Brazil Country Market
Insights and Opportunities
Overview: Franchises account for approximately 25% of gross revenue in the retail sector. Local Brazilian franchises dominate the market (90%); however, foreign groups, particularly from the U.S., are making headway.
To take advantage of Brazil’s growing market, U.S. franchisers should localize their products or services, invest in market research, and test market receptivity through pilots.
Brazil’s Franchising Law states that franchisers or their master-franchisees should provide all potential franchisees with a Franchise Offering Circular (Circular de Oferta de Franquia). This must contain basic information about the financial health of the franchiser, as well as information on any pending legal disputes.
U.S. franchisors should pay special attention to the various legal aspects of franchising in Brazil to avoid future disputes with local partners/franchisees. Serious problems and failures of franchise operations have occurred for various reasons, including a lack of knowledge of the market, lack of planning, poor choice of franchisee, and macroeconomic trends. These cases have resulted in financial loses for U.S. and Brazilian companies; a negative impact on brands, both in Brazil and internationally; as well as a negative image for U.S. franchisors entering this market.
An important aspect of Brazil that U.S. franchisors need to be aware of is Brazil’s judiciary system. Based on Roman law, this system naturally provides many options for appeal in all stages of the legal process. In addition, the slowness of the already overloaded Brazilian courts can cause significant delays in the decision on a case. Litigants can take advantage of the situation by not paying franchise fees while they keep the business running and the brand is degraded.
Personal accessories and shoes make up the best performing franchise sector in 2007 with a total revenue increase of 24.4%. The franchises in the business and services segment had a 24.2% increase over the previous year. According to the Brazilian Franchise Association the recovery of internal consumption as well as the entrance of traditional companies into the franchise system explains those increases. In terms of the number of chains/brands operating through franchising, the increase in 2007 was of 18.2%.
Another franchise sector that showed large growth figures was Information Technology with 20.4% increase. According to local sources, this is a consequence of the continuous modernization of various industrial segments, the decrease in the price of PCs, popularization of digital cameras, tax reduction for certain products, and the expansion of cellular telephony. In addition, recent anti-piracy actions from the government and society have reduced the gray market for computers, software, and other IT devices and thereby strengthened and matured the retail market. Brazil is the fourth largest PC market in the world outranked only by the United States, China and Japan.
Opportunities: In 2007, the Brazilian franchise sector grew by 15.6 percent - about 10 percent more than the national GDP. Total sector revenue was about R$ 46 billion. There are an estimated 1,200 franchising chains and 65,000 franchising units, ranking the Brazilian franchising market as the 6th largest in the world (in number of units) and the 4th largest (in number of franchise chains). The number of chains grew from 1,013 in 2006 to 1,197 (+18.2%). The ABF (Brazilian Association of Franchising) projects sector growth of 12% in 2008, once again outpacing the GDP. The best performing franchising sectors in 2007, in terms of revenue growth, were personal accessories and footwear (24.4%), other retail business and services (24.2%), and IT services (20.4%).