How to Do Franchising in the Middle East?
Global franchising is growing by leaps and bounds, and it would not be wrong to say that the Middle East is one such growing market for global franchises.
In an exclusive interaction with Franchise India, several leading players from the Middle East gave insights on how the Middle East is a lucrative opportunity for franchising.
Franchising in the Middle East
Traditionally franchising in the Middle East was to buy a big American brand and open a large store. But, it has now evolved from the past.
The Middle East is still a growing market. Franchising is also on the growing curve regardless of the sector of the franchise you choose. A lot of brands have not entered the Middle East market yet. This is because of the exaggerated perception about the market entry barriers and nil market knowledge. It is going to be a growth-oriented market. If the myth about entry barriers is busted then it is one of the best places to deal with franchisees.
There is a huge young population in the region making it an attractive market. People here are quick learners, accept new things, and are fast. There is competition from a lot of smart entrepreneurs. It is good for companies to enter because there is no real regulation as such. Some sort of regulation might have come up in Saudi Arabia but the rest of the region has no restrictions. Yet, it is advised that companies do their own investigation before entering any market.
Though the current pandemic has been a challenge, it has come out to be an opportunity to start a business as the cost of starting and operating has gone down. The market here is growing very fast. The current pandemic has brought in plenty of opportunities along with newer opportunities. It is a perfect place where old is old and new is normal. Two factors are important, technology and speed. No brand or business can survive without these two.
The challenges in the new normal are the domination of platforms like aggregators that is hurting the business considerably. Coming to franchising, investors are more interested in sectors where there is an economy of scale and low CAPEX requirement. This is because people have become more conservative towards expenditure and low CAPEX gives them a lesser payback period.
Technology has changed the selling methods and also the way a business is operated. It has become an important factor in optimizing cost and becoming efficient. Technology has become useful in all areas from inventory management to delivery tracking and full ERP solution.
The changing nature of business is giving importance to freshly made and contactless delivery for the same product. Large stores would become history and the container concept is going to be the new adaptation. Only the continuously evolving nature of brands can lead them a long way because the future is uncertain and changing. Whatever is deliverable works best. Also, marketing has changed its form. Anything that can be put on Instagram will go a long way. Marketing on social media has become more important than the looks of the store.
Master Franchising was more popular by American markets in the Middle East since they preferred handing over the responsibilities to one or two groups who are familiar with the region rather than dealing with multiple partners from multiple countries. It is still the most preferred way of franchising because of its uncomplicated structure.
Real estate has taken a different route. People paid high rents for places where there is large footfall. Large footfall means more customers. But with the pandemic and lockdown, lower footfall created loss, and therefore people are looking for smaller areas and concentrating more on deliveries. Businesses are realizing the importance of e-commerce and wish to move to smaller and cheaper locations rather than prime locations. Dark kitchen or the cloud kitchen concepts are becoming more popular because they have less or no rent and only revenue sharing. These changes have created pressure on the landlords to reduce the rents. The landlords are also giving friendly reliefs on rents considering the pandemic situation.
Apart from this, considering the future to get back to normal, one of the advantages of real estate in the Middle East is that the large malls, shopping areas, and strip centres are all owned by the same groups. So, if you get in one group, the doors will be open in other markets and cities.
International brand opportunities in the Middle East
Many areas are growing and making great opportunities for international brands to enter the Middle East market.
- Food and Beverage will never go away. It will only change the way it is.
- Fitness and Health are emerging due to the increasing awareness of maintaining health.
- The health product market is also growing.
- Training, career development, soft skills, all these are developing in the Middle East. So, services like coaching are going to be prevalent.
- Children’s services whether in education or entertainment are great opportunities. Coding is a new growing area of franchising in this sector.
- Home-based business has seen popularity.
- Anything that is deliverable or delivery service is working great.
- Sanitisation and cleaning services have seen a boom.
These areas make great franchising opportunities. In terms of finding partners, Middle East is the first choice. With job losses, people are looking for security and jumping to entrepreneurship. The economy is bad and this gives rise to franchising.
Brands entering the Middle East must do their research before entering and make sure to visit each country that they enter. Though the language and culture might be the same, the markets differ widely. Talk to other franchisees in the market. It is the right time to enter this competitive and mature market because of the reduced rents and other factors.
Edited By: Vaishnavi Gupta