Good times for franchises: strong local economies and greater consumer purchasing power, along with real-estate development trends, are fueling growth for franchised brands in a range of sectors.

Author:Moloney, Anastasia
Position::FRANCHISING
 
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BOGOTA -- Real-estate company Century 21 ventured into the Colombian market with its first franchise in 2006. The times were changing--and the timing was right.

"We could see the positive changes happening in Colombia about five years ago," said Dennis Pysz, the head of operations for South America at Century 21. "The economy picking up; the stable political climate; and the increasing number of loan products, including mortgages available, were good reasons to be in Colombia."

Century 21 has since grown to 24 franchises in Colombia, with eight to 10 more planned for 2011. Other newcomers to the Colombia market over the same period include retailers Swarovski, Mango and Calvin Klein; service provider Mail Boxes Etc.; and quick-service restaurants, such as Subway.

At the end of 2010, Colombia had as many as 400 franchised outlets, roughly half of which are foreign brands, up from an estimated 100 in 2002, according the American Group of Franchises, a franchise-consultancy firm based in Bogota.

"About five years ago we saw the start of an important boom," said Julio Seneor, head of the American Group of Franchises. "Unlike many other Latin American countries, Colombia has big populations living outside the capital.... That makes Colombia a very attractive place to set up franchises."

But Colombia is not the only market where franchising is on the rise. Activity has been accelerating around the region as national and international chains seek new, growing markets and local business owners and entrepreneurs look for opportunity with tested concepts. Strong, stable economies have produced more middle-class consumers who are enjoying greater purchasing power.

Now that Colombia has emerged from years of instability and drug- and guerrilla-related violence, some industry experts say it is benefiting from investment that might otherwise have gone to Venezuela or Mexico. "Venezuela and Mexico are seen as risky places to expand franchises, and Colombia is reaping the rewards. People are now looking at option B and C in South America, and that includes Colombia," said William Le Sante, head of Le Sante International, an international franchising consultant.

Colombia boasts a population of 45 million, surpassing Argentina and making the Andean nation the second-largest market in South America.

Economic prosperity also fuels real-estate development that in turn supports franchise development. The proliferation of shopping malls in and around Bogota was a key factor that prompted Spanish retail giant Inditex to expand its presence in Colombia.

In addition, "Colombian customers are very fashion-oriented," a company spokesperson said. The group, with stores worldwide, began with its flagship Zara clothing store in 2007, later followed by the trendy, youth-oriented Bershka and Stradivarius stores. The more upscale boutique Massimo Dutti debuted in 2009.

Industry consultant Seneor predicts that some 500 new franchises, both Colombian and foreign, will open in the country by year-end 2012. Those new to the market include the first Taco Bell (part of Yum! Brands), which opened in Bogota in November.

Although quick-service restaurants and clothing chains from the United States and Spain dominate the foreign-franchise sector, Seneor sees future growth in Colombia in the health and beauty sector and in hotels.

Colombia is already experiencing a surge of hotel development targeting the business and leisure markets in its cities and vacation destinations. Ribbon-cuttings in 2010 in the capital ranged from the elegant and luxurious JW Marriott to Accor's budget-oriented ibis. As the Caribbean coastline draws more vacationers, local and foreign, construction continues. An InterContinental, a Holiday Inn, a Melia and a Sheraton are among confirmed international-brand hotel projects in and around the city of Cartagena...

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