Despite living in Spain for more than three decades, Lynne Friedman still longs for the marshmallows, Grape-Nuts, and cranberry sauce she recalls from her childhood in Philadelphia. To satisfy those cravings, the 55-year-old English teacher often drops in at Taste of America, a Stars-and-Stripes-bedecked shop on Madrid’s Calle Serrano that offers graham crackers, pancake mix, chocolate chips, and more than 2,000 other products familiar to anyone who has cruised the aisles of a U.S. supermarket. “I come here to get the ingredients I need to make recipes for my family and friends that show people what my country is about,” Friedman says as she tosses a jar of chili powder into her shopping basket.
Founded 16 years ago, Taste of America has long catered to expats such as Friedman. Now, the store is betting that a broader segment of Spanish society will thrill to the delights of Betty Crocker cake mixes, Kraft (KFT) macaroni and cheese, and French’s Mustard. Taste of America today has three stores in Madrid, and in April opened a franchised location in Barcelona. By the end of next year, co-founder Alicia Vañó expects to have nine franchises across Spain and within four years aims for 50. “We felt we needed bigger volumes to keep prices low,” Vañó says. “We can do that through franchises.”
This may not seem like a good time to be making big bets on the Spanish economy, which has the European Union’s highest unemployment rate, 22.6 percent. Yet Vañó and her business partner, Arkansas native Dana Knowles, say the time is right for expansion. Taste of America saw sales of €3 million ($4.1 million) in 2010, enjoying profit margins above 10 percent; this year Knowles expects €3.5 million. She says the franchises will prosper because the American pedigree of the products has broad appeal in Spain even as consumers feel the pinch of austerity. “This is a time of opportunity because people are looking for good products, and we provide affordable luxury,” says Knowles, who moved to Spain 21 years ago after marrying a Spaniard she met in college.
Vañó and Knowles have a growing business selling Taste of America fare through other retailers as well. Since 2003, the two have provided goods such as organic soy nuts and tortilla chips to Starbucks (SBUX) coffee shops, El Corte Inglés department stores, and other supermarkets and shops—a total of more than 1,000 outlets in Spain and Portugal. Those sales have grown by 50 percent this year and now make up half the company’s revenues, Knowles says.
Because of customs duties and shipping, products in Taste of America stores are more expensive than in most U.S. supermarkets. Pepperidge Farm Sausalito cookies cost €2.99 ($4.10), vs. $2.99 in the U.S. For bulkier items such as breakfast cereal, the markup can be much higher. A 16 oz. box of Cheerios is €7.95 at Taste of America, vs. $4 to $5 in the U.S. Despite the premium, “we’re still very competitive,” Knowles says, comparing her prices to those for Spanish specialities in New York.
Ana Aubary, a former pharmacist, has spent €60,000 on the Taste of America franchise she aims to open this fall in Valencia on the Mediterranean coast. She and her husband got interested in the idea after traveling in the U.S. Though her family questioned the wisdom of starting a business in such a tough economy, “we put all our savings into this project,” says Aubary. “We like the philosophy, lifestyle, and food in the U.S., and it’s becoming very popular here.”
The biggest hurdle for Vañó and Knowles has been coping with health and regulatory issues. The partners had to hire a biologist to translate ingredient lists and advise them on Spanish and European food safety rules. Spanish health authorities nixed one flavor of salad dressing because it had too much coloring, and an early shipment of cranberry sauce was rejected as too acidic. “It’s very complicated, and you need someone who knows [the rules] well,” Knowles says. “It’s just crazy.”