Consider This If The UAE Is On Your Franchise Radar in 2023

After all the upheaval and uncertainty, the UAE is once again on the radars of franchisors seeking overseas expansion. So what should they know, do and expect? 

All contemporary business narratives must be framed within the context of the pandemic - the mother of all disruptors and the architect of the new normal. The same goes for franchising in the United Arab Emirates - the gateway to the Middle East and increasingly, the passage to broader Asia.

UAE - Ground Reality

Extraordinary Resilience

UAE’s dynamism and “can do” spirit has always been admired the world over, but the pandemic also showcased its extraordinary resilience. 

In a global ranking of 50 major cities regarding the covid-19 response, Abu Dhabi has repeatedly ranked no 1 and Dubai no 4. The parameters included speed and effectiveness of healthcare management, quarantine management, vaccination rates, government efficiency and economic prudence. 

Proactive Approach

• In a series of initiatives, the government rapidly introduced a number of steps:
• Allowing 100% foreign equity ownership in companies
• Introduction of 10 year Golden Visas, with the categories of beneficiaries being constantly expanded
• A $100 billion+ government stimulus to reignite the economy
• Significant lowering of the cost of doing business
• Change in government structure for improved agility

Noteworthy results

• Retail sales in Q1 of 2022 increased by 19% vs Q1 of 2019. 
• E-commerce is 11% of all spending vs 5% pre pandemic
• Tourist arrivals have tripled in from Q1 2021 to Q1 2022
• 20 Million+ people attended a highly successful Expo 2020
• Non-oil economy sector grew despite inflationary pressures
• Foreign direct investment increased by 4% even during the pandemic
• A packed calendar of major business events and global expos

Dynamic, forward thinkers never waste a crisis....and neither did the UAE. Today, the economic and regulatory fundamentals are more robust, pro-business and investor friendly than they’ve ever been. Add to that its demonstrable ability to weather the greatest storm of modern times, and the UAE undoubtedly ranks higher than it previously did as a business destination. 

Where Is Franchising In The UAE Headed?

1. Expansion of franchising

By all accounts - factual and anecdotal, franchising as a business model is set to expand. A large number of franchisees have testified to the benefit derived from franchisor support during the pandemic. This included areas like royalty holidays, landlord negotiations, operational adjustments and digital marketing. But there's more to this - the complete picture follows below.

2. Increase in demand for Unit Franchises

Franchising has mostly been a corporate domain in the UAE, i.e., organizations typically take up country or regional area development rights and then invest directly into unit expansion. But after having faced the uncertainty of the job market, more individuals want in on franchising.

3. Home advantage

Local and regional franchisors will have an advantage over overseas franchisors, especially when it comes to offering and supporting single unit franchises. International franchisors will only be able to compete if they're either tier 1 brands with indisputable credentials (most are already taken though). Or if they offer genuinely exceptional terms and guarantee support that's bespoke for the country.

4. Low upfront and operating costs

The appetite for large CAPEX projects is down and high initial investment is likely to be a deal breaker, especially in food and beverage. Also, with inflationary pressures already posing a strain on margins, the operational cost structure must be lean.

5. Cloud kitchen franchise templates

Cloud kitchens are not just a phenomena that continues to grow rapidly - they are also being incorporated into franchise offerings, including by some industry leading brands. Many are expected to follow suit in developing more versatile business structures for investors.

6. Shared tech costs

Technology is the much touted game changer in most industries. But it's also expensive for the franchisees, who experience an inordinate amount of financial strain till economies of scale have been achieved. Franchisors willing to co-invest or offer financial assistance to stagger tech costs will be in favour. This needs to be augmented with the provision of robust data management expertise and support. 

7. Pilot franchising (for newer/low-recognition brands)

Historically, several franchise brands with previously low regional and global recognition took off after the franchisee put in all the hard work in the UAE. The benefit to the brand, however, was entirely retained by the franchisor. To ensure more equitability going forward, pilot franchises that offer unconventionally beneficial terms (like little or no royalty for 12 to 24 months) will be par for the course for introducing lower recognition brands to the country.

8. Key growth sectors for franchising

Education and learning (Children's STEM education, coaching centres, teaching new skills), Healthcare (telemedicine, senior care, beauty, wellness tech), Mobile Services (cleaning, maintenance, pet care, car care etc), Pure Online Franchise Concepts (marketing, travel, IT services, accounting services)

Note: Food & Beverage maybe conspicuous by its absence but it's a difficult industry for new players to get a footing in at the moment - unless of course, the franchisee is already a multi-F&B brand operator.

Besides all of the above, franchisors need to take note of the young, and 'relatively young' demographics of the country (77% population is aged between 15 and 54), who are educated, tech savvy and highly entrepreneurial. So the question, "why should I invest in your franchise as opposed to one from the UAE or a startup of my own?" must be answered by showing, not telling.

Lastly, do remember that since the pandemic, people in this nation of almost 90% expatriates are seeking economic security as their top priority. Be sure to devise a well-considered franchise proposition that offers them just that.

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About the Author

Sanjay Duggal is the Founder & CEO of Abu Dhabi, United Arab Emirates based Stellar Eastern Franchise & Retail Advisory, which provides in-depth advisory consulting on how to navigate the Middle East and South Asia Franchise Industry. He can be reached at sanjay@stellareastern.com