BembosBurger.pdf

Journal of International Business Education 1(1): 111-144. 2004, Senate Hall Academic Publishing.

Bembos Burger GrillLuz Marina Garcia, Jesus Revilla and Carlos Guillermo Sequeira 1INCAE

Abstract. Bembos Burger Grill is a Peruvian fast food chain offering hamburgers prepared andmarketed for the Peruvian palate. The chain owns over 20 establishments in the capital, Lima.The executive directors would like to enter the Chilean market based on setting up franchises.This case involves analysis, debate and decision-making to put this plan into action. It presentsinformation about the fast food markets in Peru, Chile and Argentina. In the latter,benchmarking is carried out on a Chilean company (Lomiton), third in sales among the fast foodchains in Argentina and market leader in its country of origin. In addition, information ispresented for carrying out microeconomic marginal analysis of the company under threedifferent parameters.

Keywords: fast food, benchmarking, Peru, Chile, Argentina, marketing, franchises, hamburgers, costs.

We want to reach beyond our borders. We are studying proposals frombusinessmen interested in operating our restaurants outside of our country.We are convinced we would be successful in other markets.

- Carlos Camino, general manager and founder

1. Introduction

In February of 2002, the young businessmen Carlos Camino and his partnerMiroslav Cermak considered that Bembos Burger Grill was prepared toexpand outside Lima2. They contemplated opening a restaurant in Santiago deChile, and then subsequently opening several others in the principal provincesof Peru. This was a Peruvian fast food chain dedicated to marketing charcoal-broiled beef hamburgers.

1. This case was written by Luz Marina Garcia based on interviews carried out by JesusRevilla, both of whom are investigators under the supervision of Prof. Carlos GuillermoSequeira, and all are of the INCAE. The same should serve as a basis for classroomdiscussion and not as an illustration of the correct or incorrect administration of amanagerial situation.

2. Lima is the capital of Per in South America.

112 Bembos Burger Grill

Bembos maintained its leadership in hamburger sales in front of strongcompetitors in the international market like McDonalds and Burger King (seeappendix A for short summary of both). At the end of 2001 Bembos had 19eating-places in metropolitan Lima that included everything from restaurantsto formats for food courts called Bembos Express. The company had a totalof 500 employees and Bembos planned to inaugurate five more eating-placesduring the first semester of 2002.

The companys managers agreed that the key to their success in Peru wasthe combination of product, quality and service. They knew that beforeinternationalization they would have to define the terms of the model underwhich they were going to operate.

2. The Country

2.1. Geography and Political Divisions

Peru was divided into 24 departments in addition to the constitutional provinceof Callao. The departments were subdivided into provinces and these last intodistricts. Its territory included the Andes mountain range from north to south,from which arose three natural regions: the Coast, which was a narrow desert-like strip; the Sierra, a zone of large mountains and narrow valleys; and thejungle, which formed part of the large Amazon territory.

52% of Perus population lived on the coast, 34% in the Sierra and 14% inthe jungle. The most populated cities were metropolitan Lima (27.4% of thetotal population), Arequipa (3.0%), Trujillo (2.4%), Chiclayo (2.0%),Huancayo (1.4%), Iquitos (1.3%), Piura (1.3%), Chimbote (1.2%) and Cusco(1.1%)3. The cities with the largest spending propensity were Arequipa,Trujillo and Chiclayo.

2.2. Political Situation and Recent Micro-Economy

During the decade of the eighties Peru suffered severe attacks from organizedterrorism. Another problem during this time was the illicit crops of cocaineleaves, especially in the large expanses that made up the eastern slopes. Ruralterrorism symbolized by the groups Shining Path and the Tupac AmaruRevolutionary Movement grew in force, financially supported by the drugtraffickers who were their allies.

3. Population Statistics, Marketing Management, Opinion and Marketing Support, January2001. www.apoyo.com/infor_util/inv_mercados/igm/igm_2001_1-html.

Journal of International Business Education 1(1) 113

In 1990, Alberto Fujimori was elected president, succeeding Alan Garcia.Fujimori inherited from Garcias government a country with a seriouseconomic and social crisis. The fight against terrorism, the reinstatement ofPeru into the International Monetary Fund, and an increase in production andexports characterized the aims of this new government.

In 1995, President Fujimori was reelected for the term of 1995-2000.During this second term he continued with his program of stabilizing theeconomy and his government carried out large privatizations and concessions.Nevertheless, several sectors provided evidence of abuse of power andviolations of human rights.

Due to the effects of the phenomena El Nio, the decline in theinternational price of exports, and the Asian financial crisis, 1997 and 1998were difficult years for the Peruvian economy. In 1998 there was a realreduction in private spending of 0.4% (Table 1 from Exhibit 1 shows thevariation in percentage between supply and demand).

In April of 2000 presidential elections were held and Fujimori was electedfor the third time, but the OAS, which participated as election observer, did notendorse these elections. At the end of 2000 numerous scandals ofgovernmental corruption came to light, forcing the president to resign and tosubsequently seek asylum in Japan. According to information from the CentralReserve Bank of Peru, the situation had created political instability whileslowing down the countrys productive activity4 (Table 2 in Exhibit 1 showsthe principal economic indicators).

After Fujimoris resignation a transitional government headed by thelawyer Valentin Paniagua was set up and Peruvians later returned to the balletboxes and elected Mr. Alejandro Toledo as president. Toledo assumed powerat the end of July 2001 and some of his main challenges were in solving theeconomic crisis, generating employment, and reducing the fiscal deficit.

3. Fast Food in Peru

The principal fast food chains were divided into three groups: chicken, pizzaand hamburgers, whose sales represented 42%, 28% and 30% respectively.The leaders were Kentucky Fried Chicken, Pizza Hut and Bembos. In 1998,taking into consideration only those companies with important sales figuresfrom the aforementioned three groups, the market value of fast food was 70million dollars. The market growth was estimated at 10%.

Peru had 29 fast food chains in Lima, 9 of which were managed by theirowners (including Bembos) and 20 that operated under the model of

4. Banco Central de Rerserva de Per, Memoria Anual del ao 2000, located at http://www.bcrp.gob.pe/Espanol/WInformes/Memoria/Memo2000/ESP%2001%20inflation.pdf


franchises5. The latter were divided into 10 national and 10 foreign chains andamongst the first that stood out were: Pardos Chicken, Mediterrneo FriedChicken, La Romana, Alfresco, Caf Expresso and Caf Bohemia.

Kentucky Fried Chicken (KFC) was the first foreign fast food chain toarrive in Peru (1981) followed by Pizza Hut (1983). By the middle of the 1990Burger King, Chilis, Tony Roma's, Swenson's, Dunkin Donuts andMcDonald's, among others, were in operation. However the chains Taco Bell,Sir Pizza, Big Apple Bagels, Miami Subs and Hard Rock Cafe had withdrawnfrom the Peruvian market in recent years, according to some experts due to thefact that they had not adapted to the local consumer.

In a poll carried out in Lima the chains most often cited were: KFC,McDonalds, Bembos, Pizza Hut, Burger King and Dominos6. KFC was thefast food market leader with 23 restaurants in Lima and invoicing more than13 million dollars in 1998. This chain belonged to the Delosi Group, whichincluded Raul Diez Canseco, the current Vice-President of Peru, among itsshareholders. In Peru this group operated franchises of Pizza Hut (21), Chilis(2) y Burger King (12).

The market for fast food in the provinces7 was smaller than in Lima andwas dominated by charcoal-roasted chicken restaurants, followed by thoserestaurants that sold pizzas and hamburgers. Food based on chicken was veryhighly regarded by the majority of Peruvians.

Until recently the only franchise chains that operated outside Lima were:Dominos Pizza (in Piura, Chiclayo and Trujillo), Mediterrneo Chicken8 (inTrujillo) y Pastipizza (in Trujillo, Piura, Chiclayo and three more cities), but inArequipa establishments of KFC, Pizza Hut and Burger King had recentlybeen opened, which were located in the food court of a Chilean DepartmentStore, SagaFalabella. The Delosi Group had announced the opening of KFC inCusco in 2002 and, according to information from the newspaper Gestin,Trujillo was to follow9.

Some Peruvian restaurants had already crossed the borders intoneighbouring countries. Some examples of these were: Mediterrneo Chicken(Colombia), Pasti Pizza (Venezuela), Caf Bohemia (Chile) and Cevichera

5. Businesses based on names, trademarks, products and marketing methods of anotherexisting organization.

6. Fast Food: Mercado en Crecimiento, Diario Gestin On Line, January 14, 2001.7. In Peru the term province referred to all regions that were not Lima, including the rest of

the areas belonging to the department of Lima and the rest of departments. A province cancontain one or more cities.

8. Mediterrneo Chicken was a Peruvian franchise that had started franchising in 1995. Theycharged the local operator for the legal right to the trademark for ten years US $35,000, 5%of the net monthly sales and an additional 2% of net sales for a corporate investment inmarketing and publicity. The initial investment for a franchise varied between US$200,000 and US $600,000.

9. Article published February 8, 2002 en Gestin, titled Cadena KFC abrir s en provincias.


Alfresco (Chile). In addition, the Peruvian chain Pardos Chicken with 9franchises in Peru announced the opening of its first restaurant in Santiago in2002.

4. Hamburger Market

In recent years hamburgers had been the fastest growing segment of the fastfood market. The economic expansion that took place in Peru between 1993and 1997 gave rise to the opening of a large number of hamburger restaurants,which caused a substantial rise in sales in this area. The growth of hamburgerchains was concentrated in Lima.

In 1999, hamburger chains sales dropped due to the reduction in theinternal demand (-0.1%) and devaluation (-11.2%). Hamburger sales shrank inrelation to the year before by almost 8%. A similar situation occurred in theyear 2000. Table 1 shows some of the indicators of these trends in recent years.

In a poll carried out by the consulting firm Maximixe in December of2001, 59% of those who responded rated Bembos as the best fast foodhamburger outlet, 23.5% preferred McDonalds and 15.7% Burger King10.Among those polled 61% indicated that they visited hamburger restaurantsfrom 1 to 3 times a month, 20% affirmed they visited between 4 and 7 timesand 2% responded that they visited more than 8 times a month.

Table 1: Hamburger Market Indicators (Bembos, McDonalds and Burger King)

10. Hamburguesas: Pobre Crecimiento en el 2001, Mejores Expectativas en el 2002, diciembre2001.

Indicators 1995 1996 1997 1998 1999 2000 2001 2002*

Sales in this industry, US Millions of dollars 11.5 15.7 20.8 21.7 20.0 19.2 22.0 24.0

Bembos locations 6 9 14 18 20 20 19 24*

Burger King locations 4 8 11 11 11 11 11 12

McDonalds locations 1 8 8 9 15 17 19

Total No. locations 10 18 33 37 40 46 47 55

* Estimated figures.Sources: Maximixe; Declarations of Carlos Camino, Bembos General Manager to the newspaperGestin February 3, 2001. Newspaper El Comercio, Negocio que provoca, 01/27/02.


In the previously mentioned study people were asked, Which is the mostimportant factor when choosing a hamburger restaurant. The answers wererated on a scale of 1 to 5 with 1 being most important and 5 least important.The factor that was selected as being the most important was flavor (classifiedas 2), followed by moderate prices (3), variety of products (3), goodatmosphere (3) and treatment of clients (4).

The consumers of hamburgers were of all ages, with 54% of them betweenthe ages of 18 and 39. In Peru 60% of hamburger purchases were planned,while according to the executives of McDonalds11, in other countries themajority of sales were impulse purchases.

In 2000, Bembos market share was 46% (US $8.5 millions), Burger Kingswas 30% (US $5.5 millions) and McDonalds 24% (US $4.5 millions). In2001 Bembos sales were US $9.6 million and those reported by McDonaldswere US $9.5 millions. It is necessary to point out that the general manager andmarketing manager of McDonalds had, in different statements to the media,declared that they had grown by 20% and 50% respectively in 2000. Thiswould place McDonalds sales between US $6.6 and US $8.3 millions. BurgerKing had not announced their sales, but according to analysts they occupiedthird place in sales.

5. The Company

5.1. History

The first Bembos Burger Grill restaurant opened in Lima in 1988. Its foundershad personally taken charge of every detail: layout, design, color scheme,location and others. The faade of the restaurant and its decoration was basedon primary colors such as blue, red, yellow and white. Its design was modernand could be placed within the style of Art Deco (see photos in Exhibit 2).

At that time the country suffered frequent attacks from terrorist groups andnightlife in the capital had greatly diminished as a result of this, and tocompensate in part for this, Bembos offered a home delivery service.

The owners of Bembos said that at that time they had to wear severalhats to be assured the company would work well. Reflecting on that Mr.Camino said:

We began with a small budget and for this reason at the beginning we tookcharge of everything; we were the cashiers, managers, cooks. It was the onlyway to control our costs and to learn how to manage the business.

11. Taken from Business Peru, Edition June 1998.


Bembos hamburgers were the result of a combination of flavors wellregarded by the Peruvian palate12. This is how Mr. Camino expressed it, wewanted to design a hamburger that would be a tribute to our tastes. Theobjective was to become the leader in the hamburger sector.

The partners assigned great importance to the quality of the ingredientsused in their products. Based on the following analysis they decided to importbeef from Argentina: (1) the Peruvian market did not offer beef of the requiredquality and quantity; (2) the cut of meat belonged to what was classified aspremium and was characteristically Argentinean and (3) cattle were feddifferently in both countries, which was reflected in the variation in thepercentages of fat.

In spite of the fact that potatoes had originated in Peru, frozen potatoeswere imported from the United States to assure uniformity of final product.They had previously offered homegrown French fries but they were not wellreceived by the consumers because they were not consistent enough. Thenational potato had a much greater variation in the percentage content of waterand starch. It also had genetic problems and was affected by the lack ofstandardization in Peruvian agriculture. The latter was partially due to the factthat as a result of the agricultural reform that occurred at the end of the decadeof the 60s, the lots of land being planted were small.

In 1990 the company already had two restaurants and from then on itregistered sustained growth. Around 1993 the company began to operate aprocessing plant for its ingredients, the objective being to standardize theirproducts. At this time Bembos also established some permanent Combos(combinations of hamburgers, potatoes and drinks) and introduced a mediumsize as a third option.

In 1996 McDonalds opened its first restaurant. At the beginning itsownership capital was divided equally with a Peruvian partner, but starting in1997 McDonalds acquired 100% of the operation after not being satisfiedwith the partnership.

In spite of the fact that the entry of McDonalds forced many fast foodbusinesses to lower their prices, some by as much as 40%, Bembos reacteddifferently. It introduced low cost products with a high-perceived value, forexample, the Hamburger a la pobre (the Poor Mans Hamburger), which wasmade of bread, ripe plantain, egg, tomato and onions (all regional ingredients).

Bembos directors estimated that McDonalds would need at least twoyears to learn about the market, and they planned to take advantage of this timeand grow quickly. They were prepared to open four new locations per year. Anexecutive of the firm enlarged upon this in the following way:

12. Peruvians are known for having a demanding and varied gastronomical culture.


We capitalized on our knowledge of the market to grow and this will open aninteresting gap between Bembos and McDonalds. Our goal was to be wellestablished by the time they would begin to grow.

In answer to the competition, Bembos carried out operationalimprovements and redesigned their kitchens, thus reducing the averagedelivery time of their products by 8 minutes 30 seconds. The company builtplay areas for children in some restaurants and began offering to stagechildrens parties. They also accompanied their childrens menus withcollectable toys.

Bembos underwent economic problems during 1998 and 1999 due to therecession, the currency devaluation, and the reduction in demand. Theirowners fired all the assistant managers and reduced the number of securitypersonnel (a legacy from the era of terrorist attacks). Among other successeswere that they were able to obtain meat at a lower price and a reduce the use ofsauces. This is how Mr. Camino expanded upon this idea:

The area where we saved more was in the sauces: US $25,000 monthly. Wecarried out a study that made us realize that many clients were taking thetartar and the pickle sauces home with them in disposable cups. Currently weoffer mayonnaise, ketchup, mustard, hot pepper and white onions.

5.2. Current Situation

The company had traditionally directed itself towards the high income andlower high-income segments of the population (referred to as A and B). Theseadded up to 1.2 million people in metropolitan Lima (Exhibit 3 shows thenumber of homes and income by socio-economic level). The people with thegreatest purchasing power from these segments lived in the southwest andsoutheast of Lima and represented 8.8% of the population of Lima. Close to50% of the hamburger restaurants were in these zones.

The middle-income segment (referred to as C) represented 2.4 millionpersons. Due to the saturation of supply in the high income and lower high-income zones, especially in the southeast zone, Bembos planned to expand intothe northern zone, whose residents were middle class in a booming economy.Since 1999, Bembos had postponed the creation of a second trademarkdirected specifically to the middle-income market.

Bembos eating-places had capacities that varied according to thefollowing criteria: location, vehicle traffic and clients. The average cost oftheir construction was US $300,000. Four of these had been relocated from1998 to date.

According to the companys directors starting in the year 2000, anaggressive recovery had been initiated as a result of financial and operational


reengineering (Exhibit 4 shows the results and general balance statement fromthe last few years).

5.3. Products Offered

Bembos offered more than 15 types of hamburgers in three sizes, some ofwhich were offered as combos, and some beef and grilled chicken platters. Thebest sellers were the medium size hamburgers (Exhibit 5 shows a synthesis ofproducts offered).

Bembos directors agreed that the key to the chains success waspermanent and intense training and motivation of the companys collaborators(workers) in order to offer a service of hospitality and excellence, as well asthe continuing creation of innovative products with high perceived value,examples of which are the Peruvian, Hawaiian, German, French and Mexicanhamburgers, and the mixed grill with sausage.

The beverages offered by Bembos were produced by Coca Cola. This wasthe first hamburger chain that included the beverage Inca Kola (now propertyof Coca Cola) on its menu, which was the leading beverage in the Peruvianmarket. This drink was later copied by the competition.

5.4. Promotions and Publicity

According to the companys marketing manager their promotions were veryeffective. Among these were the checkbook, Bembona cards, Bembones cashand the discount coupons (Exhibit 6 shows a printout of some of these). Thiswas enlarged upon:

We were innovators because we adapted the concept of discount couponsused in other world markets and the one who strikes first strikes twice. Wemade an excellent selection of how to distribute the coupons by using thenewspaper El Comercio, Limas best with a very strong circulation. Viathis means we were able to select the segment of the population we wanted toreach. This has had to do with the effectiveness of this type of promotion.

Bembos made agreements of mutual cooperation with leaders from othersectors. The following are examples of these companies and the agreements:

Marketing Firm Pacocha. Bembos would exclusively use Hellmansmayonnaise and in exchange Hellmans would economically support Bembospromotions.

Coca Cola-Inca Kola. Bembos paid for the production of television adsand in exchange Coca Cola-Inca Kola would pay a percentage of the cost of


putting it on air. The previous was done under the framework of an agreementfor three years where these brands contributed to Bemboss attractive earnings.

Cinemark. Bembos advertised in their movie theaters and paid for theseadvertisements with hamburger vouchers that were used in their promotions.

Tienda Ripley. This department store of Chinese origin was a leader in itscategory. Bembos had a restaurant inside one of their stores and they wouldoffer specific promotions to the clients of Ripley and in exchange Ripleyswould send Bembos coupons with their cardholders monthly statements.Ripley planned to open a store in Trujillo (a city to the north of Lima) in 2003and Bembos planned to open a restaurant in its food court.

Aval Card. It included among its point reward program, a Bembos voucherworth 60 soles13.

Recently the Gloria Corporation, a leader in milk products and cheeses,signed a commercial alliance where Bembos would utilize their products andexhibit their brands in exchange for an economic contribution. In the samemanner Bembos had reached an agreement with the hypermarkets14 Plaza-Veaof Dutch capital15 that allowed them to open a Bembos food-place in one ofthe capitals hypermarkets with a new format of restaurant named BemboExpress, which was a smaller restaurant with a reduced menu and whoseaverage prices were attractive to the type of public that came into thesehypermarkets.

Bembos had developed its website16 and by signing up online, clientswould received discount coupons by e-mail. They could also order take-outsalthough the majority of orders were received by telephone. A total of 21,000people had already signed up online and the company planned to categorize thedatabase into segments and send out coupons according to their classification.

As with their competitors, Bembos concentrated its publicity efforts ontelevision advertising. In 2001, one of the companys commercials had beenselected to form part of The Worlds Greatest Commercials, which showedthe most creative publicity from around the world and broadcast on Australiantelevision. In this commercial a young female office worker was seen kissinga male co-worker on the mouth after he had just finished eating a Bemboshamburger in order to sample its flavor. All the companys ads emphasized itsproducts flavor.

Table 2 gives a comparison of the investment in publicity by some of thetop fast food chains. The information comes from a recognized firm, but wasnot endorsed by Bemboss directors. They affirmed that McDonalds

13. The exchange rate at this moment was 3.48 soles per US dollar.14. A mega supermarket that sells both wholesale and retail and offers its products at a lower

cost than at the supermarket.15. Belonging to the Corporation Disco Ahold, which occupies third place in the world market

after Wal-Mart and Carreofur. 16. www.bembos.com.pe belonging to the classification Business to Consumer: B2C


expenditures were more than that of KFC and Pizza Hut and estimated thatMcDonalds publicity surpassed one million US dollars.

Table 2: Investment in Publicity in US $ from January to June of 2001

5.5. Prices

Some of the Bembos products were priced higher than that of their competitors(Exhibit 7 shows a comparison). These prices were based on the followingcriteria: (1) the use of high quality prime material, (2) the classification of theirproducts as being premium and (3) the weight in grams of meat in Bemboshamburgers.

Referring to this Mr. Camino stated:

If we calculate the price of each product per gram, ours are probably equal orlower than that of our competition. Obviously, clients do not carry a scale toweigh the products when they go to Bembos or the competition!

Bembos small hamburger weighed 85 grams, the medium 135 grams andthe large 200 grams, while the competitions quarter pounder weighedapproximately 118 grams (equivalent to Bembos medium hamburger).

Media/Company Bembos McDonald's Burger King Pizza HutKentucky Fried

Chicken

Television 200,000 545,821 1,061,553 944,978 918,058

Radio

Newspapers 50,000 12,836 6,517

Magazines

Sensory Panels 30,000

POP Materials 40,000

Total 320,000 558,657 1,061,553 951,495 918,058

Sources: MEDIA CHECK y Bembos


6. The Competition

6.1. Burger King

Burger King opened its first restaurant in Peru in 1993. Its initial sales werelower than expected. Its managers cut the prices and by doing so were able towin over young customers. In addition, from almost the start, they madeagreements with suppliers of national raw materials.

In 1999, Burger King designed two hamburgers adapted to the taste of thePeruvians: Brava, similar to a Whopper the difference being that it was morehighly seasoned and spicy and the Jarana Criolla. Later it copied some of theBembos products like the Mexican and the French hamburgers. The latter hadbeen targeted in the companys television ads and billboards.

To provide personalized service Burger King servers offered theircustomers free coffee.

6.2. McDonalds

McDonalds initiated operations in Peru in 1996. According to some mediasources, its investment budget for its first years was in the order of US $15millions17. Its strategy was to open 3 to 5 locations per year until reaching amarket share of at least 50%.

One of McDonalds important objectives was to capture the youngpopulation (children) who had good levels of acceptance, which was as mucha product of the popularity of their character Ronald McDonald as it was of thetoys that accompanied their Happy Meals.

The company had an exclusive contract with Walt Disney, by means ofwhich it acquired the license to distribute toys representing the characters fromtheir latest movies in their Happy Meal boxes. The movie that the new seriesof toys was based on would be announced on television each time McDonaldschanged themes.

In spite of the fact that McDonalds initially offered only their globalproducts in Peru, they later made some changes directed towards the Peruviancustomer, like offering the beverage Inca Kola and including aj18 among theiroptional seasonings. At the same time, McDonalds introduced the Fiestahamburger, designed for the Latin-American market in its restaurants in Limaand the rest of South America.

17. Business Magazine, Year V, Number 45, June 1998. 18. Aj: A hot pepper seasoning.


According to Fernando de la Flor, General Manager of McDonalds Peru,the companys expansion would concentrate on the north and south zones ofLima belonging to the middle-income segment C and afterwards spread to theprovinces19. In the beginning the chain had aimed at the high income andlower high-income segments of the population, A and B, with little success.

7. The Expansion of Bembos

For some time now the companys directors had been receiving visits fromforeign investors interested in acquiring franchises of Bembos for markets inthe United States, Chile, Bolivia, Ecuador, Venezuela and Mexico. Thecompany had chosen the State of California as its first market in the UnitedStates. The trademark Bembos had already been registered in the previouslymentioned countries and there also existed the possibility of openingrestaurants in Central America.

The countries on the American continent with the largest number offranchises were: United States, Canada, Brazil and Mexico. Table 3 shows thenumber of franchisors and the number of franchises per country.

Table 3: Franchisors, Franchises, And Sales In Some Countries In The Americas

19. Newspaper Gestin.

Country Franchisors FranchisesAnnual Sales of Franchises

in Millions of US $

United States 1,500 350,000 1,000,000

Canada 1,327 63,642 N/d

Brazil 894 46,534 12,000

Mexico 500 25,000 8,000

Argentina 150 1,500 1,100

Chile 50 300 250

Venezuela 185 n/d 1,100

Uruguay 148 340 360

Colombia 80 600 350

Ecuador 70 n/d N/d

Peru 59 440 375

Sources: International Franchise Association and Pye & Asociados.


In spite of the fact that in some countries, like in Argentina, thepredominant franchises were in fast food, in other countries the opposite wastrue. Table 4 shows the market value of fast food in some Latin Americancountries, Canada and the United States over the last five years.

Table 4: Market Size for Fast Food in Some Countries of the Americas in Millions of US$

The directors of Bembos studied the hamburger market in Argentina inspite of the fact that they were not considering entering it. They wanted tostudy and to learn from the experiences of the Chilean chain Lomiton.

7.1. Hamburger Market in Argentina: The Case of Lomiton

It was estimated that in 1999 the value of the hamburger market in Argentinawas US $305 million and had more competitors than those in other areas of thefast food market. McDonalds was the leading chain of the hamburger sectorin Argentina with 216 outlets and sales of US $240 million dollars in 2000,which represented approximately 78% of the hamburger market with zerogrowth compared to the previous year. The chain owned 183 outlets, 20 ofwhich were of the stand-type, whose construction cost was around US $40thousand with a surface area of 10 m2. Among its restaurants 10 were locatedoutside Buenos Aires.

Country/Region 1997 1998 1999 2000 2001

United States 109,327 115,559 121,106 125,950 131,301

Canada 10,585 10177 10,483 10,838 10,762

Brazil 9,043 8,928 6,132 6,580 5,620

Mexico 796 918 1,156 1,294 1,397

Argentina 574 680 758 796 778

Chile 484 516 489 482 410

Venezuela 142 182 303 309 298

Rest of Latin America 2,436 2,414 2,379 2,351 2,407

Source: Euromonitor 2002. in round figures.


The second in the market was Burger King with 25 outlets and sales in1999 of US $34 million, which represented a market share of 11% and only 1restaurant outside Buenos Aires.

Another two important hamburger chains were Mostaza and Lomiton, thefirst of Argentinean origin and the second Chilean. Mostaza offered beefhamburgers and chicken and pork sandwiches seasoned in accordance with theArgentinean palate. At the end of 2001 it had 9 of its own outlets and 6 underfranchise with an average monthly sales per site of US$45 thousand, whichtranslated into US$8 million a year. The initial investment for a franchise ofMostaza varied between US$60 and US$140 thousand dollars with a bonusincome of US$10 thousand.20

Lomiton opened its first restaurant in Argentina in 1996. It menuconsisted of sandwiches, fruit beverages, soft drinks and wine. The sum ofLomiton invoices in Argentina is not known. Currently Lomiton had 17outlets in Argentina, 9 of which were franchises. It is worth pointing out thatthere were two franchisees with three franchises each.

Lomiton had also expanded into Paraguay and Bolivia. This chainrevealed that its key to success was innovation through the development ofnew products.

In 2001 they added to the menu the following selections: hot tea, coffee,hot chocolate, pastries and breakfast and snack products. The company had sixbusiness formats that went from traditional restaurants to corner events. Inspite of the background of economic recession in Argentina, Lomitn hadopened 7 of the total of its 17 outlets in 2001 and according to Juan RamonSamaniego, the general manager; they did not expect the devaluation to bringthem problems because their income and contracts were in Argentinean pesos.

The franchises that Lomiton offered in Argentina involved an initialinvestment that varied between US$40 thousand and US$300 thousand inaddition to a stock investment of approximately US $10 to US $15 thousanddollars. Its bonus income was US$25 thousand and its royalties were 5% ofgross sales. In addition, they charged a 3% fee of the gross sales for advertisingexpenses. They offered financing, operation manuals, and four weeks oftraining21.

In a ranking of fast food chains carried out by Gastrofranchising,McDonalds occupied first place, Lomiton third place and Mostaza fifthplace. Burger King had not participated in the sample.

Some fast food chains did not survive in the Argentinean market due to thefact they were unable to adapt. Among these were: Wendys, Pizza Hut,Dominos Pizza, Kentucky Fried Chicken and Dunkin Donuts. The first

20. Cuando el Negocio est en la Mostaza, Franquicia Web.com located at http://www.franquiciaweb.com/REV29/Mostaza.htm .

21. Sources: Anfitrin Argentina y Portal Alimentario.


closed its 18 restaurants in 2000, after having accumulated operational lossesbefore taxes of US $3.2 millions dollars.

The following table shows a breakdown of operational costs for franchisefood outlets in Argentina.

Table 5: Operational costs of franchise food outlets in Argentina

7.2. The Entrance into Chile

The partners planned to enter into the Chilean market before opening locationsin the provinces. The entrance into Chile represented an interesting step forthem since it had one of the most stable economies in the region. Commentingon this, Mr. Garcia said: We know that there are several Peruvian restaurantsin Chile, especially the ones that serve ethnic food, which have been rathersuccessful.

The directors of Bembos had defined the type of partners they wereseeking for their expansion plans. This is how Mr. Camino explained it:

We want franchisees or partners who are economically solvent that will assistthe trademark to become strong and who will dedicate themselves primarilyto the business. We want to avoid selling the trademark to somebody whomight neglect it since that would do us huge harm.

The following section provides information about Chile and its fast foodchains.

7.2.1. Information about Population and Economy

Towards the middle of 2001, Chile had an estimated population of 15,328,467of which only 19% lived in rural areas. 36% of the countrys population wasconcentrated in the metropolitan area of Santiago and they accounted for 40%of the total national spending.

Item Percentage of Operational Costs

Facilities and others 37

Food 24

Royalties 6

Publicity 6

Workers 13

Services 7

Rights 7


Its gross national product per capita was US $9,427.22 The Chileaneconomy had a sustained growth rate of 7.6% for the last 10 years, which hadgiven rise to an increase in the number of people in the middle class. Table 6shows the socio-economic levels for Santiago.

Table 6: Socio-Economic Levels of the Region of Metropolitan Santiago

7.2.2. Fast Food Chains

The value of the fast food market in Chile at the end of 2001 surpassed 400million dollars. A survey carried out in the middle of 2000 indicated that morethan 70% of the residents of Santiago had one or more meals away from homeevery day.

The most important foreign chains were: McDonalds, Burger King, andKentucky Fried Chicken. The following chains had also establishedthemselves in Chile (in parenthesis the number of restaurants): Chuck ECheese (1); Dunkin Donuts (2); Fridays (1); Fun Time Pizza (1); RubyTuesday (1) and Sbarros (3). The principal local chains were: Lomiton,Burger Inn, Doggis, Mac Beef and Embers. Table 7 below illustrates the makeup of the fast food market in Chile.

Lomiton was the leading chain in the fast food market with a total of 120outlets of which they owned 60. They offered different types of meatsandwiches, but their specialty was pork sandwiches. The company planned toopen 20 new eating-places in the course of 2002 and 15 in 2003. Each one

22. World Bank, International Comparison Programme database.

Socio-Economic Levels

High Economic Level (AB)

Lower High Econ. Level (C1)

High Middle Econ. Level (C2)

Lower Middle Econ. Level (C3)

Low Econ. Level (D)

Extremely Poor Econ. Level (E)

Percentage 3.0 7.0 20.0 25.0 35.0 10.0

N of Homes 34,740 81,061 231,602 289,502 405,303 115,201

MonthlyIncome/Household

US $20 or more

From US$5 to US 20 thousand

From US$2 thousand to US $6 thousand

From US$1 thousand to US $2.5 thousand

From US$0.5 thousand to US $1.5 thousand

Maximum US $0.5 thousand

Source: Description of Socio-economic groups of Chile, Empresa Operativa de Apoyo de Marketing


involving an investment of US $100 thousand. According to the MarketingStudy Firm Collect the companys strategy had been: reduce expensive rents,do not subsidized one outlet versus another, justify accounts and be wellorganized.

Table 7: Fast Food Restaurants in Chile

There had been a rapid increase in the number of franchise chainrestaurants in Chile since their entry at the start of the 90s. For example,McDonalds grew from 12 restaurants in 1994 to 77 by the middle of 2002.23% of the total of McDonalds locations operated under the franchise model.

Name of CompanyType of Business

# of Sites Location Year Started

Burger King Fast Food 25 Santiago 1994

Burger Inn Fast Food 45 Nationwide 1976

Doggis (hot dogs) Fast Food 69 Nationwide 1995

Dominos Pizza Pizza Delivery 22 Nationwide N/d

Kentucky Fried Chicken Fast Food 40 Nationwide 1990

Lomiton Fast Food 120* Nationwide 1982

Embers Fast Todo +25 Nationwide N/d

McDonalds Fast Food 77 Nationwide 1990

Mr. Chips Fast Food 7 Santiago N/d

Pizza Hut Pizzera 28 Nationwide N/d

Taco Bell Fast Food 7 Santiago N/d

Tele Pizza Pizza Delivery 20 Nationwide N/d

Los Pollitos Dicen Fast Food 5 N/d N/d

Pizza Napoli Fast Food 5 N/d N/d

Shopdog Fast Food 17 N/d N/d

Notes: * Includes 15 restaurants with table service, 70 fast food (express) and 15 corners servi-centers.Sources: Americas Food & Beverage Show 2000, Conference Tracks, Track 1: Selling Food andBeverage Products Within the Americas. Selling Processed Foods to Argentina and Chile and, Gua parael Control y Prevencin de la Contaminacin Industrial, Comisin Nacional del Medio Ambiente- ReginMetropolitana, Dec., 2000.


In 2001, McDonalds in Chile had faced investigations on the part of thehealth authorities after the bacteria E. Coli was found in its chickenhamburgers. In addition, the chain had been fined US $4 million. McDonaldsreacted with a strong publicity and advertising campaign, and thus preventeda reduction in customers.

In a survey of 663 people carried out in the first trimester of 2002, 59% ofthose interviewed had visited at least one fast food restaurant in the last sixmonths. Of the total who had visited, 63% had been to McDonalds, 30% toLomiton, 29% to Burger King, 28% to Kentucky Fried Chicken, 19% toDoggis, 9% to Burger Inn and 7% to Pizza Hut.

73% of the ones who had gone to McDonalds belonged to the higheconomic level, 67% were women and 71% were between the ages of 12 and25.

32% of those who had gone to Lomiton were from the low economiclevel, 69% were women and 36% were between the ages of 12 and 25.

39% of those visiting Burger King came from the middle level, 65% werewomen and 33% were between the ages of 12 and 25.

In answer to the question: which were the aspects of fast food that attractedthem most?.., the people interviewed responded: quick service (43%); taste ofthe food (36%); promotions (18%); gifts (11%); a quick solution (6%) andchildrens suggestion (5%).

Among restaurants that were neither franchised nor belonged to chains, theeating-places that sold roast chicken and French fries stood out. There areestimated to be 1,100 in the metropolitan region of Santiago. This type ofbusiness was normally encountered scattered among the residential andcommercial sectors of the city and was generally family run.

7.2.3. Eating Habits of the Chileans

Traditionally Chilean cuisine was country-style food and seafood. Examplesof some typical dishes were: empanadas (a combination of meat, chicken orfish with onion, eggs, raisins and olives wrapped in bread); chicken casseroles;beefsteak la pobre; and grilled meat platters. Among seafood dishes were:giant lobster, fish, shrimp and oysters and among the most commoningredients were: onion, garlic, hot pepper, oregano, coriander, parsley andbasil.

7.3. The Expansion outside Lima

As a prior requirement to opening restaurants in the provinces, the directors ofBembos intended first, to satisfy the demand in Lima. Currently they owned


all of their restaurants and the company was about to open three BembosExpress outlets in Lima and a fourth restaurant in the traditional format. Theformer would be located in a shopping mall that would be in operation beforethe end of 2002 in the northern part of Lima, which belonged to the middle andlow-income segments of the population (C and D). According to analysts, thisshopping mall was going to be very successful.

To finance the expansion to the provinces the owners considered eitherworking under a system of franchises or investing with a local partner.Expansion would be feasible thanks to the fact that its food processing plantwas working at 35% capacity.

In face of an eventual opening of a restaurant outside Lima Mr. AndresGarcia, the Financial Manager, wanted to carry out an economic analysis(marginal) that would allow him to compare the performance of the presentrestaurants to that of one located in another city or country. To do this hechecked the current process, where he contemplated each restaurant as a centerof earnings. He then distributed between the 19 eating-places, the fixed costsassociated with the production center and the fixed costs of the relatedadministration of the central offices. Since they had a diversity of products thatrepresented different proportions of the sales, he used a weighted marginalrevenue for each product (see the corresponding information in Exhibit 8).

He then proposed carrying out the comparative analysis in two additionalways. In the first, he would include the fixed costs per restaurant and the fixedadministrative costs and exclude those of the production center. In the second,he would include the fixed costs of the restaurants and exclude both the fixedproduction costs as well as the corresponding administration costs.

8. Epilogue

In spite of the fact that the directors of Bembos had elected what was to be theirfirst international market they knew that there were still pending aspects thathad to be considered. In this way, Mr. Camino concluded:

For now we dont have anything concrete. We must decide if we are going toinvest and to what measure, how much we will charge for the initial right touse the trademark, what is going to be the duration of the contract and theroyalty23 from the monthly earnings.

23. It is a continuing payment that the franchisee makes to the franchisor which is payableon a defined base that is laid out in the terms of the agreement. In theory, this payment isdue to the following: (1) Compensation for the franchisors (entertainment, counseling,services and others. (2) A percentage of the gross sales and (3) a payment corresponding tothe true market value of the franchise. The payment of royalty can be set amounts or basedon percentages.


My partner and I want to study the Chilean market carefully. It is severaltimes larger than ours. We know that Chile or another country will suggestthe possibility for a certain type of tropicalization. In addition, we have thechallenge of maintaining ourselves as leaders in Peru, and in this respect, webelieve we are well on our way

______________________________________________

EXHIBIT 1ECONOMIC INDICATORS

Table 1: Global Supply and Demand (Current Variations by Percentage)

1996 1997 1998 1999 2000 2001

Global Supply 2.0 7.9 -0.1 -1.7 3.2 0.6

Production 2.4 6.9 -0.5 0.9 3.1 0.3

Imports 0.6 11.4 2.3 -15.2 3.6 2.3

Global Demand 2.0 7.9 -0.1 -1.7 3.2 0.6

Internal Demand 0.0 6.6 -0.8 -3.1 2.4 -0.1

Private Consumption 1.5 4.0 -0.8 -0.4 3.9 0.9

Public Consumption 1.6 5.1 2.5 3.5 5.1 -1.7

Gross Internal Investment -3.3 12.4 -2.0 -13.5 -3.7 -2.9

Private -2.5 13.0 -2.4 -15.3 2.0 -2.7

Public -8.1 9.0 3.0 7.2 15.4 -4.6

Exports B & S 10.2 12.7 5.6 7.6 7.9 4.5

SOURCES : Banco Crdito del Per, annual reports 1998 and 2000. Data for 2001 takenfrom Riesgos Macro, Nov. 2001, Club de Anlisis de Riesgos, Maximixe.


Table 2: Principal Economic Indicators from Peru

1995 1996 1997 1998 1999 2000 2001

GDP currant growth (%) 8.6 2.3 8.6 0.1a

a. Some sources indicated a decrease of 0,3% for this year..

3.8 4.7 2.0

GDP nominal (Mill. US$) 59,100 60,900 65,200 62,700 57,100 58,200

GDP per capita nominal (US$) 2,504 2,517 2,686 2,642 2,696 2,775

Inflation 10.2 11.8 6.5 6.0 3.7 4.5 3.5

Devaluation (%) 5.9 12.5 4.6 15.8 11.4 0.4

Fiscal Deficient (% GDP) 3.1 1.0 -0.2 0.8 3.0 3.0

Exchange Rate (Nuevo Sol x US $1) 2.25 2.45 2.66 2.93 3.38 3.49

Total External Debt (Mill. US$) 30,900 29,300 30,500 30,600 30,700

External Debt (% GDP) 52.2 48.1 46.7 48.8 53.7

Exports (Mill. US$) 5,456 5,850 6,756 5,680 6,003 6,673 7,400

Precious Metals (Mill. US$) 1,846 2,066 2,375 2,365

Fish Flour (Mill. US$) 1,031 393 533 860

Minerals (Mill. US$) 942 673 773 628

Textile Products (Mill. US$) 101 81 166 158

Imports (Mill. US$) 6,896 7,147 7,717 7,392 6,198 6,808 7,300

Petroleum and Diesel (Mill. US$) 678 486 536 931

Flour, Corn, Rice (Mill. US$) 355 358 279 215

Vehicles (Mill. US$) 296 361 225 161

Telephone Equipment (Mill. US$) 325 236 194 155

SOURCES : Strategy Research, 2000 Latin America Market Planning Report. Latin American at a glance.The Economist intelligence Unit Limited 2000. Aduanas del Per. Divisin de Mercado de Capitales.Banco Crdito del Per. January 2001. World Bank. CD-ROM 2000


EXHIBIT 2INTERIOR AND EXTERIOR OF A BEMBOS RESTAURANT

Photos courtesy of the company


EXHIBIT 3SOCIO-ECONOMIC LEVELS FROM PERU

Table 1: Levels, Metropolitan Lima, July 2002

Table 2: Gross Monthly Average Family Income by Socio-Economic Level in MetropolitanLima, July 2002. (US dollars) (Exchange Rate: US $1.00 = 3.5 Soles)


High Level (A)

Lower High

Level (B)

Middle Level (C)

LowLevel (D)

Extremely Poor

Level (E)

Percentage per Number of People 2.9 15.6 27.1 32.1 22.2

Per thousand people* 232 1,217 2,118 2,512 1,736

* Based on an estimated population of 7,815 thousand inhabitants. Source: Apoyo Opinin y MercadoS.A. website: www.apoyo.com. Note: 51% of all Peruvian belonging to segments A and B reside inMetropolitan Lima.


High Level (A)

Lower High

Level (B)

Middle Level (C)

LowLevel(D)

Extremely Poor

Level (E)

Percentage by # of Households 3.7 17.1 27.4 30.6 21.2

Thousands of Households 64 297 476 532 368

Average Monthly Income in US$ 3,254 816 322 192 143

Information presented in round figures.Source: Apoyo Opinin y Mercado


Table 3: Age of Household Members In Percentages, Metropolitan Lima and Surroundings, July2002

Table 4: Average Common Expenses Per Household in US dollars, Metropolitan Lima, July2002. (Exchange Rate: US $1.00 = 3.5 Soles)

Socio-Economic LevelsBy Age in years

High Level (A) %

Lower High Level (B) %

Middle Level (C)

%

LowLevel(D) %

Extremely Poor

Level (E) %

From 0 to 3 3 5 6 6 7

From 4 to 6 4 4 5 5 8

From 7 to 12 6 8 11 14 17

From 13 to 19 12 10 14 15 16

From 20 to 24 6 9 10 9 9

From 25 to 29 10 6 8 9 7

From 30 to 35 8 12 12 11 10

From 36 to 40 8 9 7 7 9

From 41 to 44 3 3 5 4 3From 45 to 49 8 5 6 6 4From 50 to 54 6 8 6 4 2From 55 to 59 7 5 3 2 3From 60 to 64 7 3 3 3 2From 65 to 70 5 6 2 3 2Source: Apoyo Opinin y Mercado


High Level (A) %

Lower High

Level (B)

Middle Level (C)

LowLevel (D)

Extremely Poor

Level (E)

Food 433 206 140 118 94

Transportation 185 96 50 37 25

Education 304 124 37 16 10

House Cleaning 68 39 21 18 11

Electricity 60 31 18 12 9

Recreation/ Entertainment 112 43 11 7 4

Telephone 95 36 16 7 2

Clothing or Shoes 67 32 11 4 4

Water 29 16 9 7 6

Source: Apoyo Opinin y Mercado


Table 5: Activities Carried Out over the Last 30 Days, Metropolitan Lima, July 2002


High Level (A) %

Lower High Level

(B)%

Middle Level (C)

%

LowLevel(D) %

Extremely Poor Level

(E) %

Eat out with the family 84 65 41 23 21

Eat out with friends 63 36 19 8 10

Make Purchase in Supermarket 95 78 44 20 10

Attend Religious Ceremony 66 54 35 30 23

Drink Liquor with Friends 45 29 21 14 14

Go to Shopping Mall 76 52 15 4 2

Make Purchase in Department Store 78 42 13 2 0

Go to the Movies 59 27 12 2 1

Go to Recreation Center or Amusement Park 39 20 7 2 1

Source: Apoyo Opinin y Mercado


EXHIBIT 4BEMBOS RESULTS AND GENERAL BALANCE STATEMENT

Table 1: Results Statement for the Period of 1997-2001, US $

Table 2: General Balance for the Period of 1997-2001, US $

1997 1998 1999 2000 2001

Net salesCost of Sold Goods Gross sales Operational CostsSales Costs Administrative Costs Total Costs Documents, Sales & Discounts Operational Profits Other revenue (expenses)Financial revenue Financial expenses Net Various Result of Contact to Inflation Special Revenue Special Fees Total Other Revenue (Expenses) Profit before taxIncome Tax Net Profit

10,447,7994,800,6865,647,113

4,450,039840,337

5,290,376

356,737

41,279 (593,645)

995.68270,501

513,817870,554

(254,239)616,315

11,460,3105,521,9165,938,394

5,098,656734,182

5,832,838

105,556

112,270(593,396)

942.749(551,142)

(92,518)13,038

(76,154)(63,117)

8,466,8303,948,5904,518,240

3,981,734483,687

4,465,421

52,819

112,105 (784,020)

251,197(422,381)

(843,098)(790,279)

(32,848)(823,127)

8,189,2953,475,1884,714,107

3,771,094781,738

4,552,832

161,275

108,110 (606,731)

546,503109,929

157,811 319,086

(113,824)205,262

9,551,7634,062,288

5,489,475

4,019,5651,109,380

5,128,945147,631508,161

69,015 (449,078)

512,50226,54622,228

134,207642,368

(83,789)558,579

Source: The Company

1997 1998 1999 2000 2001

AssetsCurrent AssetsNot Current AssetsTotal Assets

LiabilitiesCurrent LiabilitiesNot Current LiabilitiesTotal Liabilities

PatrimonyProfit/LossAverage Dollar

4,159,8465,344,7295,344,729

6,654,57815,089

6,669,668

2,834,907 616,315

2,6730

4,171,527 6,537,77410,709,300

5,815,2683,486,7909,302,058

1,407,243(63,117)

2,948

2,301,662 4,753,5187,055,180

5,815,2683,486,7909,302,058

1,375,513(823,127)

3,403

3,015,0603,394,0796,409,138

3,315,1631,187,7424,502,906

1,906,233205,262

3,497

2,587,3563,108,3335,695,689

2,179,598 1,510,3443,689,942

1,477,168558,579

3,480

Source: The Company


EXHIBIT 5BEMBOS MENU AND PRICES IN SOLES

Types of Hamburgers Junior Medium Traditional Junior Combos

Medium Combos

Traditional Combos

Classic Hamburgers Classic 5.5 8.5 10.5 10.9 13.9Cheese 5.9 9.5 11.5 11.9 14.9Royal 6.5 9.9 11.9 15.9Cheese Bacon 6.9 10.9 12.9 15.9Monumental Cheese (double meat patty) 7.9 10.9 12.9 15.9Hamburger 3.9 6.5 8.9Hamburger A la Pobre 4.9 6.9 12.5 13.9Hamburger Rompe y Baja 4.9 6.9 12.5 13.9Special HamburgersGerman (Sauerkraut sauce and potato sticks) 8.9 10.9Peruvian (sweet potatoes fries and Creole sauce) 8.9 10.9Hawaiian (English ham and pineapple) 10.9 12.9Mexican (guacamole and nachos) 10.9 12.9French (mushroom sauce and potato sticks) 12.9 14.9Bembos PlattersClassic Salad 7.9Diet Burger + soft drink 12.9Chicken Order 14.9Diet Chicken 13.9Bacon Grill 15.9Gaucho Festival 16.9Cheese Fingers 9.9Chicken Nuggets 7.9 9.9Chicken Sandwiches Crisp Chicken 5.9 12.9Chicken Grill 8.9 14.9Side DishesFrench Fries 3.5 4.5 5.9Fried Onion Rings 3.9 5.9

Soft Drinks 3.5

(12 oz)4.4

(16 oz)5.5

(21 oz)

Source: The Company


EXHIBIT 6SAMPLES OF COUPONS


EXHIBIT 7PRICE COMPARISON

Prices of the Principal Hamburger Chains

Bembos McDonalds Burger King

Tradicional1

Medium 6.5 4.9 4.9Small 3.9 - 3.9

Special with CheeseLarge 11.5 - -Medium 9.5 9.9 6.5Small 5.9 5.5

Combos

Adults2 13.9 12.9 13.9

Children4 13.9 10.9 12.5

Sources: Bembos y Maximixe.Notes:1. Bembos (Hamburger); McDonalds (Macnfica); Burger King (Whopper).2. Includes a traditional medium hamburger with French fries and soft drink3. Bembos, Lunchbox; McDonalds, Happy Meal; Burger King, Kids Meals4. Includes a small traditional hamburger with French fries, soft drink and toy.


EXHIBIT 8PERCENTAGE OF TOTAL SALES PER PRODUCT, PRICES, VARIABLE COSTS PER

PRODUCT AND FIXED COSTS

Table 1: Percentage of Sales per Product Group

Table 2: Prices and Average Variable Costs per Product Heading, in Soles

Description of Product Groups Percentage of

SalesTraditional Hamburgers 32.26%Combos 24.82%Childrens lunch boxes 10.93%Medium Hamburgers 7.92%French fries 7.06%Menu Platters 5.63%Soft drinks 4.27%Junior Hamburger 4.18%Chicken Sandwich 1.10%Cheese Fingers 0.88%Chicken Nuggets 0.64%Onion Rings 0.31%

Source: The Company

Description of Products PricesVariable

CostPer Product

Traditional Hamburger 11.00 6.69

Combos 13.75 8.32

Childrens Lunch Box 13.90 6.35

Medium Hamburger 9.10 5.62

French fries 4.50 2.90

Menu platters 13.70 7.72

Soft drinks 4.40 2.52

Junior Hamburger 6.10 3.69

Chicken Sandwich 7.40 4.39

Cheese Fingers 9.90 5.15

Chicken Nuggets 8.90 4.58

Onion Rings 4.90 2.93

Source: The Company


Table 3: Annual Fixed Costs in US $

APPENDIX AMCDONALDS AND BURGER KING IN THE WORLD ENVIRONMENT AND IN

LATIN AMERICA

MCDONALDS

McDonalds was founded in 1940 in San Bernardino, California. It had morethan 29,000 restaurants in 121 countries and was the largest and mostsuccessful chain in the world. It is estimated that 70% of its restaurants all overthe world operated under the system of franchises.

The model of franchise of this trademark consisted of McDonalds beingthe owner (or the one who rents to the third party) of the restaurants. Thefranchisee bought the equipment as well as the right to operate the trademarkfor twenty years and McDonalds received royalties for 5% of the monthlysales plus a 3% service charge as a marketing fund.

The franchisee promised to maintain the standards of quality, service andvalue and it was hoped they would sponsor some local charity event. One ofthe advantages that the franchisee had were extensive marketing studies thatincluded customers attitudes and perceptions, types of purchase and pricesand measured McDonalds performance versus that of its competition.

In 1999, the chain opened practically one restaurant per day in LatinAmerica, reaching a total of 1,750 that year. The largest market was Brazil,followed by Mexico and Argentina.

With the aim of reducing its operational costs the corporation increased itspurchases from local suppliers in several of the countries where it operated. Inthat way, in Peru during the second trimester of 2000 McDonalds bought

Fixed Costs US $

Fixed Cost per Restaurant 72,275.04

Production Costs* 108,713.56

Administrative Costs of Central Offices 1,109,380.00

* Includes storage costsSource: The Company


more than 66% of its total provisions from the national market, a percentagethat it planned to increase in the following years.

In the fourth trimester of 2001, the net earnings of McDonalds decreasedfor the fifth consecutive period as a result of the reduction of sales in LatinAmerica, (3%) and Asia (4%).

BURGER KING

It was founded in Miami in 1957. This chain was present in 59 countries witha total of 11,370 restaurants. More than 92% of its restaurants were operatedas independent franchises.

Burger King had 213 locations in 9 Caribbean countries, 159 of whichwere in Puerto Rico. In Latin America the corporation possessed a total of 317restaurants distributed in 14 countries, 125 of which were in Mexico.

Towards 2000 in Latin America the company bought between 75 and 80%of its key provisions in the country where it operated.

In August of 2001, Burger King cancelled its foreseen investment plansto be carried out in Argentina, Chile and Paraguay during the next two yearsfor a total of US $60 million due to a reduction in its sales.

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