What to eat in a recession? Lobster, of course
Brazilian consumers, squeezed by stagnant growth and a weaker currency, are buying fewer foreign goods. One American import that's thriving in this recession: Red Lobster.
After some chains failed in their previous attempts to break into Latin America's biggest economy, U.S. casual-dining operators are expanding again. Restaurants from P.F. Chang's to Tony Roma's are popping up to meet demand from middle-class consumers who are priced out of higher-end eateries but are looking for a classier night out than their no-shirt-required corner bar.
Red Lobster Seafood Co., which was acquired by Golden Gate Capital Corp. in July, opened its first two restaurants in Brazil this year and has plans for 12 more. TGI Fridays Inc. is making a comeback after a four-year absence. And Dunkin' Brands Group Inc., which closed its Brazil operations about a decade ago, is planning as many as 150 cafes with mood lighting, Wi-Fi and sofas.
"It's still one of the biggest economies in the world and ripe with opportunities," said Scott Murphy, chief supply officer and vice president of operations for Latin America for Dunkin' Donuts. "The middle class is where the core of it will be."
The renewed push into Brazil comes as the nation tries to emerge from a recession in the first half of the year. Brazil's economy shrank 0.6 percent during the second quarter of the year after contracting a revised 0.2 percent during the first three months. The statistics institute will release third quarter GDP data on Nov. 28. Inflation has been running above the mid-point of the central bank's target range for the past four years, and jobs fell last month.
While all of that would spell a slowdown for U.S. diners, not so in Brazil, said Renato Meirelles, president of Data Popular, a researcher that focuses on the middle class, which it defines as families with an average monthly income of 1,694 reais ($649) to 3,094 reais. Eating out regularly is part of the culture for Brazilians, and the 40 million new entrants to the middle class in the past decade are no exception.
"They won't give up eating out, but they will exchange nicer restaurants for pizzerias or cut the frequency of their visits," Meirelles said in a telephone interview yesterday. "It's like flying -- those who start won't go back to taking the bus. People don't go back."
A Sunday lunch at Tony Roma's beats the fare at any local restaurant for Silvana Palacios, 52, owner of a shoe store in Sao Paulo.
"The food is better quality, there's more of it, and the service is better -- you just can't compare it," said Palacios, after she joined her father and two nieces for ribs at Tony Roma's first Brazilian restaurant in Sao Paulo's Moema neighborhood. Tony Roma's dishes range from 42 reais to 72 reais, while all-you-can-eat barbecue joint Barbacoa charges 109 reais at its nearby Itaim Bibi location.
A lobster dish at Red Lobster costs 79 reais to 169 reais, or about $30 to $65, in Sao Paulo, compared with $27 to $41 at the company's Times Square location in New York.
The drive is part of an overall expansion for some of the chains. Dunkin' Donuts is adding stores across the U.S. West Coast. And Romacorp Inc. has opened Tony Roma's restaurants in Mexico and Singapore in the past 12 months.
Sao Paulo has more than 12,500 restaurants, according to Fodor's travel guide. Two of them -- D.O.M. and Mani -- are ranked by the Diners Club among World's 50 Best Restaurants.
"The market obviously is very attractive," Jim Rogers, chief marketing officer at Romacorp, said in a telephone interview.
Dunkin' Donuts, based in Canton, Massachusetts, is returning to Brazil after closing its franchises about a decade ago because of supply-chain problems, Murphy said. This time around, franchise partner OLH Group, a Brasilia-based group that previously operated Subway Restaurants franchises, plans to have a six-month stockpile of imported supplies and is trying to find local makers of items like cups, OLH President Leandro Oliva said.
TGI Fridays, which was acquired this year by Sentinel Capital Partners and TriArtisan Capital Partners, left Brazil four years ago because of "some financial concerns related to our franchise partner," Jean Baudrand, vice president for business development international, said in an e-mailed response to questions.
Brazil was "a top performing region" for the Carrollton, Texas-based chain, Baudrand said.
Red Lobster, based in Orlando, Florida, opened restaurants this year in Itaim Bibi and at Sao Paulo's international airport. It's opening stores with International Meal Co., Brazil's only listed chain restaurant operator, said Red Lobster Chief Executive Officer Kim Lopdrup.
International Meal fell 21 percent in Sao Paulo in 2014 through yesterday, compared with a 0.5 percent drop for the Ibovespa benchmark index. Dunkin' Brands fell 1.3 percent in New York.
"Brazil is one of the most attractive markets in Latin America because of its size, long-term growth prospects and strong acceptance of American casual dining restaurants," Lopdrup said in an e-mailed response to questions.
Even though American chains are a hit with the locals, Brazilians still want some of their own national flavor. Dunkin' Donuts is testing out passion fruit and acai filling for its donuts.
Another important staple: Meat.
Brazilian consumers "aren't used to eating bread, eggs and bacon at lunch," franchise partner Oliva said. "So we have to add lettuce, tomato, chicken, beef."