Global franchises no longer have it easy
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 were largely seen as inferior to their — predominantly — Western counterparts.
The tables have turned significantly in recent years, and the heyday of the overseas franchiser is decidedly in the past.
Today, Emirati and expat 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, the GCC and even beyond. This shift in the 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, the people are more informed about franchising than at any time in the past. Franchising events, workshops, and seminars are widely accessible and facilitate informed decisionmaking, especially with regard to domestic franchise options.
- Better understanding of the franchising equation: The “Franchisor’s Proposition” is essentially the sum of a comprehensive operating system plus brand equity in the 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 this country and region leaving behind shuttered stores, unpaid salaries, a trail of creditors, et al. These 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 franchisers have struggled to accommodate and address the disruption caused by this shift while remaining operationally and financially viable in overseas markets.
- Inability of overseas franchisers to serve prospective single unit franchisees: Big name international franchising has hereto been a corporate domain in the UAE. Most franchisers favour area development agreements in which a single legal entity exclusively owns and operates all brand locations in the country. This leaves individual investors with slim pickings and creates a gap that local brands are all too happy to fill.
- Concepts trump origins: With changing times, customers are far more open to embracing new concepts. And their perception of good emanates from brand experience rather than preconceived notions about its origin. This newfound openness has benefited 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 franchiser personnel — something that local franchisers bring to the table by default. But majority international franchisers simply can’t afford to do so.
- Availability of a third option: Besides buying a homegrown franchise headquartered in the country, the increased availability of quality consulting services has made development of one’s own original concept a realistic option.
Hence, in a way, overseas franchisers 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 out, and discernible merit, not legacy, will determine where franchise investments go. Ultimately, that can only be good news for all franchisers worth their salt — be they international or domestic.
Written by: Mr. Sanjay Duggal, MENAFA
Published in Gulf News Business Comment and Analysis, 22nd March 2019