Reaching the Untapped Latino Market in Franchising
Clearing potential stumbling blocks to business ownership in this rapidly growing demographic sector.
By Marlén Cortez Morris
By sheer numbers alone, Latinos are in a solid position to influence the way companies do business in the United States for years to come. The Latino business community is making inroads and progress, but this demographic group represents vastly untapped potential in the franchising sector.
According to 2013 U.S. Census Bureau statistics, the Hispanic population numbered 54 million, or 17 percent of the nation’s total population — the largest ethnic or racial minority group. By 2060, projections indicate that the Hispanic population will reach 128.8 million, or 31 percent of the U.S. population.
Despite the fact that Hispanics are the fastest-growing demographic group in the U.S., Latinos own less than six percent of franchises in America, according to an International Franchise Association (IFA) Educational Foundation report.
With a wealth of untapped Latino consumers in the U.S. and the Hispanic community’s buying power expected to reach $1.5 trillion this year, rich opportunities exist for Latino franchisees. A recent study conducted by the NPD Group found that Hispanic consumers exhibit “brand-friendly behaviors,” including choosing chains, and generally spend more because they engage in dining and other activities with larger party sizes and with children. Hispanic franchisees are therefore uniquely positioned to better understand local demographics, meaningfully connect with consumers, and have unique cultural knowledge and ideas for potential changes to increase a franchise’s success.
Setting Aside Obstacles
Lack of funding is cited as the number one obstacle for aspiring Hispanic entrepreneurs seeking to become franchise owners. To address this, franchisors can initiate programs and activities to reach prospective Latino franchisees by:
- Using financial incentives such as reduced franchise fees, short term waivers on royalties, credit enhancements, education, land subsidies and loan assistance.
- Engaging potential franchisees through multiple media platforms such as telenovelas, music, Latino celebrities, and sports (soccer) stars.
- Developing contacts and networking with Latino investors and operators interested in entering the U.S. market.
Another major stumbling block for Latino business ownership is the dearth of readily accessible information. In general, franchisors do not reach over the cultural divide to provide details about the types and costs of franchises available to diverse populations. The following suggestions can pay dividends to franchisors not only with increased goodwill, but also by boosting business among both Latino customers and potential franchise owners.
- Build a Latino market dedicated team.
- Advertise products and services in Spanish media and web portals; consider using a Hispanic advertising agency.
- Be Spanish-language friendly in locations in or near Latino communities by offering bi-lingual menus, signage, personnel, etc.
- Reach out to Latino-focused groups and organizations, including schools and colleges with high Hispanic enrollment, IFA-sponsored minority events, and organizations focused on bringing Latinos into franchising.
- Get involved in the Latino community with activities such as sponsoring Little League teams, volunteering and social networking.
As the Hispanic population continues to grow, it will also become critical for franchisors to implement market research to learn about the culture, shopping and social media habits — and other unique lifestyle factors of the various Hispanic populations — if they are to remain competitive in this demographic. According to U.S. Census data, Hispanics of Mexican background made up 64 percent of the Hispanic population in 2012, followed by Puerto Ricans (9.4 percent) and Cubans (3.7 percent). While researchers and statisticians tend to group Hispanics of Mexican, Puerto Rican, Cuban, Dominican, Central American, and South American descent into one demographic, it is important to discern what the differences in each group are to effectively reach franchisees and consumers within these groups (e.g., cuisine, music genres, sport of choice).
Franchisors Hitting the Mark
Although the franchise industry currently only has six percent Latino ownership, some franchisors are taking steps to reach this untapped demographic. Here are a few mini-case studies of brands that are successfully penetrating this diversity space and realizing tangible business benefits from their efforts.
- Papa John’s began its Hispanic marketing efforts in 2006 by expanding its 24/7 online ordering capabilities to include a Spanish-language website. In 2014, the chain assigned an even larger marketing focus to Hispanic consumers by growing its advertising budget on Spanish language television. The brand’s investment in marketing to Hispanic customers has paid off. Hispanic sales in 2014 grew 43 percent, traffic rose 18 percent, and the average check increased by $1.50, according to data from CREST Hispanic.
- Maid Right Franchising launched a fully bilingual website specially designed to connect master franchisors with Latinos interested in owning a home cleaning business. The website’s focus is attracting franchisees in Florida, Arizona, New Jersey, and Georgia, but the company expects to expand this program within the U.S. to connect with more Latino entrepreneurs.
- Jack In The Box integrates Hispanic messages into its menu, messaging, and business outreach strategies. In 2014, innovations included breakfast all day, the Hella-peño burger and the Grande sausage burrito. The chain partnered with Hispanic America’s number-one morning show, Despierta America, to promote the Hella-peño burger. The restaurant chain also creates cultural connections by adding their support to Hispanic-focused events including last year’s Fiestas Patrias (Patriotic Holidays) and Cinco de Mayo.
- Liberty Tax Service has a multi-level Hispanic educational initiative called Una Familia Sin Fronteras (a Family Without Limits or Boundaries), a not-for-profit operating foundation that exists for the sole purpose of supporting and developing educational opportunities for people in the Hispanic community.
- Denny’s added Hispanic flavors like chipotle and avocado, launched a bilingual menu and developed relationships with personalities like Cesar Millan, “The Dog Whisperer.” Also in 2014, the dining chain grew its Spanish-language TV budget more than 40 percent, launched a Latino campaign on Facebook with original, curated content, and promoted its Spanish-language website through broadcast and digital ads on sites like U-Videos and YouTube. The franchisor’s dashboard goes deep into local markets to understand a market’s ethnic composition, the consumer demographic, local media delivery, sales and traffic, as well as the success of promotions and how they are tracking.
- Starbucks began targeting Latino consumers with in-store signage and partnerships with Spanish-language media outlets, growing its Hispanic traffic and share. The brand launched the Caramel Flan Latte by hosting in store events with community groups and concerts featuring Hispanic celebrities.
- Sonic zeroed in on Hispanic flavors like Jalapeño Chocolate and Salted Caramel for its shakes and promoted them via Hispanic TV primetime favorites like Sabado Gigante in 2014. It launched a Spanish version of its website in 2012.
- Domino’s Pizza began the “Delivering the Dream” program that helps minority franchisees realize their goals and dreams of being a business owner.
- Marriott International and several other hotel brands have diversity ownership programs designed to introduce women and minorities to the benefits of becoming a hospitality industry franchisee. Some organizations are even targeting high-net-worth Hispanics who could benefit from adding hotels to their portfolios.
Latinos represent rich new business opportunities and growth. Franchisors are only beginning to reach this untapped demographic market and must continue to explore creative ways of engaging the economic power behind the Latino population.
Marlén Cortez Morris is an attorney at Cheng Cohen LLC. Find her at fransocial.franchise.org