Arcos Dorados (Golden Arches) is the largest restaurant operator in Latin America and the largest franchisee of the Mcdonald's brand worldwide. Triumphant in its achievements, the company is the golden egg of the fast food giant, with annual revenue in excess of $3 billion and more than four million customers every day. Reuben Ford takes a close look at how Arcos Dorados is super-sizing the south American market.
In April 2011 Arcos Dorados, which operates the McDonald’s brand in all of Latin America, began trading its shares on the New York Stock Exchange. The IPO was the third-highest ever achieved by a South American company and the share price closed above the initial range. The results earned Arcos Dorados recognition in the Latin America Equity Issue and two major awards: the Thomson Reuters International Financing Review Awards 2011 and Best Primary Equity Issuer in the Deals of the Year issue of LatinFinance magazine. “The success of the IPO is the result of teamwork, and Arcos Dorados deeply respects the confidence of our shareholders,” says Woods Staton, president and chief executive officer of Arcos Dorados.
SERVING LATIN AMERICA
With more than 86,000 employees, Arcos Dorados is recognized as one of the best companies to work for in Latin America and one of the main employers of young people taking on their first job. Figures published in the Latin Business Chronicle in 2010, ranked the company ninth among the largest employers in South America.
In 2011, Arcos Dorados was acknowledged for its credibility as an employer in several countries: it was the first company in Panama and Central America to receive the Work and Life Balance certification awarded by the European Institute of Social Capital and supported locally by the Ministry of Social Development. In Ecuador, Ekos Magazine recognized the company as the Best Company in Service Quality under the Fast Food category. For the seventh time, Arcos Dorados received the ESR (Socially Responsible Company) award in Mexico, while in Brazil, the economics magazine Isto é Dinheiro placed it third in the top 50 best companies and credited it as the strongest brand in the country according to studies carried out by BrandAnalytics/Millward Brown.
The awards all prove that Arcos Dorados constantly strives to reward the commitment of its staff by offering them the best. The same is true for suppliers, customers and community.
The company offers clear and structured career and professional development opportunities. Many restaurant managers, directors and market presidents began their careers as employees on the restaurant floor. Marcelo Rabach, vice president for business development of Arcos Dorados Latin America, began his career in 1990 serving in restaurants in Buenos Aires. Iris Barbosa, director of training and development in Latin America, started as a clerk in a Brazilian restaurant. There are many more examples of executives who have walked the same path and had the same success, such as the current presidents of Arcos Dorados Chile and Arcos Dorados Peru and the president of the company worldwide, Jim Skinner.
The first Center for Recruitment and Selection of Latin America opened in 2010 in São Paulo, Brazil. There is only one similar facility, in Paris. It was created to address interested candidates, job opportunities and careers at McDonald’s restaurants and also to optimize the processes of selection and recruitment of new staff.
In a unique and innovative step toward training, McDonald’s opened the Brazilian unit of McDonald’s University in October 1997. More than 52,000 people from across Latin America have participated in courses and educational activities. There are six other such universities in the world, in the United States, Germany, Japan, England, China and Australia.
LOCATION IS EVERYTHING
Our history goes beyond our people and our strategy. The places where we operate also contribute significantly to our success,” says Staton. In 2007, Arcos Dorados acquired the license (Master Franchise Agreement) to operate McDonald’s restaurants in Latin America and the Caribbean for a period of 20 years with a renewal option for 10 more years. The company divides operations in Latin America into four regions: Brazil, SLAD (Argentina, Uruguay, Chile, Venezuela, Colombia, Peru, and Ecuador), Nolad (Mexico, Costa Rica, and Panama) and the Caribbean (Aruba, Curacao, French Guiana, Guadeloupe, Martinique, Santa Cruz, St. Thomas, Trinidad and Puerto Rico). The headquarters are located in Buenos Aires, Argentina and there are offices in all market regions.
Latin America is a diversified market with extremely favorable economic, demographic and geographical conditions, which are important factors in the operational excellence of Arcos Dorados. These conditions translate into solid financial performance.
“We operate in markets where we have large, young and rapidly growing customer bases, which favor the convenience of eating out,” says Stanton. “Our markets have 580 million inhabitants, equivalent to the combined population of the United States, Germany, France, Britain and Italy. Nearly 34 percent of the population is between 15 and 34, a percentage much higher than many developed countries.”
The GNP of Latin America is also set to grow at an annual rate of 5.8 percent, 70 percent faster than in the US. This growth and economic stability promises an increase in consumer purchasing power. Moreover, the number of young people in the region, together with a growing number of single-parent households – as well as households with two working parents – increase demand for options of fast food restaurants in Latin America.
Despite the rapid growth of the segment, Staton points out the longevity of the market potential: “There is still significant potential, considering the generally low penetration in the market. For instance, if we doubled the number of restaurants in the areas where we operate, we would still have a penetration that represents only two thirds of the North American market.”
MAKING A DIFFERENCE
In Latin America, Arcos Dorados works with a menu that adheres to global guidelines, but with local adaptations such as dulce de leche ice cream in Argentina, the pão de queijo (cheese bread) in Brazil, the arepas (dough flour) in Venezuela or gallo pinto (traditional rice and beans) in Costa Rica.
Always concerned with anticipating the wishes of customers, the company looks at local development opportunities – including drive-thru and delivery, breakfast and 24-hour operation – planned according to analysis of customer visits at each location. The menus have evolved to offer choices of sandwiches aligned with these studies. Availability of premium Angus beef sandwiches as well as options such as salads, juices and yogurts result from consumer demand. Similarly, campaigns such as “Grandes Placeres, Pequeños Precios” (Big Pleasures, Small Prices) have been very important during a year of unstable economies in some market regions.
The innovations for the region go beyond cultural adaptations and reveal the global responsibilities of the brand. In the five years of operations in Latin America, Arcos Dorados has opened four ecologically friendly restaurants, a new concept that incorporates the philosophy of environmentally responsible buildings and emphasizes the incorporation of sustainable technology in energy efficient buildings. The first “green” restaurant opened in Brazil in 2008, the second in Costa Rica in 2009, the third in Argentina in 2010, and the most recent was launched in 2011 in Mexico. In addition, last year the Pilar restaurant in Argentina was certified LEED (Leadership in Energy and Environmental Design) at Gold level.
In Osasco (São Paulo) Brazil, an industrial complex called Food Town serves as a center of excellence for the production, distribution and quality control of ingredients for McDonald’s. Founded in 1999 with investments of $70 million by the leading suppliers in the chain Keystone Foods, FSB Foods and Martin-Brower, Food Town employs 850 professionals and is a powerful connection between Arcos Dorados and its suppliers. The Brazilian Food Town is the first McDonald’s control center in Latin America – there are only two others in the world, in Germany and Russia.
In Latin America, Arcos Dorados recently announced major menu changes inspired by healthy diet options. The additions include nutritionally balanced choices for children and adults, and the reformulation of products to reduce sodium, sugar and calories Also, set menus offer the option of salad instead of French fries. As from 2012, nutritional innovations are now available in 15 countries of the 20 markets where Arcos Dorados is present in Latin America.
“The challenges of the company go beyond offering a varied menu with high quality products to customers,” says Staton. “The brand believes consumer and employee satisfaction is directly linked to actions that respect quality of life and social welfare.”
Arcos Dorados undertakes countless projects around the world. McDonald’s is the official sponsor of the Olympics and the FIFA World Cup. It also sponsors family sporting events such as the first female marathon, McDonald’s 5K – Las Mujeres Corremos (Women Run) – which drew nearly 40,000 people in 15 cities in Latin America.
Arcos Dorados’ commitment to excellence is across the board. “I attribute our success to several important factors, including that we work with one of the most recognized and respected brands in the world, have a well-defined corporate strategy, which focuses on growth and value creation, and have a firm commitment to operational excellence that brings proven results,” says Staton.
“Due in part to these factors, we have achieved accelerated growth in revenue and profits,” he continues. Arcos Dorados reports annual sales in excess of $3 billion – serving an average 4.3 million customers each day in more than 1,800 restaurants, 1,694 dessert centers and 302 McCafé units.
Arcos Dorados is one of the leading Latin American companies. Exclusively handling the McDonald’s brand, it has a strong presence in 20 countries and plays an important role in the economic and social development of the market region. Thousands have found personal and professional triumph under the “Golden Arches” and as they extend over an increasing territory with ample potential. Opportunities appear endless.