KFC rules in Peru as nation is bastion of US fast food

John Quigley and Ari Altstedter, Bloomberg News

There are more US fast-food restaurants in China than any other emerging market, which isn't much of a shocker. The surprise is the country with the greatest concentration of the eateries: Peru.

A nation so well-known for its cuisine that it exports its own restaurants to other countries, Peru has a burgeoning food culture and hosts Latin America's most popular culinary festival. Hungry residents of Peru's populated areas have to travel, on average, just .66 mile (1.1 kilometers) to find a U.S. fast-food joint, according to data compiled by Bloomberg.

This is all good news for fast-food companies, which are increasingly counting on Latin America for growth after thriving in China.

"We're starting to see the emergence of Brazil and South America being a hotbed for American restaurant franchises to go and open up," said Darren Tristano, executive vice president at food industry consultant Technomic Inc. in Chicago. "South America is kind of becoming the next window. Now that Asia has already started, I think South America is really going to be where the growth is."

The first U.S. chain opened in Peru in 1981 and the result is evident. Eight fast-food counters line the walls of the Jockey Plaza mall in Lima, half of them Peruvian brands and the other half U.S. Yum Brands Inc.'s Kentucky Fried Chicken, the largest U.S. fast-food chain in Peru, and Burger King are doing a brisk trade, as is Bembos, Peru's biggest burger chain.

Juan Mallqui, 42, buys fast food a couple of times a month, and though he prefers the Peruvian brands, he'll often go to KFC or Burger King to keep his two small children happy.

"I don't normally eat this kind of food, only when we come here to the mall," he said.

After three decades blighted by dictatorships, terrorism and hyperinflation, Peru is reaping gains from free-market policies adopted in the 1990s that fueled the fastest economic growth in Latin America in the past decade. Economic stability is spurring a consumer boom that has gathered steam during the last decade.

Average wages in Lima, the capital, have risen 56 percent since 2006 while unemployment fell to 6.7 percent in August from 8.4 percent six years earlier, according to Peru's national statistics agency.

Peru — a country almost as big as Alaska, encompassing Andes mountains and the Amazon jungle — has a population of 29 million, with about three quarters of Peruvians living in cities. The growing purchasing power of the urban population is leading to the expansion of the retail and restaurant industries and an influx of foreign brands.

Peruvians now spend more time shopping and eating at a growing number of malls and new shopping districts, increasing demand for fast food. That market grew 15 percent last year, according to data from the Peruvian Chamber of Franchises. U.S. chains such as KFC, McDonald's and Burger King first moved into Peru in the 1980s and 1990s and have since branched out beyond Lima to the other thriving cities.

U.S. chains have cemented their domination of the industry in the past decade and today have 60 percent of the market. McDonald's, based in Oak Brook, Ill., and New York-based Burger King led the expansion in sales last year, followed by Bembos. In more-developed markets such as Brazil and Mexico, local brands account for 92 percent and 70 percent of sales respectively, according to the chamber.

"Foreign brands have much more experience and they have a structure and operating capacity that brands in Peru haven't been able to develop," said Diego Herrera, president of the Lima-based chamber. "They're brands that have studied their marketing, their customers, their processes almost to perfection. They come here and advance very quickly, filling gaps at a sort of pace that Peruvian businesses can't match."

Peruvians are admirers of American culture and open to foreign influences, said Herrera, the owner of Osaka, a Peruvian-Japanese fusion restaurant chain with franchises across Latin America. Still, there are signs the rise of Peruvian gastronomy is starting to dent U.S. domination of the fast-food industry.

The economic stability and social peace of the past decade has been accompanied by the renewed appreciation for Peruvian culture, and above all its cuisine, which is a mix of Andean, Amazonian, European, African and Asian influences and ingredients. Gaston Acurio, co-founder of Astrid y Gaston restaurant, is the most successful exponent of Peruvian cuisine, having developed seven franchises and exported them to 11 countries.

The boom is evidenced by the number of new restaurants, cooking schools, books, films and gastronomic fairs around the country. The Peruvian Gastronomy Association drew half a million visitors to its annual fair in Lima last month, 45 percent more than last year.

Despite their love of food, Peruvians have kept rein on their weight. Peru's increase in body-mass index since the first U.S. fast-food eatery opened there ranks at 30, among the best in emerging countries, data compiled by Bloomberg shows. The Dominican Republic has gained the most.

Yum's KFC has the biggest exposure to global emerging- consumer markets among U.S. fast-food chains, with half of its stores in those countries, according to data compiled by Bloomberg.

"Latin America is an important and growing part of our business," Christopher Fuller, a Yum spokesman, said in an emailed statement.

McDonald's has 18 percent of its locations in emerging- consumer markets and Burger King 12 percent, the data show.

Burger King has almost 1,300 Latin American restaurants generating about $2 billion in sales and expects that to double in the next four to five years, said Jose Costa, vice president of marketing and supply chain for Latin America and the Caribbean. The growing middle class in Brazil, Argentina, Colombia and Peru view fast-food differently than their North American counterparts.

"It's more of a destination, a special location; it's a dining experience, versus a North American market where 75 percent of the business is drive-through," he said by telephone from Miami. "So it's capturing the American dream for the middle class in Latin America."

Local entrepreneurs are also tapping into foreign interest in Peruvian cuisine to develop new fast-food concepts. Peruvian outlets increased sales by 26 percent last year, compared with 15 percent for foreign brands, according to the chamber. The restaurant industry as a whole grew 9.4 percent last year, according to the statistics agency.

Bembos, the fastest-growing local brand, was established in the late 1980s. Last year, it was acquired by Intercorp Peru, a finance and retail holding built by Peruvian billionaire Carlos Rodriguez Pastor. The group in May took over Chinawok, another well-established fast-food business.

"The market is going to become more favorable for Peruvian brands, as long as they are sustained by a solid corporate structure," Herrera said. "This is only the beginning."

* Altstedter reported from Toronto. Wei Lu contributed from New York.