Operation Vs. Franchising: Choosing Your Own Winning Formula

70 SPECIAL REPORT FRANCHISE Operation vs. franchising: choosing your own winning formula For any brand owner, the ultimate goal is to make it in the business. The F&B sector is no exception to the rule: all professionals want their establishment or chain to become key destinations each in their own categories eventually leading to franchising. So what is the winning formula for a healthy and sustainable development? by Nagi Morkos, managing partner, hodema Stay in control: favor your Italian style eateries La Piazza, Napoletana and a franchise in London and is planning another operations Scoozi are now all in Dubai. one in New York. The first that comes to mind is to create value Aim higher, dream bigger: Apart from the geographical opportunity, through the business’s operations. Figures opportunities in franchising franchising a brand can be cost-effective: all speak for themselves: the net profit can reach the implementation and opening fees might Self-development is not the only path to 25% to 30%. The self-developing option, be covered by the franchisee. So for brand success, though. Another, rather popular, either with your own cash or with the help of owners who think big, with a development option is to franchise your brand. Entering a partner, has a lot of positive sides. The main plan involving several new outlets in a the franchising world can both be a source of one is to keep your grip on the way things relatively short period of time, the savings opportunities and challenges. are managed and implemented. By staying in are significant. This strategy is chosen by control, the owner and/or founder of the brand Franchising opens a door to the world many low to mid-end brands, such as casual makes sure that its identity and image are for an F&B brand, even if its owner has eateries or fast-food chains. respected to the letter. The second argument little market knowledge outside of his/her However, recently more refined in favor of this strategy is that it stresses the country or region. It enables owners to rely establishments have been getting their share importance of cash flow. If the business is on franchisees to adapt the outlet to the as well: Lebanon-based restaurant Babel has successful, the owner will quickly see the local requirements and criteria, and saves teamed up with Kuwaiti franchise expert Al returns on his or her investments. the hassle of dealing with new legislation. Shaya Group which operates over 60 different World famous chains have already tried out But to every upside there is a downside. In brands of retail and F&B across the Middle the system, with giants McDonald’s and the first place, self-development requires an East including over 700 managed outlets Starbucks, among others, franchising their important capital outlay. Opening new outlets in the Gulf region, and over 550 Starbucks outlets to local franchisees in the Middle East. can be very costly. Finally, choosing to expand outlets. The agreement will enable Babel through operations can be a good fit for The other way round also works: Dubai-born owners to benefit from the Kuwaiti group’s brand owners who don’t dream of worldwide Just Falafel is on its way to international expertise and reputation in the region, which expansion, but rather a strongly rooted local exposure, thanks to new franchises in Canada, exposure. That is the path chosen by the Europe, India and the Far East. On a smaller MOST IMPORTANTLY, SOME Lebanese Boubess group: it owns twelve scale Lebanese homegrown brands such as different brands in Beirut, from the Italian Al Mayass, whose flagship outlet is located in BRANDS ARE RELUCTANT TO GIVE Napoletana to the Japanese eatery Kaiten and Beirut’s Achrafieh district, has already opened AWAY THE KNOW-HOW AND WANT popular Cafe Hamra. The group, with a strong outlets in Riyadh, Abu Dhabi, Doha, Kuwait TO REMAIN IN CONTROL cash flow base, has decided to open new and even in New York. Burger Co, based in branches of its restaurants abroad on its own. Beirut with two outlets, has already opened 71 could ensure the success of the new outlets. On the more technical side, the franchise Dori Rizk, one of Babel’s owners, considers manual outlines the know-how, whether it is that “by teaming up with Al Shaya, Babel operations, health and safety or staff training. FOR SOME COMPANIES, THE will expand its brand much faster than it And if any problems do surface, the franchisee STRATEGY IS SIMPLER: WHY would have, if we had expanded it alone.” The can usually find support from the franchisor. CHOOSE WHEN YOU CAN HAVE development plan for Babel is aggressive and Some regional investors have made a fortune THE BEST OF BOTH WORLDS? targets all the Gulf countries. out of franchise. Americana Group for instance has specialized in casual and lower- Overcome the challenges end eateries. It operates eleven international The franchising system is not all rosy brands in the Middle East, such as chicken business and the short-term success more though. Compared to development through giant KFC, TGI Friday’s, Hardees, Pizza Hut, uncertain. The bright side though is that the operations, the profits are much less Krispy Creme and Costa Coffee. Fellow franchise purchase price will be lower. important, with usually around 5% to 7% Kuwaiti Al Homaizi Group develops US brands of net revenues in addition to territory and Burger King, Applebee's, Taco Bell, it has also Get the best of both worlds license fees. But some find the deal fair, bet on Lebanese chain Kababji and Burj el For some companies, the strategy is simpler: as they save on initial outlay to open new Hamam. However, turning to franchising is why choose when you can have the best branches. In the mid to long run, giving out not limited to the big groups. The Lebanese of both worlds? Boubess Group, while franchises can be a good financial call. company Eaternity recently acquired Magnolia developing its own brands, has decided Another major challenge is choosing the right bakery for Lebanon, Jordan, Saudi Arabia and to operate French bistrot Le Relais de partner. Some partners will want to buy a Kuwait. l’Entrecôte’s franchise and American Japanese franchise having little to no F&B expertise, Another reason to turn to franchising cuisine restaurant Benihana in Lebanon as thus involving the franchisor more in the can be the lack of expertise. Developing well as recently acquired French F&B brand day-to-day operations. Furthermore, smaller operations needs a strong background in Café de Flore. Abou André Lebanese cuisine, groups might not have the financial power to F&B management, from finances to HR in Lebanon since 1976, is now offering expand the brand as fast. In some instances, and logistics. It requires having a sharp franchise packages in the USA, Europe and newer groups might favor a brand over understanding of the market, to be able the Middle East, while it has eight self-owned another which can slower the growth and to make the right decisions to support the outlets in Lebanon and one in Chicago. expansion. growth of the brand. Buying a franchisee is That option requires significant back-up finances that will cope with any operations or Lastly, and most importantly, some brands are not as demanding: the franchise agreement development hazards. reluctant to give away the know-how and want specifies in detailing all the aspects the to remain in control. franchisee should be responsible for. It also But again, having it both ways requires a lists the brand’s requirements and managing strong experience in the businesses of both The easy way in: buy a franchise rules. So, for candidates willing to enter the franchising and operations development. Al Franchising does not only benefit brand F&B world and not yet familiar with its rules, Shaya Group has had mitigated results as it owners. Local F&B investors can also build a becoming a franchisee can be a clever way in tried its hand at developing its own brand Café business through agreements. It is a way to the business. Coco, Veranda and Brasserie de L’Etoile. So, start a business for yourself, although not by For the most adventurous out there, getting the key formula is to go for the option that yourself. The obvious reason is that the brand involved in new franchises is an exciting best fits your profile. has already proven popular elsewhere, so challenge as well. The clean slate of a the jump into the unknown is pretty limited, brand that has never opened abroad gives as the brand is already established. It is a franchisees the freedom to implement new turnkey business, which makes the whole habits, identify new customers, although implementation phase easier, and helps the work load will be heavier to establish the obtaining financing if necessary. hodema.net.

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