Discusses opportunities for U.S. franchisers and legal requirements in the market.
Last Published: 8/26/2019

Recent history has shown that franchises are one of the most successful systems of expansion in the world.  In Guatemala, the first U.S. franchise that opened was Pizza Hut in 1969, and since then, franchises have been thriving.  In some cases, such as McDonald’s, they have exceeded the expectations of the franchisor, and are used as great success stories in this region by the parent company.

McDonald’s Guatemala has been so successful that they have been credited with creating the concept of the “Happy Meal”, the famous Latin American “Derretido” (Grilled Cheese) and being selected as one of the worldwide test sites for the McCafe’s.   

The real boom in the franchising sector in Guatemala occurred within the last 10 years. The country has experienced the introduction of many world known franchises and has begun creating and developing local capital franchises that now have presence in the U.S., Europe, South America, and Asia.  This trend has enhanced the confidence of potential investors or franchisees interested in Guatemala. According to the Guatemalan Franchise Association (AGF), fast food is the most popular subsector with 43 percent market share; followed by services with 33 percent, retail 11 percent, clothing 6 percent, and other 7 percent.

According to “Federación Iberoamericana de Franquicias” (FIAF), Guatemala is the largest franchise market in Central America, with over 300 franchise chains and 3,500 sales locations, which provide more than 25,000 direct jobs. Guatemala is also the fifth largest Latin American market for franchises; 80 percent of the franchises operated in Guatemala are of foreign origin, and 20 percent of local origin.  FIAF estimates that 45 percent of the foreign franchises are from the United States, and the rest from Mexico, Spain, Brazil, Colombia, and others.

Local franchise companies operate mainly in the fields of fast food restaurants, bakeries, ice cream shops, automobile services and supplies, gas stations, advertising signs, hotels, beauty clinics, gifts, and toy shops.

There is a high concentration of franchise retailers in Guatemala City as it is the most populated city in the country with approximately 4 million people.  Other cities like Quetzaltenango, Antigua, Huehuetenango, Cobán, and Escuintla have also shown growth in franchising.

Opportunities for U.S. franchises in this market are promising as Guatemalans welcome new ideas and are open to new franchising possibilities, specifically for recognized brands. Because of the proximity with the United States, many Guatemalans have experienced different U.S. concepts and want to bring them to Guatemala. It is highly suggested that franchises examine the market and determine if the franchise needs any adaptation to the local culture and customs. Additionally, they need to determine if raw materials can be found in-country or need to be imported, bearing in mind certain regulations for imported food products. 

According to AGF (Guatemalan Association of Franchises), the franchise market in Guatemala grows at a 15 percent rate per year, very similar to the growth rate for the rest of the Central American countries. Guatemala City is recognized as the largest and most dynamic city in the region, having the largest economy with nearly 30 percent of the Region’s GDP. In the past twelve years, the country has seen an increase of 11 percent of direct investment with a controlled inflation rate of 5.7 percent, and a historically stable exchange rate.

The CAFTA-DR Free Trade Agreement provides full market access to franchising.  Trademark provisions protect the franchisor’s name, and tariff liberalization allows lower-cost exports of key equipment required to supply the franchisee. 

Regarding the legal framework, in Guatemala there is no specific legislation for the franchise industry; however, franchises are subject to regular commercial laws. Contracts must be reviewed by local lawyers to make sure there are no infringements of Guatemalan laws.  In terms of intellectual property, Guatemala has adequate institutions in place, to guarantee the rights of companies that have been diligent in the registry of their brands and other intellectual property.

A current trend not only in Guatemala, but in the region, is that a group or local company owns one or more franchises and continues to include others as they succeed. This is looked highly upon by potential US franchises as the investors are then very experienced and keen when dealing with new projects. This is the case with many U.S. franchises in Guatemala, who are owned by one Guatemalan group or even more frequently, owned by Salvadorian or Honduran groups based in their respective countries. 

Successful U.S. franchises operating in Guatemala:
McDonalds, Wendy’s, Burger King, Subway, The Orange Theory, Applebee’s, PF Chang’s, Kentucky Fried Chicken, Chili’s, Friday’s, Sky Zone, Hooters, IHOP, Pizza Hut, Dominos, Taco Bell, Dairy Queen, Dunkin Donuts, The Vitamin Shoppe, Charley’s Grilled Subs, Tony Roma’s, Papa John’s, Little Caesar’s, Cinnabon, My Yogurt, Sbarro, China Wok, Panda Express, Little Cesar’s, Which Wich, Carl’s Junior, Curves, GNC, Tutor Doctor, Home Care Watch Givers, Sir Speedy, Krispy Kreme and  Starbucks.

Latin American countries share much history and language backgrounds, yet there are remarkable differences in ethnic composition of their societies, cultural heritage and customs.  Income of each market will vary significantly, same as the purchasing power of communities, and commercial relationship with the United States and other countries. Understanding these differences is vital to understanding the challenges and opportunities for U.S. franchises when interested in having a presence in the country.

Economists have divided Latin America in three groups. Guatemala falls in the middle group, which is marked by inequality and disparity, with 20 percent or less of the per capita income in the U.S.    

Opportunities may be to target the well-off, well-educated elites, which are natural markets for goods and services from the U.S. These groups may also become business partners and valuable contacts within the country and Region.

A challenge may be that just a few segments of the population are potential customers for U.S. franchises, due to their low income.   
For the above reasons, Guatemalan investors are very selective when showing interest in brands that are well-known and successful. The U.S. Commercial Service has found that there is little interest in developing unknown brands, or concepts, because they would have to struggle to compete and stay afloat with the existing strong brands.

Contact:
AGF – Asociación Guatemalteca de Franquicias
Contact: Oswaldo Mansilla, President
Email: infoguatefranquicias@guatefranquicias.org

Market Entry
The most effective way to enter the Guatemalan market is through one of the U.S. Department of Commerce’s Gold Key Service. This is designed to provide U.S. companies with the advantage of local expertise and to schedule meetings with pre-screened business contacts.
 

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.