Franchising in the Middle East
The UAE has been hugely successful in positioning itself as an international brand destination, with the result that it stands toe to toe with the world’s most iconic cities. Dubai has become a brand name for F&B, in particular, around the globe. Abdul Ka
Having scaled the heights of prestige over the decades, the UAE is now home to one of the largest and most vibrant commercial franchise markets in the MENA region, with more than USD 18 billion invested in the sector in 2018. The industry’s popularity follows a period of record growth in the country, as highlighted by the latest research findings issued at the end of 2017 by the Middle East and North Africa Franchise Association (MENAFA). With a record growth rate of more than 30 percent, the total trade rights of the UAE exceed USD 18 billion (AED 66.25 billion) out of a regional total of USD 30 billion, according to the MENAFA’S data.
These trends are reflected regionally, in terms of attitude, when the activity of the regional expos is examined in relation to franchise development over the past year. In 2018 the Saudi Franchise Expo, Oman Franchise Show, World Franchise Expo, Global Franchise Market and International Franchise Exhibition, along with many others, generated high audience attendance, confirming rising levels of both regional interest and demand.
UAE’S homegrown and developed
Aside from the highlighted annual figures, the franchise sector in the UAE has exhibited several trends over the previous period that reflect the current climate and sentiments of the overall sector. In 2018, we witnessed a growing number of homegrown concepts developed by hospitality and consultancy firms, largely due to the many proposed benefits of aligning with such companies. These perks included franchise packages set up and ready for franchising, with complete and appropriate franchising kits, operation manuals and pricing strategies in place.
It should be noted that while many international franchises are performing well following their launch in Dubai, in some instances, brands are achieving cult status domestically and then finding even greater success when exported from the UAE. Zuma, which serves modern Japanese cuisine, is one such example. Although originally conceived and launched in London, the concept was more successful in its Dubai International Finance Centre (DIFC) branch in the emirate and has since gone on to become a globally revered brand.
Investment trends
In terms of preferred investment trends, it was observed that cafes, specialty coffee shops and ‘fast’ casual concepts are beginning to take a bigger market share in the regional franchising sector, especially among young investors in the region. This isn’t surprising from an analytical standpoint, given that franchising such ventures is far more attractive in terms of collateral/risk assessment and, also, coffee as a beverage is extremely popular in the country. The UAE market’s affinity with the ‘next great coffeedrinking experience’ can be seen in the surge of both internationally recognized brand names in the region, such as Starbucks, and independent concepts like % Arabica, both of which have experienced positive growth in recent years.
From our own experience, we had the opportunity to attend the majority of the exhibitions mentioned previously and were able to gather firsthand feedback on the franchising market, with our diversified portfolio allowing us to contact a wide pool of attendees. The predominant response among the young investors’ section was that they were seeking small and affordable opportunities for franchising.
This relates directly to the subtle change in the investor demographic, which has undergone a shift in recent years, both in terms of age and outlook. As the UAE has become a more solidified global hub, there has been a reciprocal exchange of exposure from both the domestic population and international franchise brands. In today’s franchise market, the young UAE investor is likely to be far more engaged and savvy than in the past, having embraced a higher level of creativity and innovation as a direct result of time spent traveling or studying abroad. These experiences provide exposure to foreign concepts which the new wave of investors will often bring back home. The UAE market is also somewhat competitive in terms of franchises, despite its comparatively small overall population. As a microcosm, therefore, the country has enabled observers to analyze which franchises have proved to be a hit or miss in the market. Assessments are now made on a combination of efficient costing and affordability versus a franchise’s appeal to the overall market, which is why coffee shops, cafes and small concepts have been generating higher levels of interest recently. The year 2018 also saw the reduction of Sub and Master franchising agreement-pricing strategies, on the back of a competitive climate and supply from both the regional and multinational brands.
There is real potential for expansion in importing and exporting through franchise engagement. Fostering growth in the regional franchise sector remains important, but with international brands attempting to strengthen their presence within the regional market, local companies are also being encouraged to conduct business in new markets outside of the UAE. Tradeshows and expos/exhibitions are the perfect mediums to not only gather international interest inward, but to also set the scene for domestic homegrown concepts to begin franchising outwards into other, external markets as well.
There is potential for expansion in importing and exporting through franchise engagement