Domestic franchising comes into its own in UAE

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IT wasn’t too long ago that starry-eyed investors from the UAE 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. The resulting seller’s market was deftly leveraged by reputable international brands, and gleefully exploited by the not so reputable.

The tables have turned significantly in recent years however, and the heyday of the overseas franchisor lies decidedly in the past. Today Emirati and expatriate entrepreneurs are cranking out food, retail and service concepts that are audaciously original, regionally relevant and enticingly profitable. Many are on a roll and have sold multiple franchises within the UAE, GCC and even beyond.

In fact, with the exception of truly global top-tier franchises (most of which have already been taken), international franchisors aspiring to operate in this part of the world face an increasingly robust challenge from home-grown brands. This inexorable shift in UAE’s franchising landscape can be attributed to the following:

• A distinctly improved comprehension of international franchising

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

• 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 far-flung territories is of little consequence and value. Investors have now understood and internalized this equation as a key basis for their decision-making.

• High profile overseas failures

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

• Changing customer expectations

Unlike preceding generations, the growing demographic of younger consumers is unimpressed by mere reputations. Their elevated all-round expectations from brands are challenging the status-quo and pushing businesses well outside their comfort zones. Many international franchisors have struggled to accommodate and address the disruption caused by this shift, while remaining operationally and financially viable in overseas markets.

• Inability of overseas franchisors to serve prospective single unit franchisees

Big name international franchising has hereto been a corporate domain in the UAE. Most franchisors favor area development agreements in which a single legal entity exclusively owns and operates all the brand locations in the country. This leaves individual investors with slim pickings and creates a gap that local brands are all too happy and capable to fill.

• Concepts trump origins

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. This new-found openness has benefitted many a home-grown brand.

• Differences of time and geography

With a collective Friday-Saturday-Sunday weekend between East and West, and day-night differences to boot, communication gaps impede the franchisee’s business in multiple ways. Crucial 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, but majority international franchisors simply can’t afford to do

• Availability of a third option

Besides buying a home-grown franchise headquartered in the country, the increased availability of quality consulting services has made development of one’s own original concept a very realistic option. Hence, in a way, overseas franchisors with limited territorial recognition are also competing with businesses that haven’t even started yet.

As the region continues to embrace home-grown brands, the franchising playing field will continue to level and discernable merit, not legacy, will determine where franchise investment goes. And ultimately, that can only be good news for all franchisors worth their salt – be they international or domestic.

* The writer is VP, Business Development

Middle East & North Africa Franchise Association

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