Overseas brands beware: UAE’s home-grown food & beverage franchise phenomenon is here to stay

Overseas brands beware: UAE’s home-grown food & beverage franchise phenomenon is here to stay

Not very long ago, investors from the UAE would almost exclusively look at the good old US of A while considering Food & Beverage franchises to acquire. Add a smattering of Australia, UK and select brands from Europe, and the real options ended right there. Franchised brands conceived and created in the UAE were far and few between and in any case, domestic brands were considered inferior and therefore, a riskier investment.

All that has changed in recent years, and how. Inspired entrepreneurs, both Emirati and Expat, are churning out increasingly creative concepts with high caliber execution and support services to match. Many are on a roll and have already sold multiple franchises within the UAE, GCC and beyond. What caused this shift in the UAE’s franchising landscape? Here are some of my thoughts:

1.  Most of the big guys have been taken.

The top 10 brands of virtually every food service category are already in the UAE market, generally represented by large organizations with considerable financial muscle and clout. Moreover, any remaining US brands worth their salt continue to join hands with those who are already playing with the big guys. This perpetuates virtually impenetrable circles of business exclusivity at the top.

2.  Location – prime retail developments and real estate are monopolized by a select few

At a recent conference I attended, the GM of one of the top Dubai malls explicitly confirmed what has been evident throughout – that 70% of the tenants are needed to pay the malls’ expenses, and that’s why the mall managements stick with the familiar and reliable for their bread and butter. It’s only with the remaining 30% that they can afford to sometimes get a little adventurous. The problem, however, is that 70% of the tenants are represented by just a handful of powerful multi-brand retail groups. This means they monopolize good locations and therefore, continue to attract the best brands and opportunities while other aspirants just have to make do with second best.

3.  Risk aversion emanating from a better understanding of franchising

The average person in the UAE today is far more informed about franchising than at any time in the past. Both the government and private sectors of all major Emirates regularly arrange SME and Franchising events that disseminate market relevant information on franchising as a business category, and as a method of doing business.  As a result, the message is getting clearer and louder – all that glitters is not gold when it comes to franchising, especially with brands that are lesser known in the market. Buying a franchise is supposed to get you essentially two things – an operating system and a brand equity, and if the latter is missing, the former may not have enough legs to stand on. Which begs the question – why not start one’s own brand? Today, this is not the slightest bit implausible.

4.  High profile overseas brand failures

Some major international food service brands (of which a few are in the top 3 to 5 in their categories) have visibly, and in some cases, quite spectacularly failed in Dubai – shut doors, unpaid salaries, trail of creditors and all. These high profile failures highlight the fallibility of the franchising route. They also reiterate the message to current and future franchisees – that franchising doesn’t work unless you know how to.

5.  Greater appetite of independent individuals for a piece of the franchising pie

Franchising was invented for the common man to get into business ‘for himself, but not by himself’. Ironically, in this part of the world, the best franchise opportunities, until recently, have been the domain of corporations rather than individuals. Of course, we have to take into account that it isn’t always practical to control unit franchises from half way around the world for the franchisors, which makes area development agreements and master franchising the norm for brand expansion.

Nevertheless, where does this leave the person working in say, Abu Dhabi, for the past 25 years, who finally wants to get into a franchised business for himself rather than return to his country? To exacerbate things, there aren’t many sub-franchising opportunities out there either, with the corporations generally rolling out stores with their own finances to keep better control (and the profits).

6.  High standard of franchising know-how & expertise available in the UAE

Want to conduct a thorough, professional feasibility prior to investing in an F&B business? Give life to that fantastic restaurant idea that has resided in your head for years? Develop a meticulous operating system that can be documented in operations manuals of international standards for future franchisees? Create and implement world-class training programmes? If the answer is yes, you needn’t look beyond the UAE shores for fulfillment. Today, there are several professional outfits and franchising consultants in the UAE that will do the job right here, and as good as anyone in New York, Chicago or London (and perhaps even better, as they have the edge with local knowledge). Don’t be surprised if it’s far more cost effective too.

7.  Customers are genuinely receptive to original ideas and concepts

In line with the times, customers in the UAE are far more open minded in embracing new ideas and concepts. Today, their perception of ‘good’ comes from their experience, rather than preconceived notions about the brand’s origin – a fact that is self-evident in the numerous food courts and malls throughout the Emirates. So, whereas it may not be an entirely level playing field yet, it is most certainly getting there.

Conclusion: Whereas one would have to be seriously delusional to discount the positive economic impact of big franchise names over the years, the undeniable fact is that for serious contenders, there are far more varied and viable options today in the UAE. This includes buying a quality home-grown franchise headquartered in the UAE or getting the help to develop your own original concept.

The country is fast embracing the democratization of franchising and for those who dare, not having the clout and big bucks should not be a deterrent, but an impetus to seek their own place under the franchising sun – like so many others have successfully done. Moreover, the common theme of virtually every success story is that there is no place better than UAE to stoke the entrepreneurial fire. So go out, get busy and explore!

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