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Market Analysis for Smoothie Factory in Rio de Janeiro

Briona JacksonJessica GalvaoBlanca Curiel

Global Markets and International Business Strategies

Hall

Fall 2014

Introduction

With the growth of the organic and health food industry and the continuous dream of pursuing the perfect body in a place like South America, there has been an abundance of

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opportunity for expansion to Brazil for the health food industry. As a result, we would like to internationalize the Dallas, Texas, based franchise, “The Smoothie Factory”. In this export plan, this American franchise will be presented with the objective of analyzing the not only the product but also the market, in order to conclude if this investment is viable and worth it.

Location

BRAZIL

Brazil and the fitness market

Brazil is the7th biggest economy in the world, with a population of 198.4 million people and a growing middle class. In order to support the expansion of the middle class, different markets have shown a strong growth, one of them is the fitness industry

As an evidence of the fitness growth, Brazil is heading towards global leadership in business focused on physical activity. The boom in the sector has happened between 2011 and 2014 when the market grew 52% and the number of enterprises in Brazil grew 29%

Healthy Products and Culture

Followed by the growth of the fitness sector, other industries such as clothing and food, have noticed the demand of the consumer that cares about the ingredients and how food could enhance performance and lead to a healthier life. The sales of healthy products and fitness specialized , such as food and diet drinks, light, gluten free, lactose free, organic and natural, grew 82% in Brazil from 2004 to 2009, reaching US $ 15 billion per year. The prospect of growth until the end of 2014 is 40%.

Among the best known brands who are investing in that market are companies such as the Brazilian food franchising Seletti and Let's Wok, besides the American Salad Creations. The latter has more than 22 units in Brazil, making for many opportunities for partnerships.

Culture plays also an important role when considering Brazil as an interesting market for fitness and health products, research shows that 78% of the general population cares and takes care of their personal appearance. Among those who are the most concerned with their appearance the Cariocas (37%) top the ranking. Cariocas are often associated with body perfectionism, extremes sports and because of the media and entertainment industry; they are considered the trendsetters in the country.

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Considering the growing market, cultural, and socioeconomic status of neighborhoods present, Rio de Janeiro has the most potential market as the first Brazilian city to incorporate a Smoothie Factory franchise. With plenty of locally grown fruits for flavors, Smoothie Factory’s menu can be easily altered to cater to the taste of residents, particularly in a subsection in the western part of the city called Barra da Tijuca. Placing the first Smoothie Factory franchise in this neighborhood makes the most sense strategically. Many affluent, influential live in this neighborhood, establishing the store as a credible establishment.

According to data from the Brazilian Institute of Geography and Statistics, the number of residents of Barra da Tijuca has surpassed 300,000, and is projected to reach half a million by 2020. The average income in this neighborhood is $54613 BRL ($21000 USD) (the second largest in Rio behind Lagoa).

Shopping malls in Brazil are the most interesting place to locate our Smoothie Factory, specially Barra Shopping Mall. Barra Shopping, is responsible for about US $ 1 billion in sales in the year and an audience of about 2.5 million people per month. It consists of more than 600 stores, including international franchising such as Starbucks, Outback and Pizza Hut and also fitness related businesses like NCM (nutrition store) and Atheltica (the most popular gym franchise in the country).

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THE CITY OF RIO

BARRA DA TIJUCA – BARRA SHOPPING

Franchise Information 

Smoothie Factory is an internationally-known smoothie and juice bar franchise with existing stores in the US, and international development throughout China, India, and Vietnam. This American company was founded in 1996 by an Olympic athlete named James Villasana. As a high-level athlete, James needed healthy food options made with only the highest quality ingredients to fuel his body. His carefully crafted smoothies were created with nutrition, taste, and overall health in mind. That’s why the company features only the best products with the highest quality ingredients.

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Smoothie Factory Juice Bar stands alone in the industry for superior products in four categories:

- Healthful smoothies- Fresh cold-squeezed all-natural juices- Health supplements, private label and brand name nutritional products- Co-branding opportunity with other companies, like RED MANGO® frozen yogurt

There are several things that have to be considered for the internationalization of the franchise, like the costs of it, the requirements and the advantages of doing so. In the next several paragraphs this issues will be conducted. The cost to open a Smoothie Factory juice and smoothie franchise will vary by location and format, and we have opportunities for both traditional and non-traditional stores. Smoothie Factory franchisees are required to have at least $200,000 net worth and $100,000 in liquid capital available for the project.

Some information and costs that need to be considered to buy this franchise:- $25,000 franchise fee for 10 years with (2) 5-year, $5,000 options to renew.- VetFran discount of $10,000 off the franchise free.- $15,000 per additional store if buying 3 or more [example: 2 stores = $50K, 3

stores= $55K].- $9,600 project management fee.- $5,000 grand opening fee.- 6% royalty with up to 3% ad fee.

On the other hand, they are several benefits and advantages of purchasing this well-known franchise, these benefits allow Smoothie Factory to position itself in the market. Smoothie Factory is more than just a juice and smoothie franchise. In addition to a full line of delicious smoothies and nutritional boosts, franchisees also benefit from offering fresh-squeezed juices, and health supplements (both private label and brand name). Some other benefits are:

- A high-quality product line made with real, fresh fruit- Not just a smoothie franchise- it’s like a juice bar, frozen yogurt shop and health

supplement retail all in one - Continual improvement to the Smoothie Factory franchise system, stores, and

overall brand image- Co-branding opportunities with Red Mango to serve frozen yogurt- Special military veteran benefits for quality potential franchisees- Flexible store formats, including the “Minifactory” which allows stores to be placed

in food courts and other small laces- A long and successful history with strategic plans for growth- Outstanding franchisee training and support

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In addition to these benefits, when the franchise is purchased, the company offers:- Comprehensive real estate site selection, store design, and construction management

system.- Two weeks of initial Smoothie Factory training- Ongoing operations support and quality assurance visits - Group purchasing power with major US vendors- Professional marketing support- Ongoing product and menu development

Laws and Taxation

Taxation

There are several issues that have to be considered, one of those things are the legal requirements from both countries. Because Smoothie Factory is already international there are not much American procedures to be done, most of them have to be with Brazil, the country where Smoothie Factory wants to be opened. The main taxes in Brazil for franchising are:

Withholding tax: the general applicable rate is 15 percent of the net revenues derived from royalties and franchise fees. In principle, this tax is payable by the franchisor, although the tax burden may be shifted contractually over to the franchisee. Despite the lack of a treaty against double taxation between Brazil and the United States, U.S. tax authorities generally admit tax deduction in the United States.

Contribution of Intervention on the Economic Order: 10 percent over the remittance of franchise fee and royalties. This tax is payable by franchisee and, despite certain controversy on its applicability on franchising, the tax authorities consider that franchises are also subject to such taxation, although not expressly indicated in law.

In addition, the following taxes represent a risk due to uncertainty whether the tax authorities will apply them to international franchise agreements:

ISS (Service Tax): varies between 2 percent to 5 percent of revenues. PIS/COFINS-Import: 1.65 percent for PIS-Import and 7.6 percent for COFINS-

Import, according to Article 8, in accordance with law 10,965/2004.

LAWS

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Brazilian Law No. 8.955/94 (the “Franchise Law”) governs all franchise relationships including, “franchise agreements” and relationships that are “established and operated in the Brazilian territory.” The law defines a commercial franchise as a system whereby a franchisor licenses to the franchisee the right to use a trademark or patent, along with the right to distribute products or services on an exclusive or semi-exclusive basis and, possibly, also the right to use technology related to the establishment and management of a business or operating system developed or used by the franchisor, in exchange for direct or indirect compensation, without however, being characterized as an employment relationship. There are no relationship laws regarding franchising in Brazil.

The Brazilian Franchise Law is not intended to govern the private franchisor-franchisee relationship, but rather to make this relationship more transparent by requiring the franchisor to provide clear and detailed information to prospective franchisees in a written disclosure document, known as a franchise disclosure document.

The FDD allows the franchisor to align expectations and prevent misunderstandings and false assumptions of the prospective franchisee. With the FDD, the prospective franchisee may actually evaluate the risks involved in opening a franchise by carefully reviewing the relevant information made available in the FDD.

The Brazilian Franchise Law requires that the franchisor provides 15 items in the FDD, including:

1. a summary of the franchisor’s background and of the franchise system;2. financial statements for the two preceding years;3. clear description of the pending lawsuits;4. description of the activities;5. profile of the prospective franchisee;6. requirement of the direct involvement of franchisee;7. 7. Specifications regarding: A. Initial investment; B. Value of the initial franchise

fee; and C. Cost of the facilities and payment conditions8. Information regarding periodic fees and amounts to be paid by the franchisee;9. List of all franchisees;10. If the franchisee is guaranteed exclusivity or a right of first refusal in any territory

or activity;11. Information regarding the obligation of the franchisee to acquire goods, services or

materials from the suppliers designated by franchisor, if applicable;12. Description of services and products offered to the franchisee by the franchisor, if

applicable;

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13. Status of the trademarks before the National Institute of Industrial Property (“INPI”); and

14. Franchisee’s rights and obligations upon expiration of the contract;15. Draft of the franchise agreement.

Product Description

Smoothie Factory offers a wide range of product, from fruit smoothies to protein smoothies and juices. By setting this company in Brazil, new products will be created because the variety of tropical fruits in that region. The basic menu of Smoothie Factory is shown in Appendix 1.

An issue that has to be address is the price of the products. Since the franchise will be established in Brazil prices will change depending on different things: location of the franchise, the fruit used for the product, the potential clients. Based in the prices used in United States and the prices of potential competitors in Brazil, a price has been estimated. The Smoothie Factory in Brazil will be offering to sizes of juices and smoothies. The small size (300 ml) juices will cost around 9.50 BRL (3.65 USD) and the big size around 13.50; smoothies 10.30 BRL- 16.20 BRL.

SWOT Analysis

Strengths Weaknesses

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A wide variety of products, including high protein juicies and smoothies

Co-branding opportunities

Success in international arena

Abundance of locally grown fruits

Absence of competition in Brazilian smoothie market

Growing consumer interest in health trends

High population and tourist

Weather is favorable for cold treats year round

High cost of whey protein (but balances by low cost fruit)

Opportunities Threats

Expand the menu to also offer food

Varying smoothies flavors according to the season and tropical fruits available in Brazil

Celebrity endorsements Franchises in malls, standalone

locations, kiosk in hotels, beaches, and other touristy areas

Abundance of fruit makes new flavors available

Approximately 2.82 million international tourists a year

Not getting the attention of the potential clients as a new company in town.

Economic downturn

Political unrest that leads to fewer tourist or closure of locations

Bad growing conditions for fruit growing

Bibi Sucos

Competitors

Also is good to know who competitors will be. In this case, in Brazil there is company named “Bibi Sucos”, it could be said that this company is the biggest competitor to

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Smoothie Factory. Bibi Sucos have some advantages over Smoothie Factory some of them are that this company offers a variety of food and not only beverages, it also have more than 5 different locations and in some of the locations you can also add some protein to your juices, which is similar to what Smoothie Factory offers.

Marketing and Advertising Plan:

To introduce this franchise to the Brazilian market, we will use traditional advertising methods as well as more modern forms of advertising such as social media outlets and blogs.

Print:

Flyers in Gyms Bill Boards Banners in malls Brochures in Natural food stores Standing smoothie Coupons in hotels, newspapers, and on website Quarterly press release that highlights new flavors and company milestones

Electronic:

Social Media campaigns where consumers can vote on new flavors Blogs Television ads with endorsements Email deals with loyalty program Website with complete transparency about calories and ingredients

Other:

Sample kiosk Sponsor philanthropic events Special events for company milestones Franchise tradeshows

Timeline:

Aug-15 Obtain franchising rights for Smoothie Factory

Sep-15 Obtain all necessary licensing for franchising in Brazil

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Oct-15 Secure retail space in Barra Shopping mall for smoothie bar

Nov-15 Establish relationships with local farmers

Dec-15 Start R&D for new Brazilian fruit smoothie flavors

Jan-16Hire Brazilian interior designer to design modern bar with a Brazilian flare

Feb-16 Acquire all equipment and start construction of smoothie bar

Mar-16 Hire and train bilingual staff

Apr-16Start "coming soon" advertisements (billboards, standing advertisements, coupons in trafficked locations, brochures)

May-16 Start sample kiosk

Jun-16 Grand opening

Jul-16 Partner with Athletica gym to place kiosk at locations

Aug-16 Partner with hotels to place kiosk at locations

Sep-16 Establish an endorsement with well known Brazilian celeb

Oct-16Create a new flavor for a celeb campaign on social media (advertise on radio and tv)

Nov-16 Sponsor philanthropic event (make sure news is present)

Dec-16 Based on performance, expand to Copacabana

References

http://mapas.ibge.gov.br/

http://www.ibge.gov.br/home/mapa_site/mapa_site.php#economia

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www.revistas.unifacs.br/index.php/sepa/article/download/291/239

http://www.sebraemercados.com.br/fitness-oportunidades-e-competitividade-no-avanco-do-mercado/

www.so leis .adv.br/

http://www.desenvolvimento.gov.br//sitio/interna/interna.php?area=1&menu=1672

www.portaltributario.com.br/tributos.htm

http://www.smoothiefactory.net/

Appendix 1.

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