All roads lead to Alsea in Latin American consumer foodservice

Author: Michael Schaefer

Date published: 10 Mar 2008

Already one of Latin America's largest restaurant operators with over 1000 restaurants in Mexico, Argentina, Brazil, and Chile, Grupo Alsea SA de CV is currently in the midst of dramatic expansion program, one that should cement its leading position in Mexico while building its presence elsewhere in Latin America.

With franchise rights to Domino's Pizza, Chili's, Burger King, Starbucks, and Popeye's, Alsea holds commanding positions in specialist coffee shops, casual dining, 100% home delivery/takeaway, and fast food. What's more, the company's size and resources allow it to realise economies of scale that few competitors can match, supported by a vast in-house distribution network. Finally, while Alsea dominates the Mexican market, it has only recently begun to expand into markets such as Brazil and Argentina, leaving tremendous potential for growth.

A leading player in booming Mexico market

A steadily improving Mexican economy has proven extremely positive for consumer foodservice there, with total chained foodservice value sales averaging more than 9% annual growth since 2001, reaching Mx$54.2 billion (US$5 billion) in 2006. The Mx$1.8 billion (US$165 million) specialist coffee shop sector has led the way, with sales doubling since 2001, while far larger fast food and 100% home delivery/takeaway have also done well, up 52% and 41%, respectively, over the review period.

Alsea holds strong positions in all three sectors—Starbucks is number one in specialist coffee shops, with a 27% share of value sales, while Domino's Pizza is absolutely dominant in 100% home delivery/takeaway with 39% of sales, more than ten times that of the nearest competitor. While Burger King trails McDonald's in fast food, it is a strong number two, ahead of YUM! Brands' KFC. While Chili's is more of a niche competitor in casual dining, it has expanded steadily, while in January 2008 Alsea announced it had entered into negotiations with the operators of Italianni's, a 40-outlet Italian FSR concept. Were an agreement to be reached, the company would significantly strengthen its position in chained FSRs, a sector likely to see further growth as disposable incomes in Mexico continue to rise.

Distribution network key

Somewhat unusually for a franchisee, Alsea operates its own distribution system, Distribuidor Internacional de Alimentos (DIA), with 5 distribution centres across Mexico and its own fleet of delivery trucks. In addition to allowing for economies of scale when negotiating prices of materials, an in-house distribution system also gives Alsea a reliable supply chain, always valuable in emerging markets such as Mexico, while making nationwide expansion for any of its major brands far easier to achieve.

Likewise, Alsea's distribution resources make it an attractive partner for global chains looking to break into the Mexican market. A master franchise agreement with Alsea gives any chain instant access to an entire market, allowing for easier, faster expansion—to use just one example, Starbucks Coffee now has over 200 outlets in 23 Mexican cities after less than six years in Mexico, an average of more than 30 new stores annually.

Greater presence in Latin American markets, further expansion in Mexico awaits

Despite an impressive performance over the review period, Alsea's best is likely still to come, given ample room for expansion in Mexico and a still-growing presence in Latin America. Alongside the flagship Domino's brand, which continues to grow strongly, Starbucks should serve as Alsea's major growth engine in Mexico for years to come, while the acquisition of Italianni's would, if it takes place, vastly improve the company's position in full-service dining without cannibalizing sales from the Chili's brand.

While other Latin American markets, such as Brazil and Argentina, also hold great promise, Alsea's position outside of Mexico is far more limited, and achieving sustained growth could take some time. While Domino's Pizza, for instance, still accounts for the bulk of Alsea's sales, the chain could prove a tough sell in Brazil and Argentina, both home to well-entrenched pizza cultures. That said, early indications suggest Starbucks could prove a success throughout Latin America, while Burger King could potentially do well as a distinct alternative to number one player McDonald's. Likewise, Alsea continues to have high hopes for the Domino's Pizza brand elsewhere on the continent, as evidenced by the recent purchase of Dominalco, the Colombian Domino's Pizza franchisee, which operates 21 stores in four Colombian cities.

Consumer Foodservice