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It’s easy to see gold within this familiar market, but precautionary planning is a must.
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Words by Kieran McLoone, deputy editor for Global Franchise
• Population: 128.9 million
• Capital city: Mexico City
• GDP: $1.2tr
• Language: Spanish
• Area: 1.93 million square kilometers
• Currency: Mexican peso ($)
While Mexico’s status as a Central American country is debatable, with many proclaiming it firmly a North American country, the region’s culture and business landscape plant it firmly alongside its Latin American peers.
Franchising was first brought to the country in the 1980s, and since then, the business model has grown into a leading contributor to the country’s GDP. In 2016, it was reported that the franchise industry employed around 80,000 Mexicans, and represented six per cent of the country’s total GDP.
Employing all of these Mexicans are some 1,500 unique franchise concepts, which generally tend to have low investment fees ranging from $50,000 to $250,000. While franchise offerings with higher fees do exist and even thrive in Mexico, going beyond the $250,000 range can alienate some investors.
Something of an outlier within the Central American market, Mexico’s franchise industry is predominantly made up of domestic brands, at around 86 per cent. Of the remaining share, around seven per cent consists of concepts that originate from the U.S.
However, even though the market may feel familiar to U.S. brands, there are still some developmental truths that must be acknowledged in order to find success. For instance, even though the majority of franchise activity in Mexico may appear to take place in its capital of Mexico City, neglecting the smaller cities such as Guadalajara and Monterrey is leaving money on the table.
“Something of an outlier within the Central American market, Mexico’s franchise industry is predominantly made up of domestic brands, at around 86 per cent”
That being said, employing a single cover-all Mexican master franchisee is inadvisable, because the country is so large and dense that organizations such as the IFA recommend at least three masters to cover Northern, Western, and Central Mexico.
A neighboring source of success
Even in the face of the pandemic, American franchisors are looking to Mexico as a source of opportunity. In August, maintenance retail franchise Ace Hardware announced that it would be expanding into Mexico thanks to its first franchise agreement in the country, and in October, Arby’s opened its first Mexican-based restaurant. This opening came with 10 exclusive- to-Mexico menu items, which were designed to differentiate this new store from its U.S. counterparts.
Arby’s isn’t the only restaurant concept targeting Mexican expansion, with others also recognizing the possibilities presented by a country where F&B makes up almost one-third of the total franchising market. Twin Peaks, a sports lodge brand, opened its first Latin American location in Mexico City in November. It’s banking big on Mexican growth, with this inaugural site being the first in an eight-location deal with domestic group Operadora 2 Montes.
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