Latin American cuisine on the verge of US market domination

02 July 2018 Consultancy.lat

Whilst Mexican food has long been a US staple, Latin American cuisine has found it a hard market to break into. However, just as we are seeing a rise of Asian dishes which were once suppressed by the prevalence of Chinese food, Americans are beginning to embrace the Latin kitchen according to Miami-based hospitality consultant Rene Prats.

Prats Consulting is a boutique consulting and investment firm based out of South Florida founded and headed by Rene Prats. The consulting firm offers a range of services including strategy design, advertising, media buying and M&A. Prats Consulting works across sectors but has a specific in depth knowledge of the restaurant and hospitality industries. The boutique firm was founded in 1990 and boasts clients including Papa John’s, Dog Hotels and Real Estate America. 

The consultancy has worked for nearly 30 years servicing the industry and has noticed a significant shift in the American food paradigm. Dishes as wide-ranging as Peruvian ceviche to empanadas from across the board are beginning to appear on more menus through the United States. And the focus on this includes both Latin fine-dining as well as a well-cultivated culture of street food. 

Prats says that in the same way that Asian noodle soups, the Vietnamese pho and Korea’s ramen, have broken into the mainstream in America’s culinary consciousness, Latin American food is on the cusp of doing the same. “It’s wide open. Chipotle taught America to eat rice and beans, and that leads to Cuban food. You have arepas from Venezuela that are gluten-free and can be stuffed with anything. And you can do so much with tostones (twice-fried green plantains).” 

According to Prat, as the majority of Latin foods are relatively unknown in the US, operators are which are attempting to introduce certain dishes should refer to their style as generically Latin – in the same manner that Asian and Mediterranean restaurants do – in order to help boost the popularity in general.

Latin American cuisine on the verge of US market domination

Whilst this may be true for the lesser known styles of those attempting to break through, Cuban cuisine among others has gathered enough of a following that it would stand out from the crowd. “People are not afraid of Cuban sandwiches, but the biggest factor is rice and beans, which is a staple of Cuban food,” Prat said.

Prats Consulting has recently worked with Miami locals Sergio’s Family Restaurants to expand their original offerings to include a new fast-casual dinner and coffee bar. Sergio’s is a renowned restaurant with locations spread throughout Florida who opened their new chain Sergio’s Cuban earlier this year with the help of Prat.

The business is thriving due to the recent focus in the US for healthier eatery options according to Prat. Cuban food, like a majority of Latino food has a number of healthier ingredients and options for those with specific dietary requirements than does traditional American cuisine. Some of the main ingredients which are already making an impact on the American market include quinoa, avocados, beans, sweet potatoes and purple corn as well as tropical fruits and exotic spices.

The prevalence of these ingredients, and more generally, Latin dishes, will only become more defined and accepted as American culture expands its horizons. Due to the prevalence of Latinos residing in the US and with healthy eating becoming more of a lifestyle choice than a fad – as some fast food chains may have hoped – Prat suggests that it is likely that this emerging market will begin to heat up.

Going modern with Latin American consumer practices

14 January 2019 Consultancy.lat

In Latin America, corner stores, bodegas, and mom-and-pop shops reign. In the early 2000s, this was not the future idealized by consumer product companies, which aimed to lay the foundation for a fluid network of modern convenience and self-service stores. Distribution channels were planned, and a consumer base targeted: the rising middle class, which was fast becoming more affluent and empowered.

But old habits die hard – and the global market crashed. Thus, the Latin American consumer product market remains fragmented – there are hundreds of thousands of shops scattered around the region – with no intuitive entry point for industry newcomers. Those established companies that had hoped for a more modern future are now struggling, as a large percentage of the market remains unmoved, and the middle class is not rising as quickly as companies had hoped.

This puts consumer product companies between a rock and a hard place. They cannot ignore the traditional habits of the current consumer. To do so would be assured financial loss. But they also cannot afford the potential decade, as well as resources, financial and otherwise, necessary to construct a network that would adequately service an entire region.

But all is not lost. An EY-Parthenon study shows that there are methods and strategies that can allow consumer product companies to infiltrate the Latin American market, with “modest exposure and capital expenditure.” First, however, it is necessary to look at the root causes of the trouble.

Split of traditional vs. modern trade in the food and beverage category in Latin America

Consumer culture shock

When looking toward the future, consumer product companies underestimated the allure of modern convenience stores. “This vision, inspired by North America and Europe, was based on an assumption that consumers would discover modern stores and be delighted by their lower price points, curated, assortments, on-shelf execution, and ‘one-stop-shopping,’ therefore causing a fundamental shift in consumer preference toward a more contemporary shopping experience.”

But societal differences, especially in consumer habits, between Latin America and the aforementioned regions are rather large. Rather than capturing the growing and increasingly affluent middle class, the more modern consumer product stores – the “one-stop-shops” – have faltered. Additionally, in a region where many are paid daily, in cash, the idea of consolidated shopping trips encouraged by modern stores, necessitating higher, if less frequent, lump payments, is undesirable. Modern stores, as well, were often too small to remain in the black, meaning more stores were needed, resulting in a 360-degree turn to the fragmented network that had initially been an obstacle.

Longer working hours among Latin Americans, compared to Americans and Europeans, also means there is less time to shop. Store location is a hugely important factor in a Latin American’s choice of where to shop, with 44% considering it to be the “most influential reason.” Also important is a cultural factor: 60% of Latino consumers have developed a personal relationship with their shopkeeper, “presumably allowing him or her to influence their path to purchase with helpful, time-saving recommendations.”

Markets matter

Modern trade, according to the report, has a “formidable presence” in Latin America, but its growth has stagnated. While modern trade dominates in the home care (68% in 2016) and beauty and personal care (89% in 2016 markets, where products are primarily purchased at large supermarkets or hypermarkets, traditional trade narrowly takes the edge in food (51%) and beverage (50%).

Split of traditional vs. modern trade in the home care & beauty and personal beauty category in Latin America

Different Latin American countries exhibit varying attitudes and openness toward accepting modern trade methods. In Mexico, Argentina, Colombia, and Peru, traditional trade takes a 30% share of all markets. In Chile, for example, this share plummets to 14%. Different national markets also forecast varying degrees of growth – Colombia expects modern trade to grow just over 6.0% annually, while Peru expects 3.5% growth. Consumer product companies would do well, then, to closely examine the country, rather than the Latin American region as a whole, when attempting market entrance.

Market penetration is also not as difficult as in the recent past, thanks to independent distributors that allow companies access to a “reliable network of third-party providers.” This means consumer products companies need not focus or invest in assets and infrastructure, freeing up time and resources to “more value-adding” activities, such as merchandising.

Go mobile

Latin America is the fourth-largest mobile market in the world. Adoption of social media has surpassed that of the Untied States, meaning advertising and marketing budgets can be adapted accordingly, by using “targeted direct marketing campaigns to drive traffic to traditional stores where consumers can discover localized product innovations and assortments.” Regional sales for Proctor & Gamble, for example, have grown 8% in the last fiscal year, with approximately half of its products sold in traditional stores.

Partner up

There are many hurdles to properly handling business with traditional stores, often involving the different distributors for different products in different regions, as well as a lack of talent. To reduce the juggling act, this means distribution partnerships are all but necessary. Consumer products companies must be adaptive and creative to maintain partnerships and retain qualified and experienced professionals.

EY-Parthenon RTM circle

In its study, and to aid those companies looking to dip into the Latin American market, EY-Parthenon developed a four-stage approach to “route to market” transactions.

  • Evaluate capabilities and compare them to opportunities. Essentially, companies should ask themselves, “Is it worth it?”
  • Assess strategic options against all potential risks.
  • Design with the future in mind. Companies must have a vision for how they will keep their operating model up and running in the weeks, months, and years ahead.
  • Implementation must be supported, in various forms – cutover, stabilization, synergy. There should be no surprises when it comes to enacting a plan.

Related: Growth of billionaires in Latin American stagnates.