Sub franchising, an upcoming business expansion model is making an inroad into the Middle East resulting into heightened sub franchising business activity and huge investor interest. The article probes the factors driving this change. Read on.
Franchising is not a new phenomenon in the Middle East market. Since 1960’s several American and French brands started building presence in the region through the franchise route by partnering with the established local businesses. These cash rich companies wanting to expand their business portfolio across new sectors provided a perfect launch pad to break in the growing Middle East market. Until now, the local companies securing franchise partnerships with the global brands preferred opening own outlets. But the trend is changing with sub franchising model gaining popularity in the region.
Existing trend
So far, the region’s franchising scenario has been dominated by large corporations and family run conglomerates. As per a study, over 90 percent of commercial activity in the Middle East is restricted to family businesses. The leading conglomerates like Landmark, Alshaya , Rivoli Group, Al-Futtaim, Chalhoub, Al Tayer, Al Madani, Ali Bin Ali, BinHendi Group etc have businesses spanning sectors like; energy, F&B, hospitality, trading, leisure, financial services, health, education, manufacturing, retail, and real estate and many more. Further, it is common that these corporations may have minimum of 20 to 25 global brands from different sectors in their retail portfolios. Besides, they operate across the Middle East and other world markets too; bearing a testimony to their dominance in the region’s economy.
Emerging trend
The convention by which the international brand’s local franchise partner chose to open and operate own outlets and would not sub franchise, is undergoing tactical shift. Now, the business conglomerates are opening up to the idea of sub franchising. Sub franchise model grants locally present master licensee or regional developer to sell the rights to market and sell franchises within a specific territory. These partners or ‘franchisees’ open agreed number of brand stores or outlets in the assigned area. By default, the master franchisee or developer acts as a representative for a franchisor i.e. the foreign brand.
Factors fueling change
Middle East experienced an economic meltdown a few years ago. Although, the region quickly recovered, the rules of the game have certainly changed. Backed by their ample financial resources, the big businesses could handle the crisis ably, but they have changed their approach to business. Besides, they are also realising the benefits of sub franchising. Balancing the supply of sub franchises is the growing demand for such business opportunities in the region. The key demand drivers include; the region’s multi-ethnic residents with high disposable income; and estimated over 400,000 high net worth individuals (HNIs) who have more than USD 2 trillion investable corpus. The Middle East region is encapsulated today with self employment and entrepreneurial zeal. Therefore, the current scenario is potent for the sub franchisors to offer investment opportunities to the prospective businesses and aspiring entrepreneurs.
Why Sub franchising?
Now, the local established business houses are opting for sub franchise arrangements as a new strategy to grow sustainably. By doing so they can share the responsibility of the brand development with number of partners without investing own capital. In fact, sub franchising model is apt to extend the brand’s reach to every nook and corner of the new market. The local franchisee or partners are brand’s link to the consumers and they are responsible for extracting the business potential in the assigned territory. Further, sub franchising model is highly rewarding in terms of monetary benefits for the Master for he shares with the brand owner/franchisor; percentage of franchise fees and royalty for each sub franchisee unit opened in his territory.
The Canadian F&B brand Second Cup has partnered with Dubai’s business conglomerate BinHendi Group. The group has selected sub franchising to develop the brand in the MENA. Al Madani has the sub franchising rights for F&B brands namely Charley’s Grilled Subs and Whittard. Commenting on sub franchising for Charley’s, Mohammed Al Madani, Chairman and CEO, Al Madani Group shares: “Well, before we start with the sub franchise models, we wanted to prove to the parent company that we are capable of running, coaching, and supporting our sub franchisee's partners. Success does not come easy and needs a lot of following up and supports. We first started with opening our own locations and invested highly in infrastructure and human resources in order to have a solid organisation”.
Besides, selling franchises, the master licensee/franchisee works in the capacity of the franchisor; and also provides training, sales and marketing support to the franchisees to help them succeed.
Way forward
Arab World today is the third fastest place to start a business. Sub franchise model is set to create as well as cater to rapidly growing entrepreneurial environment in the Middle East. Most of the leading banks are willing to extend financial support to the individuals for business purposes. As sub-franchisees often have low capital requirement, they are more likely to get support from the lending institutions. Also, they have an opportunity to be part of associating with reputed brand name and established business conglomerate. Presently, the phenomenon of large corporations opting to be sub franchisors for the international brands is still in infancy in the region. But with some conglomerates showing the way may inspire several others take to the sub franchising route to grow the brand and reach out to far off locations where developing own units may not be economically viable.
