald’s and Subway, didn’t take the time to thoroughly understand the Latin American consumer, and therefore could not fully develop their franchise within the region. Today, an adolescent in Lima, Peru, does not dream of the return of Taco Bell but with the arrival of Chipotle. An entrepreneur in Caracas, Venezuela, doesn’t want another Subway but a Which Wich and the young family in Santiago, Chile, does not want to take his children to McDonald’s, but is instead awaiting the arrival of Shake Shack. After all, if there is something that Latin Americans are proud of, its of their heritage and food, and that is why more than 70 percent of the franchise supply is gastronomic.

And the opportunity is not only limited to the food and beverage industry. Every driver would like to stop at a 7-Eleven on their way home and not in the petrol station of their neighbourhood. And every entrepreneur would prefer to enter a FASTSIGNS, rather than the informal business at the back of their office. Latin America wants more from the global brands the consumer has grown up with, but not more of the same, they want fresh brands with innovative value that can spark the imagination and provide a completely new experience for the consumer

About the author

Fernando Lopez de Castilla is the founding partner at Grupo Nexo Franquicia

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