One hot June day in Barcelona last year, Mohamad Bitar decided that Just Falafel, the company he founded in 2007 with a group of investors including the Lebanese-British entrepreneur Fadi Malas, would become JF Street Food – and meat would be back on the menu.
Just Falafel had recently opened its first American outlet, in Fremont, San Francisco – with plans to open a further 168 stores in North America and 1,000 stores internationally by 2020.
Mr Bitar decided he wanted to scrap this goal. Instead, with the firm’s rapid growth proving more troublesome than anticipated, he imagined himself as the owner and operator of a smaller chain of restaurants: 500 profitable restaurants would be better than 1,000 loss-making branches.
“It’s safe to say that we made mistakes,” says Mr Bitar. “We wanted to be the next McDonald’s. Later on, we found out that McDonald’s doesn’t want to be McDonald’s any more.”
Just Falafel’s franchises were having particular difficulties in the UAE. A number of branches in unsuitable locations lost money when it turned out foot traffic was not high enough. One Just Falafel manager in Abu Dhabi described his customer base as “vegetating”.
Just Falafel’s international expansion was also difficult. It closed its branches in Jordan and Lebanon last year and the practical difficulties of offering a single brand in more than 10 different countries were starting to hit home.
“Not all of the franchises were profitable,” Mr Bitar says. “Some were opened in the wrong location and some we shut down.”
Mr Bitar took his concerns to Mr Malas in August. Mr Bitar argued that while the franchise model had advantages, he thought Just Falafel should focus on operating its own, high-quality restaurants – abandoning the strategy of rapid growth pursued under Mr Malas.
Mr Malas agreed with the strategy but told Mr Bitar he did not want to run the kind of company his partner was proposing. He said he was a dynamic entrepreneur who wanted to launch new enterprises and did not see himself as the chief executive of a restaurant operator.
Mr Malas resigned in October but remains on the company’s board and remains a stockholder. Just Falafel described his departure as “amicable”.
“My passion is to spend more time on entrepreneurship, rather than operations,” Mr Malas says.
This month, Mr Bitar unveiled his new big idea: JF Street Food. The menu, the decor, the logo and the target market would all change. The company would no longer accept new franchise requests but would aim to expand the number of restaurants directly owned by the company.
“[Just Falafel’s] franchising model was opportunistic, rather than strategic,” says Michael Biggins, who became Just Falafel’s chief operating officer in January last year. Mr Biggins was previously a senior director at McDonald’s and is the author of a book about franchising.
“We were doing everything for the first time,” Mr Bitar says, reflecting on the early days of the company. “It’s not like another UAE brand did this before and we were following suit.
“There’s a learning curve in retail, and mistakes are inevitable – even if you do the research. When you open your doors, there’s only so much you can do.”
Just Falafel did not fully weigh the implications of moving into so many international markets at once.
“Before you enter a market, whether in franchising or operating, you need to do the research,” Mr Bitar says. “But we had such high growth and we wanted to keep up with that growth.”
Mr Biggins says there were other considerations, too. “There was a cost associated with providing support, marketing, and the supply chain for a new franchise store internationally – and we needed to take that on board.” He promises things will be different from now on. Before entering a new country, JF Street Food will “do all the good homework, launch restaurants ourselves, confirm we have a replicable model, and then issue the franchise”. Mr Biggins previously ran Just Falafel’s UK restaurants. He learned that, despite the United Kingdom’s large vegetarian market segment, “when we actually began opening and operating restaurants, there weren’t enough people visiting with enough frequency to make the topline strong enough.”
This lesson was quickly learned at home, where the company had not been thinking through its property deals.
Rapid growth meant Just Falafel was buying up new sites in the UAE at great speed – even when this did not make good business sense, Mr Biggins says.
“We had a vision of opening a lot of restaurants in the UAE, so we started to accumulate sites – even where that would cannibalise sales from our existing restaurants.” The difficulty of buying up prime retail space in Dubai also caused problems for the company.
“In Dubai most of the prime retail space is in shopping malls. But mall operators look for known names when allocating retail space, which can make life harder for individual operators,” says Enrico Clementi, the managing partner of Tribe Creators, a restaurant consultancy.
More than one Just Falafel franchisee bemoaned the difficulty of getting prime retail space in Dubai.
But there was another thing missing from Just Falafel’s formula – meat.
“There just aren’t enough people who love falafel enough ... [for us] to end up with profitable restaurant volumes,” Mr Biggins says.
Mr Bitar commissioned a survey of 1,000 Just Falafel customers in August, the results of which he described as “mind-boggling”: 87.5 per cent of Just Falafel customers are regular meat-eaters, and the remainder eat meat occasionally.
When one branch in Dubai recently introduced meat and chicken shawarma, “sales went through the roof”, Mr Bitar says.
“How do you widen your appeal? The product offering is always key,” says Mr Clementi.
“You need to identify what the demographic wants, change the product, then market and package that in a way that is appealing.”
What Just Falafel did initially was to take a well-known, popular street food, make it a chain and package it properly,” says Mr Clementi.
“The key was to make sure the branding was up to date and that the experience was on par with what you’d find in food courts and competitors,” he says.
But there have been some grumblings that the food was exactly that – on par but no better, than its competitors.
We “forgot about the food”, Mr Bitar told Arabian Business in October. A new menu and a new name could give the brand a lift. But Mr Bitar will have to make sure not to turn off existing Just Falafel consumers.
“I wouldn’t mess too much with a very well known name – because it has existing value,” Mr Clementi says. “If you’ve been in business for a long time and the crowd knows you for what you are, you might as well change the concept altogether.”
Mr Biggins admits the name change is a worry. “It’s a careful balance of clearly communicating to the consumer that something significant has changed. The name change creates some new interest and curiosity.
“On the other hand, we have had seven years of the Just Falafel brand. How much do we give up?”