Brazil: A Hub of Franchises and Opportunities

With its relentless pursuit of efficiency and new markets, and efforts to attract consumers, Brazil is poised for franchise sector growth.

By Altino Cristofoletti Jr.

Brazil is internationally renowned for its natural beauty, cultural diversity and receptiveness toward people, having also recently hosted one of the world’s biggest sporting events. But now, another aspect that’s been drawing attention is the political and economic turbulence stemming from, among other factors, the relentless combating of corruption, which is a positive factor for Brazil in the medium and long-term. 

However, Brazil is much more than that. It is a true hub of franchising and global entrepreneurship, offering lots of short, medium and long-term opportunities. According to data gathered by IFA for the World Franchise Council, Brazil, the world’s ninth largest economy, is ranked fourth in number of franchise systems and sixth in number of units, which puts it ahead of larger economies. 

Most Entrepreneurial Country

According to Global Entrepreneurship Monitor, Brazil is the most entrepreneurial country in the world, with almost four out of every 10 adults having already possessed or been involved in a business start-up. In 2015, Brazil’s entrepreneurial rate was 39.3 percent, the highest in the past 14 years.

For the past 50 years, Brazilian franchising has stood out year after year. In 2016, the sector totaled R$151 billion in revenues, more than three times the amount registered in 2007 (R$46 billion). Despite the challenging year, the sector boosted revenues by 8.3 percent in relation to 2015 and grew 3.1 percent in number of units.

In terms of franchise systems, Brazil has more than 3,000 brands, of which 90 percent are Brazilian. The sector possesses more than 142,000 franchised units and directly employs 1.2 million people. The source of this information is the Brazilian Franchising Association, which celebrated its 30th anniversary in 2017. With a professional structure and governance similar to that of large companies, ABF’s mission is promoting and defending the technical and institutional development of franchising, being a reference in the world and a partner of the International Franchise Association.

This strong performance in such a bad year is due to the preparation that Brazilian franchises have been adopting since 2012, the relentless pursuit of efficiency and new markets, and actions to attract consumers. Additionally, franchise chain operations have never been so important, favoring the renegotiation of costs, the exchanging of experiences and the joint development of new strategies. 

Segment Growth Rates

In looking at franchising, the segments that grew the most in 2016 were health, beauty and well-being, having grown 15.5 percent in relation to 2015. The growth of low-cost medical clinic chains, which gained share due to the labor market retraction and resulting exit of users from corporate healthcare plans, the utilization of new sales channels, as well as the entry of new brands and big players in the market, contributed to this performance.

The automotive services segment posted the second-best growth rate, with 11.6 percent. The used-car market registered significant expansion in 2016, in addition to the fact that automotive service chains offer customers as competitive advantages a higher level of service quality and agility in relation to independent businesses. The fashion segment came in third place, with a 10.4 percent growth rate. The offer of new products, promotion strategies and expansion of chains are factors that contributed to this growth.

Lastly, the food sector maintained its good performance with an 8.8 percent growth rate, ranking fourth. The segment that individually is the most representative and traditional in Brazil’s franchising market introduced promotions and diversified sales channels (apps), creating a new purchase experience for consumers.

Another important movement identified by ABF was the continued expansion of franchise chains to inner Brazil. In 2016, franchising reached a 42 percent presence in the country, or 2,321 of the 5,570 municipalities, having registered 40 percent the year before. The greater popularity of chains to smaller towns tends to continue. The chains’ pursuit for new markets, lower costs and the desire of consumers in the country to have access to well-known brands and their products and services are factors that contribute to this movement. In major cities, the expansion strategy has targeted more distant neighborhoods, using different operating formats (kiosks, food trucks, store-in-store, home-based, direct sales, etc.).  

Growth Trends Boosting Franchises

Certain trends are reflected on Brazil’s franchising market in a transversal manner. Such is the case of healthiness. The pursuit of healthier food eating and habits and quality of life have leveraged many franchise segments, such as food, health, beauty and sports. This is an established trend and is expected to continue. Not by chance, even big fast food players are already working with healthier options on their menus and there’s still a lot of room for innovation.

The growing specialization of chains is also a trend in the country. Beyond traditional segments, we see the emergence of franchise chains with increasingly more specialized services and products, such as those catering to pets, entertainment and even the production of asphalt and micro energy generation from solar sources. That is further proof of the force and creativity of Brazilian franchising, which continues to attract more and more entrepreneurs and businesses.

Brazil has always been considered a young country, but the population’s average age is increasing. At present, Brazilians over 50 years old spend more than R$1.58 trillion a year and will represent 25 percent of the nation’s population by 2020. Soon, having products and services adapted to this age group will be a challenge and Brazilian franchises have a lot to advance in this sense. Foreign chains are already eyeing this market, tapping their expertise in developed countries.

Combine these opportunities with a better macroeconomic scenario: Inflation is expected to stay around 4 percent this year; family indebtedness levels have dropped; February was the first month in a long time with a positive number of formal jobs created. Additionally, auctions, privatizations and infrastructure investments are on the government’s agenda. At the same time, the union has strived to maintain greater fiscal rigor and approve important reforms.

Within this context, there is a window of opportunity for new entrants (domestic and foreign), with more prime commercial locations available, cheaper lease costs, available workforce and less competition. Now is the time for franchise systems to prepare for expected economic growth. Brazil’s Central Bank projects a GDP growth rate of 0.5 percent in 2017. For 2018, the financial market foresees growth of around 2.5 percent.Add to this outlook the flexibility of the Brazilian population, used to dealing with situations of instability, and we have the prelude to a turnaround moment in Brazil. And country’s franchising market is ready to contribute to the country’s development, with its solid structure and innovative players. Now is the time to seek new opportunities in Brazil.

Altino Cristofoletti, Jr. is President of the Brazilian Franchising Association.