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Analysis

Franchise Market Support Boosts Laboratory Chain Coverage

Wed, 09/09/2015 - 15:35

In an effort to generate more jobs in Mexico, in 2007, the former Governor of the State of Mexico, Enrique Peña Nieto announced the launch of a new project aimed to support franchises. Although there was no shortage of clinical laboratories in Mexico, they typically operated on a small scale and were extremely fragmented. Now, with an increased focus on franchising, some companies such as Laboratorio Médico del Chopo and Laboratorio Médico Polanco have been able to increase their market share within the industry, with the latter even being named one of the top 25 franchises in Mexico among companies such as Subway and Häagen-Dazs.

The laboratories have seen an annual growth of 30%, due to increased awareness among the Mexican population. This is reflected in the fact that Laboratorio Médico Polanco owned ten units and 20 franchises in 2007, compared with the 49 branches it currently owns. According to INEGI data, the average monthly earnings of the company are US$845,000, 80% of which comes from franchises and only 20% from owned stores.

There are many benefits to franchising a store instead of owning one. Firstly, franchises are an extremely effective way to establish brand loyalty and trust from the consumer. Additionally, while higher profits tend to be generated by owning a business outright, the risk level can reach 80% within the first five years. By entering into a franchise, this rate will not exceed 5% in the first five years, according to consultancy firm, Gallástegui Armella Franquicias.

Profitability of franchises, however, is highly dependent on the size of the investment, the business model and the financial fundamentals. A constant review of business models and concepts is essential in order to maintain profitability of franchises, according to Juan Manuel Gallástegui, director of consultancy Gallástegui & Armella. Careful analysis is required in order to reduce overheads and investment, while at the same time maintaining standards of quality and service, therefore generating a higher rate of return. The aim of franchising, says Enrique Alcázar of Alcázar & Aranday, is to reduce costs for the central company, while simultaneously increasing presence and market positioning.