5 Lessons From The Failure Of TGI Friday's In Brazil
The famous restaurant chain is located in over 60 countries, but could not settle in Brazil. Why was that and what is it possible to learn from this? This article will help answer these questions.
The TGI Friday’s Case
China, Trinidad and Tobago, Argentina and Venezuela, are just a few examples of places where TGI Friday’s is already installed. However, one place that is usually a target for expansions is not on the list: Brazil.
The country is one of the biggest targets for companies seeking to expand themselves globally. Companies like Subway, Starbucks, and Outback have presented great results here. Also, the franchise market is developing well: in 2013, the sales grew 11.9% in comparison to 2012. This represents a total amount of BRL 115 billion, according to the Brazilian Franchising Association, known as ABF or Associação Brasileira de Franchising.
But, despite all of this, Friday’s left the country in 2010, around 15 years after opening their first Brazilian operation. The restaurant chain's retreat was silent, being described by the local press as a “French leave”, which is a discreet leave.
Ever since the business left, rumours of a possible comeback have been spread. The company affirms that Brazil is a target again, and, on their website, it is listed as one of the markets with franchise opportunities.
There is still a bit of mystery about what really made them close in Brazil, but the claimed reasons were profits below the expected and rupture of the relationship with their local partner. André Friedheim, International Director of ABF and co-owner of the consulting company Francap, helped in organizing a list of lessons that can be taken by foreigners who do not want to repeat the mistakes made by TGI Friday’s when opening franchises.
1. Adapt to the Brazilian Market
Remember, to make adaptations is completely different from just changing the company DNA. The essence of the business must be kept, but, it is really important to introduce local ingredients, remove products that Brazilians generally dislike, and, mainly, to understand the local consumer profile. “A tropicalization is needed, the concepts must be adapted”, states Friedheim.
Also, keep in mind that your target audience might not exactly be the same in Brazil as it is in other markets. Due to the various taxes and expenses, companies frequently must raise their prices and charge more than usual. This happened, for example, with the clothing stores Zara and Topshop.
2. Aim to Grow in Scale
According to the International Director of ABF, if a company that relies on a high sales volume comes to Brazil, it must have the intention of opening several units in a certain period. Friedheim explains that TGI Friday’s could not open a large number of locations, a fact that was later proved harmful.
“Foreign companies must come to Brazil planning lots of units, in order to have bigger gains and be able to offer lower prices”, reports the businessman. “TGI Friday’s waited too long for a bigger expansion”. In 15 years, the American chain opened seven restaurants in five different cities.
3. Make Sure the Timing is Right
The idea of reaching other countries is charming, but take your time to do so. Planning is the key to a successful expansion. Be sure to check the current situation of your business branch in Brazil, and wait for the ideal financial moment to bring your company to the country.
“TGI Friday’s passed through an era where the Brazilian Economy was tough”, affirms Friedheim. “Franchising is really well in Brazil right now, growing high above the Gross Domestic Product (GDP), but, from now on, the trend is to keep improving at a slower pace than the last years.”
4. Choose the Right Partner
One of the main reasons why TGI Friday’s left Brazil was the ruptured relationship with the local partner, who was responsible for the expansion and helped administer the restaurants here. For the director of the Brazilian Franchising Association, “the franchise partner must be from the same branch of the company coming to Brazil. If it is a food business, then the partner must know and have had experiences in this particular branch”, states Friedheim.
5. Operate a unit by yourself
A local partner that deeply understands the Brazilian market is crucial, but leaving every single operation in his hands is risky, as reported by André Friedheim. “Set up a pilot operation first, so you can get to know the local details. After having at least one unit of your own, start the expansion through franchises with your partners”. This measure may be useful, by not making your business too dependent on another company.