Real estate, pet services, language schools, hairdressers, restaurants, clothing, car washes, graffiti removal - the types of businesses that make up franchises are an expanding universe, and each year brings new surprises in innovation at franchise trade shows in Brazil, Argentina and Mexico.
A franchise begins life when a company decides to concede territories for business development of its product or service to third parties, maintaining the same aesthetic and offering training to standardize the good or service to be sold. In other words, instead of opening branches, the company that owns the brand attracts investors who put up the capital, and transfers to them the know-how for operating in a specific location. That's how franchisor and franchisee enhance the brand and make the business grow for both parties.
At a higher level, when the number of franchised units of a brand reaches significant levels, the franchising company might grant a company what is called a "master franchise" - that is, exclusive rights to a territory in which it can in turn sell this franchise and transfer the operation of the brand(s) in question to others, while maintaining the same standards. It's at this level that a quantum leap in the volume of business takes place.
For Carlos Canudas, an Argentine expert on franchises who heads Estudio Canudas, a consultancy specializing in them, master franchises are the sector's new trend, with concentration of brands within groups of operators. "A company that has had success in one area starts to develop another business concept, and could even mix, say, gastronomy with clothing and accessories. Since it already has experience in franchises, it can seek to convert itself into an operator on a grander scale through a master franchise," he told Latin Trade. "This makes it possible that when a Latin American brand wants to enter another market, what it looks for, precisely, is an operator who has demonstrated success in the sector of franchise operations."
ARCOS DORADOS AND ALSEA, TWO GIANT COMPANIES
To probe the world of master franchises, Latin Trade consulted with Arcos Dorados and the Mexican firm Alsea, and spoke with two other companies with a significant franchise structure: Correios of Brazil and Grupo Cardon of Argentina. The four firms have markedly different characteristics within the same business model.
Arcos Dorados operates what could be called a "pure" franchise system, in that it manages just one brand...