Greetings from Latin America

Why are franchises finding such fertile ground for expansion in Latin America?
 A Subway in Jalisco, Mexico

Things are going well for Subway – a little over a year ago it surpassed McDonald’s in terms of locations, to become the most prolific franchise in the world. “In Europe, we’ve been growing particularly well in Russia, the Nordics, and France. In Asia: China and India. In the Middle East: the UAE and Kuwait. In Australia and New Zealand we’re kind of plugging along -- we have over 1,500 stores there, and we’re adding about 100 per year. So things have been good in all of those areas,” says Don Fertman, Subway’s Chief Development Officer.

But one region in particular, he says, has been outshining them all: “Latin America, as it turns out, is at this particular moment expanding faster than any of our other regions outside of Northern America. [In] Brazil there’s a booming economy and very rapid expansion; we’ve had a surge of interest in Colombia and Argentina. There’s been a refocus on Mexico – as a result of that, last year we added close to 400 stores in the region, and this year we’ll end up with more than 400 stores added.”

But what is accounting for so much growth potential in Latin America? According to Fertman, it’s a combination of a few different reasons. One is the continued improvement of the region’s economic climate. The Council for Foreign Relations reported that Latin America saw economic growth of four percent in 2011, while unemployment rates dropped by 6.8 percent. In Brazil, it’s reported that the middle class currently accounts for nearly 50 percent of the population.

“That there’s stability in the region, from a political and economic standpoint –certainly more stability than there used to be. Inflation’s no longer out of control, and in our case the infrastructure has been completed and we’re ready to ramp up in just about every country that we’ve entered,” says Fertman. “I read that, while the progress has been made in Latin America, there are concerns about measures needing to be put in place to sustain the pace that they’ve achieved so far. We’re hopeful that that’s taking place, and the evidence from our folks on the ground shows that it will continue.”

There’s also the fact that people are becoming more familiar with cultures and flavors outside of their own communities – according to Altman, that has helped regions in Latin America to be more receptive to the introduction of foreign franchises.

“The world’s getting smaller,” he says. “There’s a new generation that is plugged in to social media, plugged into the internet, understands other cultures that much better because they’re online, they’re seeing news online, they’re looking at what’s hot in different regions and that seems to spread very rapidly these days. So we’re seeing more acceptance of our product by younger folks when we first enter countries. I think with franchising – because you’re bringing in a business concept that has something it’s providing to the public, whether it’s goods or services, and has an operating system that has been successful and built a brand in some areas – that can easily translate to other areas, and Latin America seems to be the kind of place that picks up on these things fairly rapidly, at least these days.”

It’s not to say that there have been no challenges in the region – but, as Fertman points out, that’s to be expected in any region outside of one’s own domestic zone. “I guess every region provides a challenge when we’re new to market,” he admits. “For us, the commodities that go into our sandwiches like cold cuts and fresh veggies aren’t always readily available. We also have to set up facilities to manufacture the dough for our proprietary bread, and then we have to make adjustments to our menu to allow for cultural and religious differences. Those are the real challenges. We’ve had economic challenges, too – but what’s been very good about Latin America is that, despite the worldwide economic depression, we’ve found that Latin America was not affected by thatto the degree other areas were, at least not by a Subway standpoint.”

“Here’s a little anecdote,” says Fertman, succinctly summing up the hopes and expectations for all franchises expanding into Latin America. “At all of our meetings, we have what we call a “Make it Better” session – it’s an open forum where all of our developers get an opportunity to say anything they want about our system as to what needs to be improved. I’ve taken part in Make it Better sessions in Asia, Australia, Europe, the Middle East, and Latin America. At the Latin American session the topics went up on the board, and the group took a vote: “do you want to spend time on these topics, or do you want to open a gigantic bottle of champagne and celebrate?” They all voted to celebrate, so my sense was that they’re feeling pretty confident that things are going in the right direction.”

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