To many, a franchise is buying a business off-the-shelf with a guaranteed customer base that insulates against the perils of starting up a business. However, like all enterprises there is no guarantee of success or riches.
Taste of independence for Just Falafael franchisee in Dubai
When the Egyptian native Mariam Aziz opened a Just Falafel franchise in Dubai’s Business Bay more than two years ago, she was one of the first franchisees of the brand that now has 44 shops in nine countries. A Dubai resident for eight years, Mrs Aziz says she took on the opportunity because she saw the UAE as the ideal place to open a food franchise.
“A franchise is perfect for someone who is not fully dedicated or doesn’t have a 100 per cent knowledge of the industry,” explains Mrs Aziz, a mother-of-two who used to work as a graphic designer and switched professions to help support the family.
“I was expecting higher returns but I am not regretting the decision. Just Falafel take a portion of the sales. However, I think it’s a good opportunity for whoever wants to grow her own business. It is a reasonable investment and it’s a cash business so the security is up front. If it runs well from the first shop you can easily have a second or third shop.”
The UAE has become a haven for food franchisers; the cosmopolitan mix of the country’s population makes it attractive to buy a well-known name and be trading within weeks rather than building a brand from scratch.
“It costs you Dh60,000 to buy the right to operate and use the Just Falafel name,” says Fadi Malas, Just Falafel’s chief executive. “Then there is a 6 per cent royalty fee and a 3 per cent global marketing fee of your total sales. The franchisee has to rent the premises, pay the contractor to do the fit-out and buy the equipment. It is your business and you are responsible. I would say the average cost of starting a Just Falafel outlet is US$200,000 but the costs differ widely between Cairo and London.”
Franchises are more than just burgers, fried chicken, or coffee shops. It is a $2.1 trillion industry that employs one in 10 workers in the United States, said Michael Isakson, the president of Insight to Execution, speaking at the International Franchise Conference in Abu Dhabi’s Etihad Towers earlier this month.
To many, a franchise is buying a business off-the-shelf with a guaranteed customer base that insulates against the perils of starting up a business. However, there is no certainty of success or riches.
“It’s not a guarantee and unfortunately some people think that it is,” says John Hayes, the author of Franchising: The Inside Story. “The difficulty is knowing how many of a certain franchise failed. There is no rule or law around the world that says you have to report all your failed franchises. If you are interested in becoming a franchisee, do your due diligence, do your homework.”
Hayes uses the global fast-food chain, McDonald’s, to demonstrate his point. “If you buy a McDonalds you probably won’t be a millionaire. You may make a pretty good living by running one unit of McDonald’s but not as much as you may want to make; the millionaires own five to 150 units but they have far greater responsibility than a single operator.”
Beyond the risk and rigour of running a franchise, the economic model seems to benefit society better than corporate chains that often share the profits with a precious few.
“A chain needs a lot of capital; you are also responsible for the locations and the payroll,” says Mr Isakson. ”With franchising the franchisee provides the capital and the location and takes care of the business. Franchising creates a middle class as the cost of entry into the marketplace is lower. The franchiser also gets someone who has put their money into the business; a manager can just quit, you don’t get many franchisees quitting. It’s also a far more even distribution of wealth and has a far greater economic impact across the spectrum.”
Back at Executive Towers in Business Bay, Mrs Aziz is looking at her potential for growth as she sees Just Falafel transforming into an international food category.
“I am looking to have more units but it depends on the location because to some extent the good locations are limited in the UAE,” she says. “The good areas I classify into A and B class and most of them are already taken, the prestigious malls, the high footfall places. The location is really important so I will wait for others to become available. Maybe one day I will open in Egypt, inshallah.”