Establishing a fast food industry in Venezuela

Abstract

This Paper presents a comprehensive look at the issues involved in establishing a fast food industry in Venezuela. Venezuela, with a population of 23.7 million and growing at a rate of 2.0 percent annually, is a country that represents important market opportunities for fast food industries to establish in Venezuela. Consumer expenditures for food were almost $ 6,467 million (USD) in 1996, representing 35 percent of the total consumer expenditure. Fast food alternatives have become very important to the large and affluent business people in Venezuelan middle and upper class, with a preference shown for international fast food, stores design and food quality. This is especially evident considering that the United States is both Venezuela’s largest trading partner, and largest single investor. Imports from the United States were near $ 4.6 billion (USD) in 1996, representing 44 percent of all the imports that year. Venezuela experienced a dramatic slowdown in economic growth during 1998. Real GDP grew less than 1 percent in 1998 and shrank by 5 percent during 1999. This happened as the result of the drop in oil prices, which is Venezuela’s principal exporting product, and the international financial crisis that began in Asia in mid-1997. Despite Venezuela’s current economic difficulties, US exports continue to grow and will most likely pass the $ 6 billion (USD) mark in the present year. The domestic consumption of the product is calculated based on the size of the market (franchising marketing data, which was 10 millions USD in national franchises; 17 millions USD for imported franchises and 3 millions USD for exported franchises, all of these data in 1999). It is important to mention that franchising in Venezuela has more than doubled in the past three years. Fast food companies represent almost 24 percent of total franchises. It represents one of the sector of the Venezuelan economy that have had risen more, approximately 20 percent per year. The main domestic competitors are Chipi’s, Rockies’s Burger and Pollos Arturos. The American franchises that compete in this arena are Mc Donald’s, Burger King and Wendy’s. Third country competition comes from Europe, France with its franchise Crepe De France. Among the issues to consider when entering this very particular market are the franchising systems and licensing. Most of the fast food restaurants are franchising systems in Venezuela. Location of the restaurants also becomes an important fact to consider when penetrating this niche. The best ways of starting this business is locating the restaurant at mall, in the food courts, or in the streets, selling the product in carts or kiosks. The distribution channel must be loaded buying from the wholesalers or middlemen that give better prices and establishing the industry as retailer to serve the customers.