Why Aren't There More Hispanics in Franchising?

NEW YORK ( TheStreet) -- Here's a mystery.

According to the 2010 Census, of the 308.7 million people in the United States, 16% are of Hispanic or Latino origin. Hispanics accounted for 29% of the population in the West.

Hispanic spending power was estimated at $1.2 trillion last year by HispanTelligence, and by the end of this year, Hispanic spending power is expected to be more than 15% of total spending for the entire U.S. -- not including undocumented immigrants, according to the International Franchise Association.

Yet as of 2007 just 5.2% of all U.S. franchises were owned by Hispanic franchisees, the IFA said in December, citing the U.S. Census. Today that could be up to 10%, says Jose Torres, principal partner and founder of BuscaTuFranquicia.com and its English counterpart, Franchise4Hispanics.com, virtual marketplaces that connect Hispanic franchisees and franchisors.

"The interest from the franchisee side has moved up significantly," says Torres, the author of the IFA article. There is "much more interest, much more requests for information, much more calls from those who want to find about more about their franchise opportunities."

More Hispanic-run franchises means more access to the Hispanic community. With so much money at stake and so much interest, why aren't there more Hispanic franchisees?

"Despite all these great demographics, there is still a tremendous lack of awareness and commitment to go after this market from a consumer level , and that influences franchisees," Torres says. "When a franchisee sees that an industry is not really going after them -- Hispanics work on trust a lot -- that really makes an impact with the group. Aspiring franchisees respond much stronger and better to those franchisors that they feel are Hispanic friendly."

The IFA is also working with the U.S. Hispanic Chamber of Commerce to build relationships between franchisors and Hispanic communities, says Matthew Haller, an IFA spokesman. "The population has been growing. As those populations have grown, franchisors have recognized and developed programs to target Hispanics to come to their systems. You have a lot of great brands growing in the South and West," he says.

But there is still a lack of awareness on the part of franchisors.

Torres points to a low headcount in many franchisors' management and executive teams. "In general that is the handicap. When you don't have inside your company a workforce that can identify with that at the executive or management level it's tough to go after it," he says.

Guillermo Perales, the largest Latino franchisee and CEO of Sun Holdings, owner of nearly 400 franchises in the Dallas-Fort Worth area, including Arby's, Popeye's, Golden Corral, Burger King ( BKC), CiCi's and Del Taco, says more franchisors need to incentivize their teams to bring on Hispanic franchisees.

"I don't think they're actively seeking franchisees because in their mind it's not a top priority," he says. "They don't have outreach programs to look or bring or incentivize some Hispanics to come into the system."

>>>Refranchising Gets Hot Again In The Restaurant Industry

At Burger King, "I've been able to send a couple of Hispanic candidates to grow our base. They also have a small program where if you have the resources, you can start by operating the store with no real estate and you pay for equipment and business," Perales says. "That's an easy way for franchisors to start incentivizing the employee that have been with them for a long time."

Many franchisors also don't understand the financial and cultural differences within the group.

"It's not one-size-fits-all. All Latinos are a little bit different. Some franchisors don't really understand the culture. A Latino here from Mexico for three generations is different from a first-generation person that moved from Brazil. There is different type of mentality and type of Spanish," Perales says.

While the level of affluence in the Hispanic market is growing "exponentially," Latinos in general are less likely to have strong credit profiles because there is a general mistrust in banks. Many don't use credit cards and prefer to put their money into hard assets or other currency, Torres points out.

"The financial profile on paper raises a lot of questions," he says. "They have a different behavior when it comes to managing their finances, and franchisors have to recognize that before disqualifying -- dig deep into what is exactly his financial profile and why his credit profile is so low. Franchisors either don't have the time or the energy" to do that.

One franchisor that seems to be making headway with the Hispanic community and in adding Hispanic franchisees is Liberty Tax Service.

Torres notes that the tax preparation services franchise "has done what I call everything right," he says.

"They realize from the consumer side Hispanics are a great source of clients or customers. They began addressing this opportunity from the consumer side, making it very easy for them to bring on Hispanic franchisees to connect and penetrate and then relate to this community at the local level," Torres says. "They go beyond just putting information out and translating it. From a communication standpoint, from a community involvement, they're really making a business case for it."

As a result, when it comes to taxes, Hispanics don't think of H&R Block ( HRB) or Jackson Hewitt, "they think of Liberty Tax," Torres says. "That's a great example."

7-Eleven is another group making a lot of progress within the Hispanic franchising community, Torres says. The have put "programs in place to address from the consumer side and as a result are recruiting a significant number of franchisees," he says. (Both companies advertise on Torres' websites.)

Still, it takes money to buy into a franchise. And with the capital markets remaining a tough avenue, opening a franchise may be a pipe dream for many Hispanics.

Rob Bond, president of World Franchising Network and founder of The National Minority Franchising Initiative, a program designed to encourage minority ownership of franchises, says "it's clearly money. Some of it may be a language barrier or lack of professional experience, but money is the key determinant" in why there are few Hispanic-owned franchises.

"The franchising communities would love to have more Hispanic franchisees if they're qualified and if they can foot the bill. That may be the disconnect. Someone has got to have some experience and some money to be attractive to a franchisor," Bond says.

It's another reason why Torres and other observers say the need for franchise awareness among the group is so great.

"Franchising is not only fast food and retail," Torres says. "Fast food franchises cost hundreds of thousands of dollars. At a senior care or tutoring franchise, the investments are lower. There are a lot of franchises at $100,000 and below."

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

>To submit a news tip, email: tips@thestreet.com.

RELATED STORIES:



Follow TheStreet on Twitter and become a fan on Facebook.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

If you liked this article you might like

Wells Fargo, GM, Marathon and Their Investors Seen as GOP Tax Plan Winners

Wells Fargo, GM, Marathon and Their Investors Seen as GOP Tax Plan Winners

Ford, Bitcoin and Everything Else You Should Know Before Wednesday's Open

Ford, Bitcoin and Everything Else You Should Know Before Wednesday's Open

Bitcoin, Ford, Google, Boeing - 5 Things You Must Know Before the Market Opens

Bitcoin, Ford, Google, Boeing - 5 Things You Must Know Before the Market Opens

Intermediate Trade: H&R Block

Intermediate Trade: H&R Block

Director Compensation Climbs as Companies Pay for Experience

Director Compensation Climbs as Companies Pay for Experience