An economic downturn can't stop the love of a name in Mena

Weakened growth for franchises hasn't halted the spending for beauty

Starbucks at the Fujairah City Centre in Fujairah. Pawan Singh / The National

The pace of growth of the franchise industry in Arabian Gulf countries has slowed down as a result of a three-year oil slump that has crimped economic expansion, but the sector remains resilient with new players entering the market.

“We just love our brands here,” said Franchise Arabia chief executive Omar Al Haza’a, whose company facilitates franchise ownership throughout Middle East and North Africa (Mena) and the CIS region.

The region’s franchising industry is worth US$31 billion with a 25 per cent annual growth, down from 27 per cent growth two years earlier, according to  Mr Al Haza’a.

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The Dubai-based company facilitates franchise ownership, covering 75 industries, with food  and beverage (F&B) making up 75 per cent in its Mena portfolio.

F&B dominates the franchise market in the region, particularly in the UAE as 90 per cent of restaurants in the country are spin-offs from their original namesake. The industry was the second largest spending category for UAE consumers last year, totaling $24.8 billion, according to the Dubai Chamber of Commerce and Industry.

Though F&B has experienced exponential growth across the Arab world over the past two decades, the pace of that expansion has slowed over the past three years. That in part is because of cautious consumer spending in the wake of reverberations from the glut in oil prices that caused some companies to carry out redundancies or scale down their size as they reassess their business operations.

Last month the IMF said it was maintaining its growth forecast for the Middle East, North Africa, Afghanistan and Pakistan region at 2.6 per cent for 2017, but was reducing the estimated expansion rate by 0.1 per cent to 3.3 per cent for next year as the oil price outlook remains cloudy.

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“The [franchising] market isn’t growing as we expect, but there is still growth,” said Imad Eddine, president of Francorp Middle East. The company, which began in 2005 as a local entity from the US-based Francorp, has helped more than 800 clients from strategy to legal and marketing covering a wide range of industries.

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Although Francorp Mena's growth has plunged to 10 per cent for the first half of the year compared to 22 per cent a year earlier, a new trend is emerging, trading F&B for services, such as spas and pharmacies.

Beauty salons, in particular, are "growing tremendously", he said, adding that the segment has grown to make up 11 per cent of its business from 5 per cent two years earlier.

Mr Eddine said the priority has shifted as a result of over-saturation in the F&B market, with four out of five new restaurants failing.

“But if you go into any place in the GCC, the first priority is to look good. It’s a habit. It’s part of the lifestyle. And we see the growth in terms of franchising,” he said.

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Kuwait's based retail giant Alshaya which which has over 80 brands in its portfolio across the Arab world, Turkey and Russia that include Starbucks, Aveda, Boots, and Le Pain Quotidien. Starbucks continues to see strong demand even as economies in the Gulf slow down and disposable income tighten.

“Despite some market softness in recent years, there has been a healthy and consistent demand for international brands, creating a very healthy franchising market in Mena,” said an Alshaya spokesman.

Alshaya said it has a pipeline of new brand franchises coming on board. The company plans to open eight new stores including four cosmetic and skin care brands, two pizzerias, a bakery and a clothing store.

"Franchising is one of the primary 'go-to-market' strategies for companies who want to expand their business into the Mena region," said a spokesman. "Commercially, the approach also reduces or removes financial risks attached to property, people, marketing and other infrastructure costs."