041186 Burger King Open Stores In Brazil

Sao Paolo, Brazil - Less than two years after buyout firm Texas Pacific Group took over, Burger King has signed up an aggressive local partner and started opening stores in the hard-to-crack Brazilian market.

Brazil is one of the few Latin American countries with no Burger King outlets, leaving a market of nearly 180 million potential burger eaters to arch-rival McDonald's Corp. the biggest fast-food chain in the world.

Burger King's international expansion plans could face a litmus test in this market, where other fast-food chains have failed and even McDonald's has been slapped with lawsuits by angry franchisees.

At the inauguration of Burger King's first store, executives of the chain's local partner, the BGK Group, said they won't repeat others' mistakes as they open 50 stores in Sao Paulo over the next five years. The executives also rolled out a bold marketing strategy sure to draw clients to the door.

BGK president Luiz Eduardo Batalha, who also happens to be one of Brazil's biggest cattle breeders, said Burger King will open stores right next to McDonald's in shopping malls and erect billboards across town challenging consumers to give the newcomer a try.

"Down with the dictator," the billboards will read, in a brash reference to the military government that ended only two decades ago in Brazil. "Burger King has arrived. You now have a choice."

The fast-food chain will import beef at first because it's difficult to raise top quality Angus cattle in Brazil, but Batalha said he eventually hopes to provide the beef for Burger King's local stores. Brazil has more cows than it has people and is home to the largest commercial cattle herd in the world.

Batalha said the country's fast-food market rings up about 2.5 billion reals ( $1=BRL2.74) in annual sales and has plenty of room to grow. However, some Brazilians will tell you that the popular cheeseburger with mayonnaise available at local luncheonettes is bigger, cheaper and quite a lot tastier than a McCheddar from McDonald's. Beef is a staple of the Brazilian diet, but carving out a niche here could be tough.

Burger King, with about $11 billion in annual sales, is trying to revamp its business worldwide after watching customer traffic decline for years. Nearly three- fourths of revenue comes from thousands of restaurants in the U.S. and Canada compared with only 6% from Latin America, with roughly 650 stores.

The burger chain, second only to McDonald's in size, was taken over in December 2002 by a group of turnaround artists led by Texas Pacific, who paid drinks giant Diageo PLC $1.5 billion to take the asset off its hands. But even since Texas Pacific took over, Burger King has continued to lose top management at a worrisome pace.

Burger King's plans to enter Brazil in particular have been on hold since 1998 due to a series of local economic shocks, including a currency devaluation, a spike in inflation and finally a slowing economy. But Brazil's economy is now on the rise, and Burger King executives say they have confidence in the BGK Group's ability to make the chain a success.

"It took time to enter Brazil because of the process of choosing the ideal partner and finding the correct model for our business," said Nish Kankiwala, the head of Burger King's international operations. The local expansion plan is ambitious to say the least. The partners plan to invest $20 million over five years to open 50 stores in Sao Paulo, a city of some 16 million inhabitants. Burger King will provide $3 million, with the rest coming from BGK. The fast-food chain aims to negotiate similar deals with franchisees in other Brazilian states, including nearby Rio de Janeiro and Pernambuco in the Northeast.

Nevertheless the competition could be stiff. McDonald's has already opened 530 stores in Brazil, some of them so close together that money-losing franchisees have sued the company for cutting into their business.

BGK's Batalha says he won't make that mistake. He doesn't plan to sub-license his Burger King franchise in Sao Paulo for at least the first five years.

"We're not going to work with franchisees like McDonald's did. We're going to focus first on our business here in Sao Paulo and only then think about expanding in the rest of the state," he said.

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