Middle East Franchising: the New Horizon
By L ama Jabre
Senior Social Media Editor
ME Business correspodent Australia
Although it is fairly rare to see Arab franchises or brands in other Arab countries, many global brands have successfully gained a foothold in our region. In this article we look at the ins and outs of franchising, and why the Middle East has become such a popular destination for potential franchisors.
The Middle East has become a global hotspot for business franchising. Franchising is a common solution for many companies wishing to expand their brand without investing an extensive amount of their own capital. Many brands based in areas like the United States, Canada, United Kingdom, France and Germany to name a few have franchised numerous units in their own country. However, more and more are finding the Middle East›s economic climate an interesting proposition.
The majority of franchising opportunities in the Middle East are in food, hospitality, beverage and retail operations. Experts at Global Intelligence Alliance recently observed that the gross domestic product for the Middle East and North Africa (MENA) region was around $1.4 trillion.
There is also a growing population of 315 million people in the area. These are pretty good reasons to choose this area of the world for new franchising ventures.
Franchising Considerations in the Middle East
One of the attractive things about franchising in the Middle East is the affluent customer base that resides there. Everyone knows the flow of oil money in the Middle East region is substantial. However, there are certain considerations that prospective franchisors should address prior to expansion into this region. Although the Middle East displays a business friendly environment there are specific regulations and guidelines that must be confronted.
The franchisor must first locate a franchisee willing to invest in their franchise. The rules on foreign ownership are quite strict so it is imperative that the franchisor finds a credible franchisee who can be trusted with the brand. The franchisor must also look closely at the area of cultural sensitivities.
They must make sure their brand will support expansion. Most importantly, they must be able to ensure their franchisee will comply with existing regulations.
The Gulf Cooperation Council (GCC)
The Gulf Cooperation Council or GCC is the regulating authority that oversees franchising operations in some parts of the Middle East.
There are six Middle Eastern countries that make up the GCC namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE.
If a franchisee is going to attempt to expand their brand through franchising in these Middle Eastern countries they will have to go through the GCC. Although the fees for registering trademarks through the GCC are some of the most expensive on the globe, franchisors are still lining up to do so.
It should be noted that other Middle Eastern countries like Turkey, Iraq, Jordan and Egypt to name a few, have their own regulating authorities for franchising opportunities.
Recent Middle East Franchisees
Over the last year numerous brands have initiated franchising operations into the region. The numbers continue to grow and it would be impossible to list every new franchisee in this article.
However, we have created a list of some of the most recent so as to provide you with a snapshot of what is happening in the region:
BurgerFuel – BurgerFuel is based out of New Zealand. They are in the process of opening up 20 units under a franchising agreement with Wadi Degla in Saudi Arabia, Dubai, Abu Dhabi and Iraq.
CaliBurger – CaliBurger is planning to franchise 25 units in Saudi Arabia.
Crêpe Delicious – Crêpe Delicious is the biggest mall-based crepe business in Canada and they are expanding to Kuwait.
The Chickery – The Chickery is based out of Toronto, Canada and is franchising 20 units in Qatar and the UAE.
Big Apple Bagels – BAB Systems Inc signed a franchising agreement with Dubai based Mont Royal General Trading LLC to open stores all over the Middle East.
Yum! Brands – The large American franchisor recently established their first Pizza Hut franchisee in Iraq with Al Kout Food Company.
IKEA – IKEA recently opened their first home furnishings franchise in Jordan. It is believed that they received 100,000 customers the very first week.
Subway – The American sandwich giant has over 500 units in the Middle East and North Africa.
Zine – Zine is a digital, website design company based out of the United Kingdom. They recently franchised into Dubai.
Fucom – Fucom is the French-based retailer that recently opened their second
Géant Hypermarket in Abu Dhabi. They plan to open 30 more units in the UAE.
Waitrose – Waitrose is a United Kingdom-based retail business with six units in the UAE. They employ over 500 people in the area.
Thomas Cook – Thomas Cook (or TCI) is a global tour operator. They have franchised into the Dubai market
Superdry – Superdry is a United Kingdom-based fashion brand that recently established a franchise in Turkey.
The list of franchisees venturing into the Middle East seems to be never ending. Those listed above are a small percentage of the overall brands making the move into this region. The Middle East is a beautiful region and the people are warm and friendly. However, this alone is not enticing enough to cause franchisors to look for franchisees in the Middle East – there are other motives that may be driving these brands to expand into our region.
Motives for Middle East Franchising
Businesses throughout the world look to the Middle East as an opportunity for franchising for different reasons. Various factors and conditions drive them to this decision. Many businesses franchise in their own country until they feel like they have effectively covered the market and then search for others areas to expand into, whereas other businesses can’t seem to expand within their home market because of competition, the economy or high overheads.
Many American businesses are looking to the Middle East because of the new insurance laws or because they feel like a hike in the minimum wage would drastically cut into their profit margin. Similar problems that affect the business’ bottom line in various countries inspire them to seek out franchise opportunities in the Middle East. Some businesses must confront slow growth and tight capital issues as well. These are interior motives, but there are exterior motives as well.
Business brands from around the world are drawn to the Middle East for franchising options because of the numerous tax-free zones, increasing numbers of foreign workers and the elite jet setters that love to invest in successful business models. Franchisees in the Middle East have to pay large amounts of money upfront to get a franchise, as well as give up a certain percentage of their sales to the franchisor. However, if they choose the right business model the rewards can be fantastic.
Middle Eastern countries, including those in the GCC, encourage international franchising because it supports the local economy. New franchisees provide employment opportunities to many and provide some international appeal to growing city centres. Franchising can be a beneficial venture for everyone involved as long as everyone does their homework and takes all variables into consideration – opportunities in the region will only improve in the near future for those willing to accept the challenge.