JEDDAH, 16 May 2005 — Franchising is marking a tremendous growth across Saudi Arabia, especially in the past few years.
What has contributed to the growth is the interest shown by budding and seasoned businessmen, partly due to the repatriation of investments from abroad.
With young Saudis especially looking for self-employment or start-up businesses, they are venturing into franchises.
The average Saudi is a widely traveled individual and is enamored by the success of American, European and local franchises.
“Compared to the US or the Western world, the franchise market in the Kingdom is small. However, it is rapidly expanding in several business sectors,” Jeddah Chamber of Commerce & Industry Secretary-General Mohammed A. Al-Shareef said.
Franchising as a way of doing business was in focus recently when 11 US companies held a meeting at the JCCI offering franchising opportunities to Saudi businessmen.
Inquiries with franchisors in general indicate that franchising opportunities, which already exist in the food sector, especially fast-food and restaurants, can be exploited in many other sectors. These include apparel, laundry and dry cleaning services, automotive parts and servicing, hotel and motel services, mail and package services, printing, and convenience stores.
“Franchising remains a growing sector in the Kingdom, but its success in the Saudi market largely depends on finding the right franchiser and location,” Douglas A. Wallace of the US Department of Commerce, US Foreign Commercial Service, said.
Non-food franchises account for 55 percent to 65 percent of the franchise market. Competition is strong between US franchisers and local and third country competitors in car rental agencies, laundry and dry cleaning services, and auto maintenance. Fast-food outlets are increasingly making inroads into the Kingdom from their overseas locations through franchising. “Many of the brand names are already well entrenched in the market and the failure rate is also minimal,” the manager of a Western fast-food franchise said.
American products and services in this industry have in particular established brand recognition in this part of the world.
Some of the franchises that currently exist include McDonald’s, Hardee’s, Burger King, Popeye, Chilies, TGI, Fuddruckers, Pizza hut, XOXO, Harvey Nichols, Debbenhams, Saks, Fifth Avenue, Floresheim, Martinizing, Sheraton, Hilton, Four Seasons, Avis, Hertz, Budget, Limited Too, Mail Boxes, Alphagrahics, Ann Kleine, Guess, and Marks & Spencer.
“Currently, the franchising business accounts for $1 trillion in annual US retails sales from 320,000 franchised small businesses in 75 industries,” Maher M. Siblini, commercial specialist at the American Embassy in Riyadh, said.
Although figures are not available to quantify the size of the Saudi franchising market, industry sources say that fast-food franchises have the lion’s share as opposed to the non-food sector.
“Franchising is a popular and growing approach for Saudi entrepreneurs who plan to establish consumer-oriented businesses in this market,” he added.
The Ministry of Commerce and Industry is the government entity that licenses and approves such agreements.
Siblini lists some steps that a potential franchisee should take. Should he look for a brandname or what is hot in the US or elsewhere in the world.
How will the Saudi consumer perceive and use the product should be uppermost in the mind of the franchisee. It’s a better strategy to bring a concept that will help the clientele — a sustainable concept that will make life better as opposed to a personal passion. “I saw it, I like it, and I’ll bring it to Saudi Arabia whether Saudis like it or not” ought not to be the approach, Siblini emphasizes.
Does the Kingdom need another hamburger store? “Why not if the product can be presented in a unique way and if you can serve your clients in a more creative way,” he said, adding that the idea should be to satisfy a customer need where it could be missing at another place. For instance, people love “kabssa” and the way you present your kabssa can make or break your business.
However, the success of any franchise depends on investment, training, support, location, marketing, and staff. While franchising offers investors a proven concept and tested business model, they don’t offer guarantees of success. “The franchisee should not think that once he buys a business it will run on its own. His success largely depends on the product and the market,” Siblini said.
The world of franchising is dynamic and ever changing. Every year, new patterns emerge the world over. Some of these emerging ideas have already caught up with the Saudi consumer in the recent years, especially fitness centers, vitamin stores, language and IT training, and real estate brokers.
“The franchising market potential is strong, as many young Saudis seeking self-employment will venture into such businesses,” says Shadi Al-Ghamdi, a young business administration student at King Abdul Aziz University.
