Franchising is a marketing concept which may be adopted by an organisation as a business expansion strategy. A franchise is a joint venture between the franchisor and the franchisee. Where franchising is implemented, the franchisor gives a license for its know-how, use of its business model, procedures, intellectual property, brand, right to sell its branded products and services, to the franchisee. In turn, the franchisee pays a fee and agrees to comply with the terms and conditions set by the franchisor, according to the franchise agreement. This method can be adopted when the franchisor wants to increase its market share or its geographical reach at a much lower cost. This method is commonly used to start a business in highly competitive industries like fast food.
Investing in a popular franchise requires a huge amount of capital. Franchises of popular food outlets like McDonald’s, Wendy’s, Dunkin Donuts, etc cost anywhere around $500k to $2.2 million. Recovering the investment cost after starting the franchise also takes quite some time. Additionally, the franchisee has to pay royalty fees to the franchisor, maintain the upkeep of his outlet, pay the staff, etc. All of this makes it harder to break even sooner. But eventually, the franchisee starts generating profits and from there on it is smooth sailing. Instead, if you buy stocks of the franchisee, it is more profitable as an investor.
Arcos Dorados Holdings Inc. is the world’s largest independent McDonald’s franchisee and the largest quick-service restaurant chain in Latin America and the Caribbean. The company has the exclusive right to own, operate and franchise McDonald’s stores in 20 countries and territories in those regions including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the United States Virgin Islands of St. Croix and St. Thomas, and Venezuela. As of March 27, 2019, the company operated or franchised approximately 2,200 McDonald’s-branded restaurants in Latin America. Arcos Dorados Holdings Inc. was founded in 2007 and is based in Montevideo, Uruguay.
Stocks of Arcos Dorados Holdings Inc. are listed on the New York Stock Exchange (NYSE) under the ticker ‘ARCO’. The NYSE: ARCO stock at https://www.webull.com/quote/nyse-arco is currently traded for $4.85. The company has a market cap of $1 billion. Analysts have given this stock a ‘buy’ rating expecting a potential upside by 5.2% at $5.41. NYSE: ARCO has reported an EPS of -$0.44 and paid dividend of $0.03 in the first quarter of 2020. Arcos Dorados’ key competitors are Papa John’s Int’l, Cracker Barrel Old Country Store, Jack in the box, Cheesecake Factory, etc. You can find a stock app with trading options for dummies.
Disclaimer: The analysis information is for reference only and does not constitute an investment recommendation.