Franchises in Mexico thrive despite crime and tariffs

Mexico City — Mexico’s franchise sector is projected to grow 6% this year, outpacing the national economy by five times, but businesses face mounting challenges from rising operational costs, tariffs, and insecurity.

Despite the strong growth, companies operating under the franchise model are grappling with increased expenses for supplies and imports, alongside security issues that are driving some investments abroad.

Wings Army, a Mexican fast-food chain, plans to expand into the U.S. market with over 30 locations in California and two in Madrid, Spain, where it will introduce a “Mexican cantina” concept. The chain currently has 250 outlets in Mexico and will open about 18 more this year due to the World Cup. However, it has closed six locations in the country due to insecurity.

“I have to decide whether to invest the money here or take it to Spain or the U.S. or go somewhere safer. That’s what’s happening. Money is going to other places because of this insecurity issue,” said Martín Santaella, founder and CEO of Wings Army.

Santaella told El Financiero that he often pays extortion demands to keep his business running, but sometimes has no choice but to shut down. “I myself closed a business in Playa del Carmen. You paid a monthly fee, and they raised it. I said, ‘I’m not going to work for them.’ Honestly, I prefer to operate where it’s safe,” he recounted.

Another challenge for Wings Army is poorly run franchise locations, forcing the company to buy them back. “Many units are badly operated, so we’re buying them. We give them the chance to fix their units, and after that, if they don’t fix them or don’t run them properly, we try to buy them,” Santaella said.

According to Priscila Adalid-Melgar, an associate at the law firm Pérez-Llorca specializing in franchises and licensing, a common problem between franchisors and franchisees involves changes in food quality or failure to follow established guidelines, which damages the brand’s reputation. “However, the sector has an alternative dispute resolution method in its contracts, which requires parties to seek a solution before arbitration or litigation,” she noted.

Cut as a Bug, a leading Mexican brand specializing in bows and accessories for girls, is another example of a franchise navigating operational hurdles. It has seven locations in Mexico and two in the U.S. The franchise has identified growing demand for brands with identity, purpose, and emotional design, especially in international children’s and family markets. However, tariff wars have slowed expansion to other countries.

“Tariffs have mainly impacted cost structure and financial planning, forcing us to be more strategic in market selection and import schemes,” Cut as a Bug told El Financiero. In response, the company has adjusted prices, renegotiated with suppliers, and evaluated alternatives like local assembly or mixed sourcing to protect margins without fully passing the impact to consumers.

The brand’s main challenges have included optimizing the supply chain, rising costs of raw materials and transportation, and maintaining consistent quality standards across different markets. “This has led us to strengthen internal processes, diversify suppliers, prioritize regional production when viable, and design more efficient collections without losing the brand’s DNA,” the company explained.

EPS automotriz, another firm with international presence, operates over 65 mechanical workshops in 20 Mexican states and in seven countries, including the U.S., Costa Rica, Chile, Ecuador, Spain, and Portugal, with plans to expand to Saudi Arabia, Belize, and Honduras. One major challenge has been ensuring operational consistency across countries while maintaining service standards, response times, and customer experience.

“In logistics, the most relevant challenge has been the timely availability of parts and specialized equipment, which has led us to develop regional supplier networks and more efficient inventory schemes,” the company said.

Regarding costs, EPS automotriz told El Financiero that increases in transportation, energy, and raw materials have required constant process optimization, economies of scale in purchases, and more robust financial planning to protect each franchise’s profitability. “Tariffs have mainly impacted the cost of equipment, diagnostic technology, and certain imported parts. This has led us to diversify our supply sources, prioritize local and regional suppliers, and redesign some supply chains,” the firm warned.