Franchising in the UAE: not just a copy-paste job

Franchising in the UAE: not just a copy-paste job

Sanjay Duggal shows why in the franchising landscape of the United Arab Emirates, brand replication needs to be handled with care

A few years ago, an unusually succulent bun from South East Asia was introduced to the UAE market. The franchised concept was an instant hit, with tens of its branded stores springing up in the country within a relatively short time span.

In their country of origin, however, the buns are far from unique, with around half a dozen other franchisors selling an identical product. Curiously, their names are almost identical, too, with a minor play of words separating one from the other.

Inspired by this spectacular success, many regional investors hurried to woo those other bun brands, whose offerings, by all accounts, were equally good if not better.

Long story short, they all failed. Spectacularly.

When American Casual Dining brands first hit the UAE market to a frenzied welcome, onlooking investors drooled. Many made a beeline to franchisors for a piece of the decidedly lucrative formula of humungous mid-priced portions served in laid-back settings. However, most of the second wave brands couldn’t measure up to the performance of the earlier ones, and many had to cease operations within less than two years.

A woeful number of such examples exist in the retail and entertainment sectors, too. In fact, most attempts at blindly emulating others’ franchise success have visibly, and at times, miserably met with failure in the UAE.

Here’s why:

1. Reverse engineering successful concepts isn’t an exact science

Deconstructing the key components of a business model and reassembling them under a new identity is what many copycat investors have sought to do. But whereas the role of behind-the-scenes factors like incisive leadership, a well-honed risk appetite and sheer grit may not be evident, it can be critical. The disparate success rate between seemingly identical sweet bun franchises is a classic case in point.

2. Circumstantial benefit can be disguised as a good idea

An acquaintance who worked for a major facilities management firm for 23 years got retrenched from his job in Dubai about five years ago. Following some research, he decided to invest in a cleaning franchise and by the beginning of year three, he was a bonafide millionaire. With Dirham signs in their eyes, two of his close friends partnered to start a similar enterprise… and lost their shirts.

Diligent observers should have known that cleaning is a brutally competitive business, and that their friend’s operations grew exponentially only because of his extended networks in facilities management.

3. Good timing can’t be copied

Many franchise enterprises owe their exceptional results to good timing. This includes the right concept, at the right stage in the economic cycle, at the right demographic inflection point. And although good timing is usually attributed to strategic foresight, the fact is that it is often pure luck and that the same ideas just wouldn’t fly in different circumstances. Those who boarded the UAE cupcake wagon relatively late and found it stalling shortly afterwards will testify to that.

4. Deceptive appearances - Some franchisees are failing even when they look like a success

It’s no secret that in a franchise agreement, the odds are rigged in the franchisors’ favour. Often investors find themselves in the middle of a development schedule that mandates, say, five locations in four years. These openings must take place regardless of the performance of pre-existing individual units. Also, it’s usually less damaging for a multi-unit franchisee to continue with a sub-optimal operation than to pull out of an agreement mid-stream. Regardless of the backdrop, however, the new locations portray outward success and inspire me-too investors, who frequently end up disillusioned.

5. The lifecycles of consumer trends have shortened significantly

Be it shopping patterns, food preferences or clothing habits, trends run for a measurably shorter time than before. The reasons for this may be too many to enumerate, but the underlying factor is that incessant change is the new normal, especially with the UAE’s propensity to be an early adopter of latest practices in every field.

Predicting longevity of trends is, therefore, an exercise in futility, and one might find that by the time an idea has been emulated, everyone else has already moved to the next one.

6. The reverse also holds true - Failure doesn’t make an idea unfeasible

Just as mimicking another’s success doesn’t guarantee your own, drawing unwarranted conclusions from failures can lead to missed opportunities. Franchised concepts that initially bombed don’t necessarily imply an unfeasible concept. Instead, failure might just be a way of simply learning ‘how not to do’ something. Submarine sandwich chains initially received a lukewarm reception in the UAE, where the Shawarma reigned supreme. Fast forward to the present day and both co-exist and thrive.

7. Tech evolution is in overdrive

Technology is inseparable from business and franchising. With every new iteration, there is a greater shift in the way strategies are devised and transactions are conducted. The present rate of progress is turbo-charged, and it’s impossible to predict which revolutionary development is right around the corner that will change an industry for ever. In such circumstances, aspiring franchise investors must keep a very keen eye on the tech world, where just a few missteps could destabilize an entire franchise system.

Success and failure may leave clues, but those of any consequence can only be unearthed through diligent research and clinical objectivity. In a world where change shows up at one’s door with little notice, the best bet for franchising success is original thought coupled with a hardy, shape-shifting dynamism. That’s definitely what the UAE example points to.

ABOUT THE AUTHOR

Sanjay Duggal is Vice President of Business Development for the Dubai-based Middle East & North Africa Franchise Association (MENAFA), a membership organization of franchisors, franchisees, and service providers. As the only formal organization serving the $30 billion franchise sector growing at a rate of 27 per cent annually in the region, MENAFA is a platform that actively promotes the cause of franchising from both sides of the franchising divide.

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