Brazil is the fifth largest market in the world in terms of number of franchise chains. Currently, there are only 83 American franchise brands operating in country, which represents a huge opportunity for U.S. concepts seeking to expand their presence internationally.

U.S. franchisors encounter strong competition in this robust market from Brazilian franchisors offering a variety of product and service solutions. According to the Brazilian Franchising Association (ABF), 183 Brazilian brands are present in 114 countries and 69 operate in the United States, highlighting the success of Brazilian franchisors globally. With a track record of success, even traditional retail companies in Brazil have begun adding franchising to their channel expansion strategy.

In addition to market competition, the main challenge franchisers face in Brazil is identifying a potential investor as a master franchisee who has the ability and desire to scale the franchise quickly and effectively. Local investors are often interested in opening only one or two stores/restaurants in the first year, presenting a barrier to companies looking to expand nationally.

The Brazilian franchise sector is among the world’s largest and most sophisticated in terms of business practices and its ability to adapt concepts from both foreign and domestic franchisors. Interestingly, Brazil has specific legislation that covers franchising.

The sector had been growing annually; however, it did experience some retraction in 2020. In 2021, Brazilian franchise total revenue was $37 billion (R$ 185.1 billion), a growth of 10.7% compared with 2020, and only $200 million below sector revenue in 2019 (pre-pandemic).

There are 2,882 franchising chains (an increase of 8% compared to 2020) and 170,999 franchise units present in Brazil (an increase of 9.1% compared to 2020, and higher than 2019). Overall, Brazil is the sixth largest market in the world in number of units and the fifth largest in number of franchise chains.

The franchise sector currently accounts for about 1.41 million jobs, an increase of 12.1% over last year,  and the sector has generated jobs at rates higher than the country as a whole since 2016.

The Brazilian Franchise Association (ABF) projected sector growth for 2021 as follows:

• Sector Venue 9%
• Units 7%
• Brands 5%
• Employment 5%

The franchise sector revenue in Brazil is composed of:

• Food (23.63%)
• Health & Beauty (21.06%)
• Services & Other business (15.99%)
• Fashion (+ shoes & accessories) (11.92%)
• Home / Construction (8.01%)
• Education Service (6.20%)
• Hotel & Tourism (4.29%)
• Automotive Service (3.51%)
• Informatics / Electronics (3.37%)
• Entertainment / Recreation (1.19%)
• Cleaning (0.83%)

Local Brazilian franchises dominate the market across many sectors, controlling 92.4% of sales volume. That said, foreign groups (7.14%), mostly from the U.S., are making headway. According to ABF, 206 foreign franchise brand concepts, from 31 countries currently operate in Brazil, of which 83 are based in the U.S.

Brazil has 5,570 cities and there are franchise operations in 2,671 cities countrywide, or 48% of Brazilian cities.

Top Players Ranked by Revenue, Number of Units

The top twenty franchise operations in Brazil show the dominance of Brazilian franchisors over foreign competitors. Seven out of the top 20 performing franchise brands (in terms of earnings revenue and number of units in operation) are foreign: McDonald’s, Subway, AM-PM Mini Market, Prudential, Burger King, and Shell Select, from the U.S., and Kumon, from Japan.

(Source: Brazilian Franchising Association)

As mentioned previously, finding suitable master franchisees in Brazil is very challenging for U.S. companies. One strategy is to develop relationships with Brazilian franchisors and master franchisees of non-competing, yet complementary concepts. In general, Brazilian investors make decisions based on well-structured business plans and the expectation of financial return. It is misleading to think that emotional factors will heavily influence a decision in favor of a certain brand or business concept. It is important that foreign franchisors understand this and approach the market only after having done the necessary homework, having estimated the true potential of the brand for Brazil.

It is also increasingly common for a Brazilian investor to negotiate risk-sharing agreements with the foreign franchisor when introducing a new brand to the market. “Risk” in this case refers to making direct investment in the form of a joint-venture partnership. In addition, as many Brazilian concepts are now seeking to expand internationally, some will be open to discussing bilateral agreements, wherein a foreign brand is launched in Brazil at the same time as the foreign franchisor develops a Brazilian brand in its home country.

Resources

World Franchise Counci -l https://worldfranchisecouncil.net/

Brazilian Franchise Association - https://www.portaldofranchising.com.br/

More information, please contact Renato Sabaine at renato.sabaine@trade.gov