Fast food outlets in the UAE are looking to franchise overseas amid intense competition at home.
One such outlet is Operation Falafel. After opening just three- and-a-half years ago in Dubai, it quickly added seven branches and is now seeking franchise partners to grow.
Franchising allows food- and-beverage brands to break out of their home base and test how a concept that has proved itself in one market performs in another.
The UAE’s F&B market appears to be booming, but the rapid growth of the sector has created overcapacity in some parts of the country.
Glee Hospitality Consulting closed two of the 10 outlets it owns this year because of falling revenue and stubbornly high rents.
“It’s a very risky business to be involved in,” said Manhal Naser, the chief executive of Awj Investments, which owns a portfolio of F&B concepts from street food to casual dining.
He said the price point of Operation Falafel, with an average ticket price of Dh38, makes it recessionproof. “When the economy has struggled we have seen our business go up because people still need to eat. We see franchising as a way of opening up new geographies with people who know the local landscape. Saudi Arabia will be a very big franchise market for us in 2017 and we have had a lot of interest from Abu Dhabi.”
Franchising allows entrepreneurs to license a concept paying the master franchiser for the rights to its menu, its theme and its decor. Traditionally there will be an upfront buy-in cost and the expense of outfitting the restaurant. The revenues will also be shared and an annual payment to the master franchiser for marketing costs. While a franchise is not as profitable as an original concept, it is less risky and many of the problems of starting an F&B business can be averted.
The tightening economy has resulted in a slight slowdown in the pace of new restaurant openings, from 4 per cent growth in 2015 to 3 per cent growth in 2016, according to Euromonitor.
There were 16,720 F&B outlets in the UAE at the end of last year, with 19,000 outlets expected by 2020.
The fast casual sector with restaurants such as The Cheesecake Factory boomed by 30 per cent in 2015 – eating into the bottom line of high-end restaurants.
Such growth attracted the master franchiser of Clinton Baking Company, a New York franchise which opened in Dubai Downtown in 2015. It added another outlet this week in City Walk. It has two food trucks in Dubai and with an average ticket price of Dh80 to Dh120, it is now also looking to franchise across the GCC.
“It’s a very competitive market,” said Hisham Samawi, the co-founder and master franchisee of Clinton Street Baking Company. He says he believes in Dubai and could not turn down the opportunity of a location like City Walk. “We may be in City Walk for 50 years. New York is simple compared to Dubai. We have to compete internationally in our own city. We have a couple of food trucks that do well for a portion of the year, but we see growth in franchising and we hope for some movement on that this year.”
Although franchising is a low-risk way of expanding a brand, sharing costs and expertise, there are also downside risks.
“While franchising generates income it also generates extra work and extra staff,” said Sary Hamway, the chief operating officer of the World Franchise Associates. “Franchising has pluses and minuses. You can dilute your brand. Communication is vitally important. You can create rebellious franchisees who feel that they can do it on their own, and that can be disastrous for the brand.”
ascott@thenational.ae
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