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Made to Order: Bob's stages a comeback in Brazil
Latin CEO / January-February 2002

By Larry Luxner

If fast-food juggernaut McDonald's has any competition at all in Brazil, it isn't coming from global rivals Burger King, Wendy's or Pizza Hut. Instead the main culprit may be Bob's.

The home-grown hamburger chain has for decades been a fixture on street corners throughout Rio de Janeiro and São Paulo, but after years of decline Bob's is attempting a comeback.

Spearheading Bob's revival is Peter van Voorst Vader, president and CEO of Brazil Fast Food Corp., which have owned the chain for the past five years. "Basically, we've concentrated on our strong points, with all our marketing based on better taste and variety" rather than speed of service, he says. "We're slower than McDonald's because we cook to order."

Launched in 1952 by Wimbledon tennis champion Robert "Bob" Falkenburg, Bob's opened its first hot dog, hamburger and milkshake joint on Rua Domingos Ferreira, in the then up-and-coming Rio de Janeiro neighborhood of Copacabana. By the late 1950s, the trendy restaurant had become a favorite hangout of well-known American diplomat Harry Stone, jazz musician Booker Pittman and various Hollywood celebrities.

"At that time, the main thing for the upper classes was to go to the Roxy Cinema then to Bob's for dinner," says Vader, whose Rio office is lined with black-and-white photographs of that bygone era.

Bob's prospered in subsequent years, adding six more outlets, before Falkenburg returned to the United States in 1974 and sold the company to Libby do Brasil, which was later acquired by Swiss-owned Nestle. By 1978 the chain had expanded to São Paulo. But in 1987 Nestle decided to get out of the restaurant business, and sold Bob's to Vendex, a Dutch multinational that formerly owned retail outlets such as Dillard's and Sears in Brazil as well as bookseller Barnes & Noble in the United States.

By then, the corporate ownership shuffle had begun to take a toll on Bob's.

"All those comings and goings prevented Bob's from having a consistent policy," said Vader. "When we got the company, its image was totally discredited. It was getting old, stuffy, dirty, and badly run. Teenagers were boycotting Bob's -- especially the girls. We cleaned it up and made it fashionable by painting the stores and introducing gimmicky ads. We've basically had to gain the market back."

Vader, 47, spent seven years as marketing director of petroleum company Shell do Brasil. During that time, he personally bought a Bob's franchise near Copacabana Beach. By 1996, after leaving Shell, Vader and his business partner, Omar Carneiro da Cunha ñ the former president of Shell's Brazilian operations ñ decided to buy the entire Bob's chain from Vendex with US$21 million.

"At that time, it looked like a good price. Now it looks like we paid way too much," says Vader. "The company today is probably worth about US$25 million -- maybe US$35 million.... But if you had to build it from scratch, it would cost over US$100 million."

At last count, Bob's had 267 points of sale in Brazil ñ 198 of them franchised and 69 owned by Brazil Fast Food Corp ñ making them the No. 2 fast-food chain in the nation. Slightly more than half of its outlets are located in the metropolitan Rio de Janeiro area, though Vader says the company is trying to boost the number of Bobís restaurants in São Paulo and several key Brazilian states such as Pernambuco, Santa Catarina, Pará, Mato Grosso and Bahia.

"A franchisee pays us an initial fee of US$30,000," says Vader, who gets 45 to 60 inquiries a month from potential franchisees. "We approve the location and the building, and we supply the training. He pays us 4 percent royalties in the first two years and 5 percent after that. He also contributes 4 percent to the marketing fund."

Vader personally owns 4 percent of Brazil Fast Food Corp. and his partner Carneiro da Cunha owns another 4 percent. The remaining shares of the company are publicly traded, with the largest chunks owned by AIG Latin American Equity Partners and a group of investors called Big Burger, which each own 12.5 percent.

In 1996, Bob's became the first Brazilian firm to list its shares on the Nasdaq stock exchange and in August 2000 it became the first fast-food company listed on Brazilís Bovespa stock exchange.

Kicking off an expansion program that same month, Bob's announced an agreement with Brazil's No. 1 gas station chain, Petrobrás Distribuidora, to open Bob's stores at 30 Petrobrás gas stations throughout Brazil. Five have opened, so far, in the Rio de Janeiro area and Bob's has since then opened similar kiosks at Shell, Texaco and Ipiranga gas stations.

When it comes to burgers, Bob's can claim the No. 2 title in Brazil, but with only 12 percent of that market segment the company is far behind McDonald's and its 88 percent share of the burger business. And despite having a tiny presence in the nation players such as Pizza Hut and Domino's are making inroads, while Habib's -- a chain that serves Middle Eastern food and has fewer outlets than Bob's but larger revenues -- can't be considered a rival.

"The competition for Bob's is McDonald's, because both have similar menus. We're not really competition," says Habib's founder Alberto Saraíva, who now has 190 full-size, sit-down restaurants throughout Brazil and seven in Mexico.

Saraíva disputes Vader's claim that the average Bob's outlet generates monthly revenues of 100,000 reais, saying the true number is closer to 70,000 reais -- which in any event is only a fraction of the 200,000 reais a month generated by a typical Habib's outlet. "I know of some Bob's restaurants that sell as little as 30,000 or 40,000 reais a month," he says. "It's more difficult for them to recoup their investments because they sell so little."

Whatever the true figure, Marcel Fleischmann, president of McDonald's Brasil -- which has more than 1,000 points of sale throughout Brazil -- doesn't appear to be too worried about the competition.

"Bob's was a nice concept back in the late 50s and early 60s. After that, they didn't invest enough," he said. "They are always looking for investors."

Vader concedes that things have been tough for Bob's lately. Net operating revenues in 2001 were approximately 180 million reais -- up 20 percent from the year prior -- but the company continues to operate at a loss.

"We thought we'd break even this year, but the whole world went against us," said Vader, citing Brazil's energy crisis, continuing difficulties in Argentina and the Sept. 11 terrorist attacks as the chief culprits.

Nevertheless, Bob's employs close to 6,000 people and gives local food producers lots of business. It buys hamburger patties and chicken from Sadia, ice cream from Caramba, and ice cream toppings from Smucker's. Polenghi supplies cheese, and Coca-Cola provides soft drinks. Since 1998, Bob's has conducted joint marketing campaigns with Shell, department-store retailer Lojas Americanas and supermarket chain Sendas, offering special premiums to repeat customers through their "Smart Card" program.

More recently, Vader launched a promotion that enables Rio de Janeiro customers to place delivery orders via the Internet. Vader says that going online "will help us achieve greater administrative efficiency by connecting information systems for participating stores with our company's central system. In addition, because participating stores are now able to process debit cards and credit checks online, the program reduces our exposure to bad checks."

In late November, Bob's officially went international, opening its first restaurant in Lisbon. Vader's partner there, Carlos Baisch, is the former director of franchising for Bob's. Vader says soon there will be 30 outlets throughout Portugal.

"It's the same language, so you don't have to redo the menus [and] you can also use the same commercials," says the restaurateur, adding that he's talking to possible franchise partners in Argentina, Uruguay, Paraguay and the US "where the big Brazilian communities are." But Vader says his focus remains the domestic market, particularly metropolitan São Paulo, which is home to more than 20 million people, and hundreds of McDonaldís restuarants -- but only 30 Bob's outlets.

"We have so much room to grow," says the transplanted Dutchman. "We believe we can have 500 restaurants just in Brazil over the next five years, so we don't see the need to focus much on other countries."

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