Franchises in the Gulf: Burgers Rule
Martin, Josh, The Middle East
From Morocco to Oman, popular Western commercial images are proliferating through franchise operations. The growth in the number of franchise, reflects both the growing importance of Middle East markets, and the effectiveness of changes in local commercial law.
The images are familiar, but the settings are different: Planet Hollywood in Dubai, Walt Disney in Riyadh, Wimpy's and McDonald's in Cairo. The fact that such popular franchise chains are present in the Middle East would have been unthinkable a few years ago.
There are now over 1,000 franchise operations in the Arab Middle East, selling everything from fast food to chic fashion. The Gulf is regarded as one of the most lucrative and tempting markets for European, Japanese and American franchisors. And the numbers of franchise operations in Saudi Arabia, Egypt, and the UAE are growing at double digit annual rates.
According to figures gathered by the International Franchise Association and the US International Trade Commission, the most successful franchisors entering the Gulf (in terms of number of franchise outlets present) have been restaurants, retail food chains, automotive-related outlets, and education products and services.
Although initial entrants were restaurants - virtually all major American and British fast food chains now have franchise operations in the Gulf- followed by retail and automotive chains, more sophisticated franchise operations are beginning to open. These include computer sales chains, educational services, and business-to-business operations. Today, the mix includes such outfits as Fourth R, a chain of computer schools, and General Nutrition Centres, which sells vitamin supplements and other popular health and fitness products. Amid the minarets, camels and dhows are the recognisable logos of Domino's Pizza, Kentucky Fried Chicken, Wimpy's, Hertz Rent-A-Car, and dozens of other franchise operations.
Industry experts are not surprised at the current mix. "In emerging markets, food franchisors usually go in first," notes Marcel Portmann, director of international development at the International Franchise Association. "After all, everyone has to eat."
Experts believe that as Gulf economies mature - and governments are forced to give private sector entrepreneurs more freedom to expand - more business-to-business franchise operations will go in.
At stake is a $200 billion consumer market - a market where demographics and recent legal reforms have created conditions which make the region attractive for a growing number of franchisors.
"Going into the Middle East is a fairly logical move for American franchisors," says Prince Bandar bin Saud, secretary-general of the King Faisal Foundation (KFF) of Riyadh, Saudi Arabia. "The market for retailers is thriving."
The KFF itself has gotten into the act, developing a "super mall" scheduled to open next year, whose shops will include such franchise outlets as Wendy's, Baskin-Robbins, CK Jeans, Bally and Bennetton.
Saudi Arabia remains the favourite target market because it has the largest end-consumer base. But the United Arab Emirates boasts a higher per capita income, and a more franchisor-friendly legal environment.
"You have to go country by country," says Don DeBolt, president of the Washington-based International Franchise Association.
Efforts to create a common market, under the Gulf Cooperation Council, have helped. Among other things, corporate entities in one member country are increasingly given "national" treatment in other GCC member states - an important fact for franchisors issuing a licence covering a multinational "territory". Legal reforms have also encouraged franchisors to come in, by streamlining applications to do business and offering improved trademark, logo, and intellectual property protection.
Although franchisors usually go to great lengths to protect their image, and make detailed stipulations about what a local franchisee can and cannot do, some flexibility is needed to meet local market conditions. …