FRANCHISE HOMEGROWN Competing with the giants Franchising homegrown food & beverage (F&B) concepts has become a trend in the Middle East. But how do the locally created concepts compete with the giant established international brands? Jad Alameddine, consultant at hodema consulting services, reveals his take on this Creating a restaurant with the “Margherita pizzeria del quartiere Between 2011 and 2012, Al established international F&B sole intention of franchising dal 1959”, which is also expanding Shaya announced that it acquired brands such as McDonald's, internationally has become just as effectively but at a additional F&B brands, including Pizza Hut or Subway. And when a visible trend in the Middle slower rate. Having opened its The Cheesecake Factory and the one looks at the strategies of East. Many restaurateurs and flagship outlet in 2008 in Beirut, International House of Pancakes the global brands like Starbucks, entrepreneurs in the region are Margherita now has already (IHOP) with aggressive expansion it is clear that these established continuously searching for gaps in franchised 3 outlets in Lebanon plans that include around 40 names from the West and the the local F&B market and creating and Saudi Arabia with openings in outlets. Other franchise operator Goliath sized franchise operators concepts that they hope will Kuwait and Dubai planned soon, groups exist in the Middle East in the Middle East have formed compete on a regional level. bringing their total to around ten such as the Lebanese company a perfect partnership for several outlets by the end of 2013. Azadea which continues to grow reasons. A current example is the UAE through territory acquisitions of homegrown brand Just Falafel, Giant operators brands among which Paul (outside Firstly, the focus is on physical which was launched in 2007 The competition for these Lebanon) and The Butcher Shop assets: these franchise operator in Abu Dhabi and has now homegrown concepts is stiff and Grill. giants, be it directly or indirectly, expanded to seven countries with as well-known established dispose of their own locations - over twenty operating outlets international F&B brands are Room in the market mainly large scale malls - allowing and more to come. According to selling their territory rights in But is this aggressive expansion financial savings on rent and its CEO Fadi Malas Just Falafel the Middle East to a few giant strategy of the operator groups ensuring primary commercial real should start to open one outlet franchise operators such as Al leaving space for the homegrown estate locations. per week around the world in Shaya or Americana, who require F&B concepts and is the 2013. a high operating capital. Al Shaya competition fair? The main issue In Kuwait, Al Shaya understood owns territory rights to over for these regional homegrown the importance of owning its own The trend is also tackling the twenty F&B brands and operates brands, such as Just Falafel or prime real estate in malls and mid-end market segment with around 700 franchised outlets in Kabab-ji, is to compete against has been the major shareholder the Lebanese homegrown brand the region. the expansion rates of the well- for years of The Avenues Mall 44 | Hospitality News ME | Issue 86 | Feb - Mar 2013 in Kuwait. Lebanon has recently equity stakes. This strategy is The investor groups and funds “By default we will be competing witnessed the same strategy a win-win situation for both the certainly inject more capital into with the larger brands as falafel with Acres holding, a sister equity funds, as they invest in the the homegrown F&B brands and products becomes a core element company of the Azadea group, F&B cash business and allow the will allow them to compete with of the food mix. Today even which opened its third mall in homegrown concepts to the giant brand in a much shorter the largest mall operators now Lebanon in August 2012, Le Mall develop with more aggressive time frame. Furthermore, local consider it as a pillar amongst Dbayeh, a USD 60 million dollar expansion plans. F&B brands are now franchising other food offerings,” says Fadi project accommodating now over their stores in Europe and the Malas. So, whilst the established 100 retail brands including F&B Recently, Ant Ventures the United States, such as Lebanese international F&B brands continue franchises. parent company of Lebanese owned BRGR Co which has to expand rapidly in the Middle homegrown “Casper and recently franchised an outlet East, the local F&B concepts Secondly, rather than finding Gambini’s” entered into a joint in London, and the Lebanese keep finding strategies to grow multiple franchisees in different venture with the Zahed Group, created Armenian concept and expose themselves to the countries to operate their brands a Saudi Arabian based holding restaurant Al-Mayass, which went competition. and establishing new logistics, company, which will help propel further west and opened an outlet they rely on a single partner in its brand on a global level with the in New York, increasing its total the Middle East, who would required financial capital. Another outlets around the world to five. hodema.net centralize the brand expansion financial institution, Abraaj capital, throughout the region. The is also looking very closely at Middle Eastern F&B operators Americana group, owner of over Lebanese F&B homegrown Outlets Total ten international F&B concepts brands. Brands per brand outlets among which is Kentucky Fried Chicken, now counts for over Essential tools Starbucks 564 400 outlets developed in eleven Financial leverage is a luxury most PF Chang 5 countries. of the local F&B concepts still do The Cheesecake Factory 2 not have, and whilst they continue Dean & Deluca 4 Thirdly, these large franchise to build on it, they are not ready Le Pain Quotidien 16 operators have the necessary to sell their territory rights to Pinkberry 57 financial leverage to enter into these large operator groups. Texas Roadhouse 2 negotiations to acquire multiple Shake Shack 2 regional franchise rights. They constantly work on fine- Al Forno 4 tuning their systems, establishing IHOP 2 Finally, and as a result of the their brand equity by creating Potbelly Sandwich Shop 6 above, it is the fastest way operating manuals and adapting Pizza Express 11 702 to keep the brand growing. their offer to match the market The Gaucho Grill 2 Starbucks arrived in the Middle gaps. Branding and social media Al Shaya Pei Wei 1 East in 1999 with one outlet are also today an essential tool Garrett Popcorn Shops 2 in Lebanon and one in Kuwait. in their expansion strategy and Teavana 2 Starbucks partnership with Kuwaiti are among the vital means to Asha's 6 based Al Shaya has allowed it to compete and become a financially Brasserie de l'étoile 1 expand with the group to over 560 attractive model. IZ Juice 1 outlets in the region. Noodle Factory 4 The F&B market in the Middle Thai Chi 2 Homegrown brands East, especially in the Gulf, today Castania Nut Boutique 6 While the major regional shows that there is room for franchise operators continue to both the local concepts and the Kösebasi 4 expand all their brands rapidly in established brands. Recently, The Butcher Shop and Grill 6 Argo Tea 1 the area, the homegrown F&B some local F&B brands have 49 brands are attracting another type been able to demand franchise Paul 26 of group: equity funds, financial entrance fees as high as their Columbus Café 8 Pulp 4 institutions and private investors. international counterparts, Azadea Group They are taking notice of the which results in an almost direct small homegrown concepts and competition with one another. KFC 438 have injected cash in return for Hardees 199 TGI Friday's 33 Pizza Hut 137 Chicken Tikka 36 Red Lobster 1 Fish Market 8 Krispy Kreme 116 1106 Samadi 7 Maestro 1 Costa Coffee 51 Americana Group Americana Grand Café 11 Signor Sassi 1 Fusion 3 Baskin Robbins 64 Burger King 58 Pizza Hut 48 Applebee's 5 Taco Bell 1 123 Kababji 9 Burj Al Hamam 1 Homaizi Group Boost Juice Bars 1 Source: Groups' websites Hospitality News ME | Issue 86 | Feb - Mar 2013 | 45.