Dubai’s franchise sector is booming. Troy Franklin, COO of World Franchise Associates, shares the secret sauce for franchising success and the pitfalls that franchisors and franchisees should look to avoid.
It's hard to imagine Dubai without the omnipresence of global fast-food chains like Hardee's and McDonald's. The city's affiliation with such high-profile F&B brands – or quick service restaurants (QSRs) – dates back several decades.
In that time, QSRs, the dominant franchise category, have transitioned to become accessible to the masses and now offer a competitively priced alternative to local dining options.
In the last five years, we have seen the emergence of 'fast casual dining'. In this space, Shake Shack is a good example. A slightly elevated offering, this is arguably the fastest-growing F&B franchise segment in the Middle East.
Dubai the regional benchmark
In terms of introducing new fast casual brands, the market in Dubai and the wider UAE is ripe with opportunity, due to historically high GDP and a wealth of customers with disposable income. This makes upgrading from a QSR to a fast casual dining outlet relatively easy.
Opportunities extend to high-end casual and fine-dining franchises, with Dubai often considered the 'jewel in the crown' in the GCC for incoming brands. This is due to its diverse population, wealth, global reputation and landscape for opportunity.
Saudi Arabia, which has a population three times the size of the UAE, definitely has the scalability advantage. From an image and reputation perspective, however, Dubai has the upper hand as a benchmark for the region, with brands marking it as the logical first destination to position their offering.
Franchising opportunities aren't confined to QSR or fast casual, however. An up-and-coming segment that's trending globally at the lower end is grab 'n' go. A small footprint format, it requires low capex and fits well within the UAE context where rents are relatively high.
Usually a kiosk location, they sell anything from doughnuts and smoothies to sweets and French fries. The advantage of grab 'n' go is that even if the outlet is located in a food court or other high-traffic area, it requires a space of 20-square-metres or less for a counter and back-of-house work area.
QSR or fast casual, on the other hand, requires a food court location or dedicated seating to support dine-in transactions, that will account for a significant percentage of total revenue.
Another trend to watch is mobile franchises like food trucks. We are already seeing a number of domestic food truck operators and investors looking to enter this market segment.
Dubai offers solid potential for Asian franchises, with strong demand from Emiratis and Arab nationals, as well as expatriates craving authentic spice-centric flavours from their home country. In addition to Indian food, Japanese and Korean culinary offerings are also trending.
A further consideration is that brands based in the GCC and countries such as Indonesia and Malaysia produce halal food. This translates well to the UAE because the foods don't require significant menu changes in order to accommodate local cultural or religious requirements.
Ghost in the machine
Dubai is also home to some very successful brands that use ghost kitchen operations. This model is undergoing a growth spurt – you only have to look at the success of Kitopi's managed cloud kitchen platform and its recent unicorn status to recognise the potential.
Ghost kitchens are no longer accelerating at the same rate, however, or in the same manner that many people envisioned in 2020. It's very hard to drive brand awareness and brand equity when you don't have a brick-and-mortar restaurant with a sign or storefront.
So, for brands eager to roll out across the region, non-brick-and-mortar presence typically isn't a first option, and neither is starting with a ghost kitchen then transitioning to physical locations.
A number of international brands considered this route and even trialled it during the pandemic. But, in the future, we will see ghost kitchens create their own brands or portfolios rather than rely on existing brands. They can't ride on somebody else's brand name to drive success.
The secret to success and realising international franchising potential is finding the right partner. If you look at the GCC as a whole, there are multiple regional conglomerates that own F&B franchises in various countries. Those big operators are typically looking for big brands, and often have an existing portfolio. Many also own and operate shopping malls.
It sounds like the perfect match, with big operators that want big brands and big brands that want to partner with big operators. But if you're in a stable of 20 brands and the market hits a bump in the road, brands that are less established and not performing as well can be sacrificed to sustain the rest of the portfolio.
Another option is to partner with a medium-sized company that may not be a regional player, but is strong in Dubai, Abu Dhabi or another GCC country. They may be keen to acquire the rights for only one or two brands, and only in their country.
This can mean they are more open to collaborating with a newer brand or a smaller brand that is planning to enter the market. This is partly because some of the bigger brands might not be willing to work with them, or may already be owned by larger groups.
Understanding F&B operations
The big regional operators that have been working with multiple F&B brands for decades have a great deal of expertise. They employ professionals with international experience and possess all the core competencies.
On the downside, if they are spread too thin, they may be unable to focus on new brands in the portfolio. This is a risk that many franchisors fail to grasp when faced with the highly appealing prospect of fast-paced scalability supported by solid financial resources.
A common mistake that franchisors make is entering into a franchise agreement and assuming that, because the operator has a portfolio of F&B brands, they know the ins and outs and don't need support and engagement with the market-entry planning and launch. This can be a fatal assumption. By not collaborating on the planning-of-menu strategy, menu innovation, localisation of the offering, pricing or even thinking through the parameters of identifying the first location, they may be setting themselves up to fail.
Many big groups will also say that they have chosen a location even before they have completed training and without joint due diligence. If the outlet opens and something goes wrong, then everyone starts to point fingers and the relationship is on a rocky footing from the start.
Two reasons why brands fail is choosing the wrong locations and misreading the market and consumers in terms of pricing, positioning and product offering. Put simply, pre-launch planning and preparation are key.
There used to be the 80/20 rule whereby you adopted 80 per cent of the brand's standards with 20 per cent flexibility to modify and manoeuvre. In reality, the split is more 60/20/20, where 20 per cent is sacred, 20 per cent you know you must change, and 60 per cent requires that you hunker down as the franchisor and local franchise partner and figure out what needs to be done to ensure success in the market. Both parties must be strategic to consider brand positioning and market penetration; and plan not just for the first location but for the initial two to three years.
Make wise brand choices
Statistically, anecdotal research says that if you start your own F&B brand in the US or UK, you may have a 10 per cent chance of success and 90 per cent risk of failure. If you buy into a Starbucks, Subway or similar global superbrand, however, it flips to a 90 per cent chance of success and 10 per cent chance of failure.
I believe that there is some truth to that but it's harder to evaluate in the international arena because of the nature of master or country franchises versus individual unit franchises.
In a developed market with individual unit franchise opportunities, the franchisor is very much the parent and the franchisee is the child. But, when international brands sell a master franchise to a Dubai-based company, that company could be a billion-dollar business that is much bigger in terms of market capitalisation.
Dubai is also a lot like Singapore, with extremely high rents, so if you don't get the formula right you effectively end up working for the landlord. Franchised F&B outlets thrive on repeat, high-transaction business so choosing the right brand is critical.
In the last 18 months, in terms of business survival, solid business relationships were key. In this force majeure situation, flexibility when it came to royalties owed or fee freezes were pivotal in ensuring that much-loved brands remained in business.
Brands to watch
Homegrown UAE and regional F&B brands are also potential international franchise opportunities of the future. You have Bateel, which is creating an international footprint; Al Baik, which is the KFC of Saudi Arabia, pushing out across the region; and JJ Chicken, with a growing stable of around 10 outlets and a food truck.
Other brands making a name for themselves on the domestic and international franchise front include Icons Coffee, 800 Pizza, Chicking, Doner & Gyros, Al Sultan Sweets and Pop City.
UAE brands eager to expand into new markets have the unique advantage of being largely regionally transferable with marked similarities in other GCC countries when it comes to taste preferences, language, cultural norms and habits.
Geographically, logistically and culturally, opportunities exist. With the right planning and partnerships, outbound brands can win over new diners and take significant share of this dynamic and hugely exciting market.