Franchise Sector Market Research

An Expert's View about Franchising in Ecuador

Posted on: 22 Feb 2012

 Summary
The growth of franchises in Ecuador has been impressive, with growth rates higher than the growth of gross domestic product (GDP), which in 2012 is estimated to be 5.35 percent. This growth has come from various concepts within the franchise sector, such as specialized services, fashion, clothing, and fast food and restaurants. Franchise services have had a positive effect on Ecuador’s economy, and this model has proven to be an effective means for business expansion.
U.S. concepts account for an estimated 55 percent of the franchise market in Ecuador. Many Ecuadorian entrepreneurs first consider U.S. franchises when looking to start a new business given the track record of success for such concepts, local market acceptance, and dollarization of the local economy (the U.S. dollar has been legal tender since 2000).

Market Demand
Despite the growth and activity in franchising, there are no formal statistics/figures available. The franchise concepts that have proven to be most successful in Ecuador in recent years have been in the fashion and food/restaurant sectors. Estimated figures indicate that the United States has 55 percent market share, followed by Ecuador with 25 percent, Colombia 10 percent, Peru 6 percent, and the remaining 4 percent accounted for by other countries.
The sectors that have shown sustained growth are: food/restaurants, pharmacies, shoe stores, delicatessens, and copying and reproduction centers.
The official unemployment rate is 5.52 percent (with underemployment at about 40 percent). In recent months, there have been massive layoffs in the public sector, increasing the base of potential investors willing to invest their severance payments to establish their own businesses.

Market Data
The growth rate of new brands entering Ecuador is estimated at 8 percent per year; however, the number of franchise sales outlets is estimated to grow by 20 percent. In general, U.S. products, brands, and franchises are well regarded in Ecuador given their strong market position and image.
There are about 180 franchises registered in different sectors, 37 percent in food, 36 percent in retail, and 27 percent in services. Sales in the retail sector are significantly larger than in the services and food sectors.
Given the small size of the Ecuadorian market, single franchises with a capital investment of less than $10,000 are the ones that most franchisees are looking for. Taxation is very heavy, representing a burden of 28 percent. Local investors are looking for a net price, excluding taxes. Labor laws may have a big impact on the franchise business model in the labor-intensive service sector, considering that outsourcing was made illegal in Ecuador a few years ago.
CS Ecuador recommends that franchises entering the market retain legal advisory experienced in the sector. Both franchisor and franchisee obligations should be clearly defined in a contract, since there is no specific law regulating the franchise sector in Ecuador.

Best Prospects
This is a list of potential sectors that represent good opportunities for U.S. franchises. Competition is high and the market is very much price driven.
• Coffee shops
• Early learning and education
• Electrical equipment and decoration
• Entertainment and leisure
• Fashion for children and future mothers
• Health services
• Hairdressers
• Plumbing and cleaning services for buildings
• Restoration and repair services
• Veterinary care centers
 

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Posted: 22 February 2012