Brazil Joins the Ranks of Markets Where Malls are Driving Chained Foodservice Growth
Shopping malls in Brazil have become gathering places that operate as community centres, leisure hangouts and shopping and dining destinations, making their restaurant locations some of the most sought after in the country. With this cultural development has come incredible demand for new malls, with at least 450 now open in the country and 150 more on the way by 2015. As a result, malls have emerged as local centres of growth and innovation in foodservice, with operators relying on their high-income clientele and highly visible locations to help launch and expand premium foodservice concepts.
This has created an opportunity for operators, who gain easy access to a built-in traffic flow of affluent consumers looking for premium dining experiences, but it has also added a new wrinkle to competitive dynamics in the market. Competition for prime locations is high, and success in the market now hinges not only on designing a concept that appeals to local consumers, but also on gaining the right placement in the right mall.
Mall shopping as a way of life
The driving reason behind malls’ popularity among foodservice operators is simply that they’re incredibly popular among consumers as well. Brazil is home to a rich mall-based social culture, and according to small business agency SEBRAE, half of Brazilian consumers visited a mall at least once per week in 2012. Even more notable for foodservice operators is the fact that young people aged 17-24 were among the most frequent visitors, with 56% of the age group visiting at least once per week during the year according to agency data. In contrast, mall visits in the US have been declining sharply for years, and according to a teen survey performed by Piper Jaffray, US teens visited malls only an average of 29 times over a one-year period ending in 2014.
Brazilians visit malls often, but they also do so for a variety of reasons, many of which go beyond simply making purchases. According to the Brazilian Association of Shopping Mall Stores (ALSHOP), just 40% of visitors cited shopping as their primary reason for the visit, with dining coming in second at 15%, and walking around coming in third at 14%. Brazilians also reportedly value the comfort and security offered by mall-based retail locations relative to standalone locations on the street, as well as the convenience of being able to visit many outlets in a single trip.
This social culture has made shopping malls popular with both high-income consumers and the newly middle-class, who may not yet be able to afford everything the mall has to offer but can nonetheless take advantage of malls as leisure destinations. This makes these locations ideal as chained expansion opportunities, as they simultaneously offer operators access to high concentrations of affluent consumers who are visiting with the explicit purpose of dining out, as well as to upwardly mobile consumers who may be gaining new access to foodservice and are just beginning to build their loyalties and explore new dining experiences. Notably, this latter group is growing incredibly quickly, with as many as 42 million Brazilians moving into the middle class within a single decade, according to the Instituto Data Popular.
As a result of all of these factors, Brazilian malls have become highly sought after foodservice locations, and centres of innovation when it comes to the newest and most exciting concepts. In fact, retail locations grew in outlets by 4% and in value by 16% in 2013, the fastest-growing location type by both metrics. Unfortunately, it also follows that this means gaining placement in prime locations can be easier said than done—both due to prohibitively high rents and a simple lack of available supply—and many larger chains have the advantage when it comes to negotiating deals.
Malls are a growing region-wide
While this growth has been incredibly strong in Brazil, this trend has also been observed in Venezuela, Mexico and a number of other Latin American markets, many of which count similar benefits such as the higher security, convenience, comfort and cleanliness of mall-based locations. There have also been signs that operators across the region are looking to malls as the future of foodservice expansion, using malls’ development as a blueprint to map out future growth.
Mexico’s leading operator Alsea for example, which is working hard to diversify its presence across Latin America, has taken steps that suggest it is relying heavily on malls to drive that expansion. In late 2013, Alsea purchased Walmart de Mexico’s restaurant unit, which included the casual dining VIPs chain which is a fixture in many Mexican malls. The company also more recently opted into a franchise agreement with the premium Asian full-service chain PF Chang’s to develop restaurants in Brazil, the first of which opened this year in a shopping mall in Rio de Janeiro. Finally, Alsea even made a move into retail in 2013, with a somewhat surprising acquisition of Mexican apparel retailer AXO, which owns a handful of mall-based brands. This purchase could allow them greater leverage in the future when it comes to mall placement of both the retail and foodservice concepts now in their portfolio.
These developments can’t help but feel reminiscent of the recent explosion in mall culture in the Middle East’s Gulf States, in many of which malls are similarly prominent centres of shopping, dining, and leisure. Unlike in most markets where premium dining outlets are concentrated into particularly high-end neighbourhoods or commercial districts, malls in the UAE in particular have become the epitome of luxury destination appeal. Air-conditioned malls also serve as necessary respite from the region’s intense heat during the warmer months, giving consumers a way to socialize and spend some leisure time outside of the home while still remaining indoors. As a result, prime placement in top-tier malls has become a key part of the necessary competitive edge for brands to gain traction in the market, and mall operators have thus become powerful arbiters of success. This has led to powerful local foodservice operators building portfolios of brands across foodservice and retail that are designed to cater to every part of their target consumer’s mall-going experience.
It’s unlikely that Latin America’s mall dynamics will reach the extreme of those found in the Middle East, especially given the already much more fragmented makeup of the local competitive landscape, but all of these trends could suggest the region is headed in that direction. In fact in 2013, retail locations were also the fastest growing location types across all of Latin America, at 6% in outlets and 17% in value. It follows that the influence of malls in the foodservice industry is only growing, and operators are only beginning to rely more on these locations as they become more fully integrated into the local cultural landscape and expand to new areas of each market. With Latin America continuing to serve as one of the prime growth targets for international chains worldwide, the importance of malls—and even further, mall placements—will only increase over the long-term.