Middle East Fights Back

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Domestic brands in the Arabian Gulf have become worthy competitors to overseas franchisors, says Sanjay Duggal

It wasn’t too long ago that starry-eyed investors from the Arabian Gulf were singularly obsessed with franchised brands from abroad. Quality domestic franchises were few and far between, and were largely seen as inferior to their predominantly western counterparts, who took full advantage of the resulting seller’s market.

All that has changed quite dramatically. Today, local and expatriate entrepreneurs are churning out food and retail concepts that are original, regionally relevant and even audacious. Many are on a roll and have sold multiple franchises within the UAE, GCC and beyond.

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As a result, with the exception of truly global top tier franchises (most of which have already been taken), franchisors aspiring to operate in this part of the world increasingly face a serious challenge from local brands. The inexorable shift in the Arabian Gulf franchising landscape can be attributed to the following:

1. A distinctly improved comprehension of international franchising

Thanks to major public and private sector initiatives, people in the Gulf are more informed about franchising than at any other time in the past. Franchising events, workshops and seminars are widely accessible and facilitate informed decision making, especially with regard to domestic franchise options.

2. Better understanding of the franchising equation

Franchisor’s proposition = comprehensive operating system + brand equity (in operating territory). Without local recognition, a brand’s renown in its country of origin or other territories is largely irrelevant. Investors have now understood and internalized this.

3. High profile overseas failures:

Several big franchised brands have visibly, and in some cases, quite spectacularly failed in the region – shuttered stores, unpaid salaries, trail of creditors and all. These high-profile failures have conspicuously underscored the fallibility of the international franchise route.

4. Changing customer demographics:

A high percentage of the regional population is that of Millennials, a demographic notorious for rejecting the status quo. Many international franchisors have struggled to accommodate this new reality while remaining financially viable in overseas markets.

5. Inability of overseas franchisors to serve prospective single unit franchisees.

To overcome the challenge of distance and capital needs, big name franchising has largely been a corporate domain in the Gulf. Furthermore, franchisors favour area development agreements that inherently disallow sub franchising. This leaves individual investors with slim pickings and creates a gap that local brands are happy to fill.

6. Greater receptivity to new ideas

With the changing times, customers of the region are far more open to embracing new ideas and concepts. And their perception of ‘good’ emanates from brand experience rather than preconceived notions about its origin.

7. Differences of time and geography

With a collective Friday-Saturday-Sunday weekend between East and West, and major time differences to boot, communication gaps compromise the franchisee’s business in multiple ways. Field support severely restricted by distance only exacerbates the situation. Consequently, many investors are insisting on nothing less than a full-time local presence of franchisor personnel – something that local franchisors bring to the table by default.

8. More options for investors

Besides buying a home-grown franchise headquartered in the region, the increased availability of quality consulting services has made development of one’s own original concept a very feasible option. Hence, in a way, overseas franchisors with limited local recognition are also competing with businesses that haven’t even started yet. As the region embraces the democratization of franchising, the playing field will keep levelling out and merit, not origins will continue to have the bigger say. And that can only be good news for any franchisor worth his salt.

Sanjay Duggal
Sanjay Duggal is Vice President of Business Development for the Dubai based Middle East & North Africa Franchise Association (MENAFA), a membership organization of franchisors, franchisees, and service providers. As the only formal organization serving the $30 billion franchise sector growing at a rate of 27% annually in the region, MENAFA is a platform that actively promotes the cause of franchising from both sides of the franchising divide. www.menafa.com