Case Analysis; Sr. Frango da Guia: Success or Failure in Brazil

Problems Arise

The performance of the Brazilian restaurants was below expectation and not nearly as good as the SFG restaurants in Portugal. Costa had also received reports of thefts from the restaurants by employees. Initially, he thought these thefts were incidental, but it soon became clear that the problem was more substantial. Even managers were stealing from their own restaurants. Costa felt his trust had been abused and fired the employees and managers to replace them with new staff. Soon, however, new reports of theft reached him. The problem might be more fundamental than untrustworthy staff. Costa could only visit his restaurants in Brazil every two months and this made it hard for him to keep a close eye on operations. Even if he was able to visit Brazil every month this might not solve the problem. Costa had to consider other options.

Portuguese Management

One of the options Costa considered was replacing the Brazilian managers with Portuguese managers. He had built up an extensive network over the years and was confident that he could find the required people. Costa believed that this would improve his control over the restaurants considerably. The Portuguese managers would over time adapt to the Brazilian culture and be able to learn about customer preferences and perhaps even try out new products and marketing strategies. One problem with this course of action was, however, that Costa would have to pay the Portuguese managers higher wages than the Brazilian managers. This would cut into the already disappointing profits of the restaurants. Another issue was the possible cultural differences. Although small they could cause problems between the Portuguese managers and the Brazilian staff. The Brazilian customers might also prefer to eat in restaurants run by Brazilian managers.

Franchise Solution

Another option would be franchising. Although Costa had some bad experiences with franchising in Portugal, he thought it might be a solution for his Brazilian troubles. In a franchise restaurant the franchisee was responsible for the day-to-day running and could hopefully prevent the staff from stealing from the restaurant. Costa thought he could prevent the problems he had had with the Portuguese franchises by introducing a slightly different setup. Instead of supplying the franchise restaurants just with the special sauce he would supply them with pre-prepared chicken with the sauce included. This would circumvent any possibility of the franchisee using inferior supplies, or changing the recipe for the special sauce. One drawback to this solution was the supply of the chicken. Costa could use his trusted suppliers in Portugal, but it would be very costly to transport the chicken to Brazil. If he sourced the chicken and other ingredients in Brazil, he would have to set up a preparation centre in Brazil at additional cost to his business. Considering the size of Brazil as a country, the location of the preparation centre and its distance to the restaurants was also a problem. The Brazilian infrastructure was not optimal and it could become very costly to transport the chicken and maintain its freshness. Timely delivery to the restaurants might also be a problem.

Brazilian Partner

A partnership with a Brazilian business person could help to solve the problems Costa was facing with the performance of his Brazilian restaurants. A partner with a lot of experience in the restaurant business in Brazil could provide valuable insights. This might prove a very cost-effective strategy. Preferably such a partner would also have a connection to Portugal to facilitate a better understanding between Costa and the Brazilian side of his business. Unfortunately, Costa did not have such a contact in Brazil. He also did not have a network in Brazil that would allow him to easily get in touch with a person who might be suitable. Partnering up with someone he did not know very well also carried its own risks.

Customer Preference

The more Costa thought about the problems he was having with his Brazilian restaurants the more he wondered if the problem could be bigger. Costa had not done a market feasibility study before opening his Brazilian restaurants. It was therefore possible that the problem was that the Brazilians simply did not like the restaurants, or did not enjoy the taste of the franguinhos da Gua. Market research might provide the answer to these questions. It would enable Costa to adapt his restaurants to the Brazilian taste and market them more effectively. Doing market research was, however, a long process and Costa was losing money on the restaurants every day. There was also a chance that the market research might show that there was no market in Brazil for SFG restaurants. Since market research was rather costly Costa was not sure if it was worth investing in if there was a good chance that the outcome might be negative.

Exit Brazilian Market

Although Costa did not want to lose his investment in the Brazilian market, he also had to consider exiting the Brazilian market altogether. He was not a man to give up easily, but he had to consider all the options. He did not want to lose what he had invested so far and Brazil did have the promise of a very large market. On the other hand he might invest more only to lose that additional investment as well. He had to weigh his potential gains against his potential losses very carefully.

Time to Decide

Costa was facing a very hard decision, possibly the hardest decision of his career. If he waited too long to make his decision the situation might become worse for his Brazilian restaurants and their chance of becoming profitable might decrease even more. The problems Costa was facing with his Brazilian restaurants were also taking up a lot of his time and he needed to focus more on his Portuguese restaurants. As he pondered his options, Costas flight home was announced. He could not afford to lose more money on his Brazilian venture and his restaurants in Portugal needed his attention. Time was running out and he needed to decide on a course of action now.

Develop an analysis addressing the following:

- Evaluation of Expansion into International Markets

- Competency and capability analysis

- Value and supply chain management