The Challenges of Brazilian Franchises

The Brazilian Franchise Association (ABF) reported an impressive growth of 8.3% in total revenues from franchise operations in 2015 and expects sales to expand by at least 6% in 2016.

Despite these impressive results, the overall outlook of an economic downturn and negative GDP are a red light for the Brazilian franchise sector that now faces the challenges of a slowdown in retail activities and decline in household consumption – precisely the two main sources which have boosted the economy in recent years.

As if the economic crises had not caused enough problems, the uncertainty over Brazil´s political outlook is making the situation even worse as it is raising uncertainty on the domestic and international markets.

Franchising has obviously been unable to remain unaffected by all this and there has been an increase in differences of opinion between franchisees and franchisors. Operations that have failed, weak sales and falling revenues are the main complaints from those that are struggling to survive.

Many franchisees point to the lack of assistance and support by franchisors as the reason for the failure of their operations, while franchisors complain that franchisees are not sufficiently committed to the business. Unfortunately, no one stands to gain in this fight.

The current situation requires the parties to focus on good deals, where caution is the name of the game and agreements carefully analyzed. It is also time to evaluate the business operation in order to identify and tackle any operating or administrative losses that could be negatively affecting the bottom line.

This is also the time to invest in team training and skills upgrading. There are people within every Franchise Chain with teaching skills who can transmit valuable experience to others on matters of importance for the business. This kind of training is extremely effective since it normally involves no costs. Lower staff turnover is expected during crises, so the results of this training will be longer lasting.

Franchisees and franchisors should take some advantage from the business model itself, which, obviously, has the right means to overcome the slowdown and uncertainty on the market. Nevertheless, if the business does not seem to be following the right path, it is highly advisable to engage in dialogue right from the beginning since, at this moment, a closed store is a step backwards in leaving the crisis behind.

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