Latin American retailers expanding globally - KidZania

Part 1

By Jorge Lizan

Managing Director of Lizan Retail Advisors (LRA)

Today, Latin America is one of the regions of the world that international retailers have chosen as one of its main destinations. What's more, the A.T. Kearney’s GRDI ranking has several Latin American countries among the most attractive in the world for retail expansion. But something few people have reported is the fact that Latin America is also the source of innovative retail concepts, which are expanding internationally.

These brands have not only decided to expand into other countries in the region or opening a store in Miami, but they have also opted out of our continent and some of them also have become leaders in their specific sector.

There are some examples worth mentioning, just to mention few: Kidzania, the world's leading theme park for children and has a presence in 16 countries of 3 continents, they just opened its latest park in the famous Westfield London shopping mall. Cinépolis, the fourth largest cinema chain in the world and the largest non U.S. chain with presence in most of Latin America, the US, India and recently closed an operation to buy Spain’s Yelmo. Juan Valdez Café, the retail brand owned by the National Federation of Coffee Growers of Colombia, with 300 units in 13 countries they have presence in Latin America, the US, Europe and the Middle East. Pollo Campero, Guatemala’s fried chicken brand founded by Dionisio Gutierrez, currently has about 300 stores in Latin America, Europe, Middle East, Asia and about 50 in the United States. Likewise, there are some Latin American brands that have become almost cult brands in international markets, that is the case of the Brazilian sandals brand Havaianas, Argentina’s polo inspired La Martina and Brazil’s plastic shoes brand Melissa. Likewise, other Latin American concepts have been successful in global markets such as Peru’s Tanta, also from Peru Michèlle Belau who just opened a store in Dubai, Argentina’s Freddo which at the end of last year opened two stores in the United States, Brazil’s O'Boticario and Colombia’s Totto who has 510 outlets in 35 countries. 

We recently had the opportunity to talk with some of the executives who have been instrumental to take these brands to shopping malls in every corner of the World, and this is what they told us: 

Xavier Lopez Ancona is President and Founder of Kidzania based in Mexico City. KidZania provides children and their parents a safe, unique, and very realistic educational environment that allows kids between the ages of four to twelve to do what comes naturally to them: role-playing by mimicking traditionally adult activities. As in the real world, children perform "jobs" and are either paid for their work (as a fireman, doctor, police officer, journalist, shopkeeper, etc.) or pay to shop or to be entertained. The indoor theme park is a city built to scale for children, complete with buildings, paved streets, vehicles, a functioning economy, and recognizable destinations in the form of "establishments" sponsored and branded by leading multi-national and local brands.

Xavier, could you tell us:

In which countries KidZania currently operates?

Today, there are 19 KidZania parks opened in 16 countries in the World -3 in Mexico; Koshien and Tokyo in Japan; Jakarta in Indonesia; Lisbon, Portugal; Dubai, United Arab Emirates; Seoul, South Korea; Kuala Lumpur, Malaysia; Santiago, Chile; Bangkok, Thailand; Kuwait, Kuwait; Mumbai, India; Cairo, Egypt; Istanbul in Turkey; Jeddah, Saudi Arabia; S?o Paulo, Brazil; and London, UK-, and 7 more in various stages of development in cities like Manila, Moscow, Singapore, Busan, New Delhi, Doha and Johannesburg. Manila KidZania will become the 20th KidZania park when officially opens July 28th, 2015.

What markets are your aiming to conquer?

We are in negotiations with a large group in China who are interested in franchise licenses for China, Hong Kong and Taiwan. Additionally, we are exploring opportunities in France, Canada, New Zealand, Australia, Germany and the Benelux region (Belgium, Netherlands and Luxembourg).

How did the company started?

 KidZania is one of those ideas that evolve on their own. Everyone thinks that people will one day wake up with a great idea, a focus of unexpected turns. In the case of KidZania, it was not. Almost 18 years ago, a close friend of mine, which imported US toy came with the idea of ??doing a similar small nursery to one he had seen in North Carolina, where they had a supermarket and a children’s hospital. They were not more than 100m2 or 200m2. At that time I was in charge of the area of ??venture capital at GE Capital and the idea did not call my attention. But my friend was so insistent, so every time we talked about it the idea was evolving. That was how he planned to make "The City of Children" in a much larger space (4,500m2 of space on two levels, with a total construction of almost 8,000m2), we invited brands to participate, did activities for children the closest to reality as possible ... at daytime I worked at GE Capital and at night I kept awake working at the business plan for the "City of Children". After about 1 year of doing it, I took a flight to London to go and see who was my boss at GE and ask him to give me the opportunity to take a sabbatical for the project. My request was that if the project did not work after a year, I could return to my same job at GE Capital, with my same team. My boss agreed but did not give me a year, but only 6 months. I never returned to GE. After some years, I bought my friend's participation in the company, and invited my brother and another friend to join the company. Since then, we remain three shareholders in the company. With the growth and international expansion we had to find another name for our brand, because although "The City of Children" explains our concept perfectly, does not say much in Japan or Saudi ... We had to find an international name and was well as "KidZania" which means "Land of cool children" it emerged:

Kid - comes from the German Kindergarten (no English!) Which means children, Ania - comes from Latin and means land or place, (Britain, Espania, etc.), Z we take the Anglo-Saxon word Zany, which means crazy, amazing, cool

What is the key factor that has made the brand so successful globally?

The concept of KidZania is based on role-play, to play at being adults. This is the oldest form of gambling known and is fully universal and timeless. All children in Japan, Saudi Arabia, Mexico, Brazil, Europe ... everywhere playing with a doll to be a mom or carts to be pilots ... or be police officers or doctors. What KidZania did it was to take this idea and taking it a step ahead. To do this, we build a whole city to the scale of children, with different areas and all the elements that enable children to role-play very in a very sophisticated way and the closest to reality as possible.

How does your franchise system work?

It is a traditional model: Select only one licensee / franchisee by country or territory. Payment of the franchise consists of the following fees:

Territorial Fee: USD $ 650,000.00 (payable once only to have the exclusive use of our brand in the country acquired for a period of 20 years). Park fee: $ 600,000.00 USD (payable once for each city KidZania developed in the country that has the license There are countries that only market size can have a KidZania park However, there are markets such as Japan,.. Mexico, China, USA, India and Brazil that accommodate two or more parks KidZania. Royalties of 5% of total sales (including sales of tickets, food and drinks, merchandising, photography, special events, school groups and sponsorship revenue of brands involved in the project) 

KidZania is landing in the United States, what are the challenges and opportunities for the expansion of the company in this market?

In Mexico, all KidZania centers are fully developed and operated by us. Outside of Mexico and outside the United States, growth of KidZania is through a franchise scheme, in which we highlight a single franchisee by country or territory; we charge a license fee, plus 5% royalty. In terms of entertainment, the US is the biggest market in the world: over 50% of all tickets sold in the United States -Tickets theater, concerts and live shows, amusement parks, downloading apps and music ... - so to KidZania also it represents a very attractive market. On the other hand, the American consumer has seen it all, so it's a very sophisticated and demanding consumer. In addition, entrepreneurially, America is highly competitive and there is only one chance to get it right. With our current scheme, there are 12 cities in the American Union with features to accommodate one of our parks. In two of these cities-Los Angeles and New York, we could open up two parks, bringing the total number of KidZania cities in the United States could reach 14. Each of these cities would average cost of development and construction between 30 and 35 million. The investment for the 14 possible, is quite large. For all these reasons, we decided not to franchise in the United States nor go ourselves, but rather through a partnership or joint venture. For over two years we selected Allen & Company as our investment banker, who are helping us to find the right partner for us in America. In this process we have interviewed more than 100 companies and / or interested groups with which we could do society. Of those 100, we select a year and a half that we thought would be the best option for us. It was a year and a half long negotiations in the end the conditions were totally different from the initial and convenirnos not decided desist with that group. We are now resuming discussions with the companies that had previously expressed interest in addition to remain open to new options.

Looking ahead, how do you see KidZania in 2025?

Our mission is to KidZania to serve the largest possible number of children worldwide. For that, we are doing through our traditional parks (like the 19 we already have open today) in (hence the strong growth in Asia and the Middle East in particular) markets where there are more children. By then we hope to have begun operations in China and the US, which are the two most important markets that we still have to attack. Parallel to the growth KidZania parks, we are working to find ways to monetize virtual KidZania in which we can extend the experience in the virtual world of the park and back. This would allow us to reach more children in small cities or remote areas. Finally, we are evaluating several proposals to bring KidZania to other means, such as educational toys, TV shows, comics, animated series and movies.

In one sentence tell me about yourself:

I'm Mexican and I love Mexico. If KidZania were to be remembered in the future, I would like it because it is an idea of ??Mexicans born in Mexico and proudly bears the name of Mexico to everyone.

Note: This article was originally published in Spanish.

Jorge Lizan is Managing Director of Lizan Retail Advisors (LRA), an advisory firm specialized in the Global Retail Real Estate Industry. LRA helps retailers, developers and investors with international business development, through Market Strategy, Franchising, Market Planning, Tenant Representation and Advisory services. Before founding LRA, Jorge served as the Vice President of Business Development of the International Council of Shopping Center (ICSC).

Copyright ? 2015 Lizan Retail Advisors (LRA), All rights reserved.