International Expansion: Doing It BOTH Ways
The bridge built by franchising is a true two-way street paved with promise.
By Ferenz Feher, CFE
Almost a decade ago, we realized that there was a great opportunity to construct a bridge connecting Mexico to the United States. The building blocks were U.S. based franchisors eager to expand to international markets and sophisticated Mexican investors thirsty for new opportunities. The last decade has seen many U.S. brands (and international concepts for that matter) land in Mexico and have successful operations in the country. Brands such as Auntie Anne’s, Build-A-Bear, Cartridge World, Quizno’s and Snap Fitness are an active part of the 1,450 franchise concepts operating in Mexico, of which 16 percent have their origin outside of the country.
Mexican Franchises Coming to the United States
No doubt there are still great opportunities to be found in Mexico as demonstrated by the latest commercial mission organized by the U.S. Commercial Service and the International Franchise Association in late 2014 as noted in December’s Franchising World magazine. However, while the movement of concepts had been mainly from north to south, as the years have passed, the Mexican franchise systems have evolved and matured. We are now seeing capable, well-prepared Mexican franchises find success in the United States. It is not only the advancement of the franchise systems themselves that have prompted this migration, but also a U.S. market that presents ideal conditions to receive them.
Hispanics are the second fastest-growing ethnic group in the United States and constitute 17 percent of the United States population, or 53 million people, making the United States home to the largest community of Spanish speakers outside of Mexico. Hispanics, overall, are the second largest ethnic group in the United States and according to the Pew Research Center, they are now the largest ethnic group in California.
Mexican franchise systems are finding their way into the United States to serve these communities by satisfying needs that are not currently being met. Two great examples of this are Prendamex and Dulceria La Estrella, which are both Mexican based and have started operations in the United States specifically targeting the Hispanic community.
Prendamex is a financial services franchise offering collateral loans with more than 600 units in Mexico. Their two units in California (Los Angeles and Lancaster) have quickly established a strong presence in those areas by providing their clients a completely different experience than any other domestic competitor, tailored to their specific needs and having a very competitive offering.
Dulceria La Estrella is a candy store unlike any other in the United States offering products exclusively from Mexico, satisfying not only the sweet tooths of its customers, but also providing a sense of nostalgia and community that is unique. I have had the opportunity to be in a couple of the stores (they have four in all) and it is an incredible experience to see the faces of the customers as they walk in and find a specific candy or treat that they’ve had growing up in Mexico and can now enjoy again.
Mexican Brands Targeting Mainstream Markets
It is also important to recognize that there are Mexican brands that are making their way up, targeting more mainstream markets and not necessarily the Hispanics. A great example of this is Electrobike, a successful brand of electric bicycles born and grown in Mexico, now opening and franchising stores in the United States.
In a survey we conducted in 2014, we found that 65 percent of Mexican franchises intend to export their brand, and of these, 40 percent are interested in reaching the United States. This trend is surely to continue and we will be seeing more Mexican concepts in the United States.
U.S. Businesses Can Benefit By Expanding Into Mexico
This new year has begun with great promise, as we expect to fulfill the international development dreams of many U.S.-based franchisors of opening operations in Mexico and thus expanding their reach. These brands have clearly understood the enormous potential that Mexico presents, not only as fertile ground to do business, but also as the doorway to Central and South America.
There are tangible benefits that Mexico presents to U.S. businesses:
- A market receptive (and knowledgeable) of U.S. brands.
- Sophisticated investors, both individuals and groups, that understand how to conduct business on both sides of the border.
- Geographical distance, where in most cases it is closer to travel from any U.S. city to Mexico than from Los Angeles to New York City.
- Local sourcing of most goods and services is readily available.
- A mature franchise culture.
All these factors lead us to firmly believe that the bridge built by franchising is a true two-way street paved with promise.
Ferenz Feher, CFE, is CEO of Feher & Feher, an international consulting firm. Find him at fransocial.franchise.org.