The Middle East is no stranger to franchising. International brands made their way to the region decades ago and have flourished in the market since. Now, as the restaurant industry has matured, competition is fierce. The local market has evolved, and the development and growth of homegrown brands have altered the playing field.
Local concepts have watched, learned, and come to the table with progressive, differentiated, competitive brands – and franchising abroad is the obvious expansion choice for many, as they set their sights on the West, heading for Europe. Now many of these brands are asking themselves: “What does it take for a Middle Eastern brand to successfully franchise in Europe?”
For Middle Eastern homegrown brands eyeing Europe as their first cross-continental jump, it’s extremely important to have a strategy and target specific markets that will give the brand its best opportunities to grow. Here are five essential points to consider before franchising into Europe.
1. Location and format
Every brand has its standard format and minimum location requirements to be able to execute its operations and optimize guest experience and revenues. Many parts of Europe, especially in the city centers, have limited availability when it comes to larger sites.
In Europe, the more flexible a concept is with footprint and the smaller the space in which it can operate lends itself to more availability of location options for the brand, thus increasing opportunity for scalability.
If your brand requires a larger footprint, consider alternatives on how you can reduce the total area required to give you more options for scalability. If your concept is full-service, a change in service format could be a solution. Europe is no stranger to limited service formats. Consumers, at times, prefer limited-service formats as the hustle and bustle of the day, especially in big cities, does not allow them more than 30 minutes to grab a meal, and access to the convenience of a quick and easy-to-grab meal is a big selling point.
2. The business model
The Middle East is a market with unique perks when it comes to restaurant operations. For example, one of the many things that western brands love about operating in the Middle East is the comparison of the labor model to their home markets.
Cost of labor is considerably lower in the Middle East than in Europe, where staff costs are higher, and heavily staffed restaurants require higher sales volumes to balance out the P&L. Social security, employment tax, and similar government fees are not part of the operating expenses in the Middle East and need to be considered. Some of this may be offset by not having visa costs in Europe since most employees are responsible for their own eligibility to work, but it’s important to understand the difference in fees and costs with each European country.
Finding ways to adapt your business model to reduce staff costs via cross-training, menu minimization, or converting from full service to limited service are a few quick ways to reduce the required number of employees. These adaptations are not something that franchisors should depend on their franchisees to do. One of the principal reasons for investing in a franchise brand is having access to a proven operating system, and it’s the responsibility of the franchisor to provide this.
3. Your unique selling proposition (USP)
Each European country has its own F&B landscape comprised of international non-E.U. brands, European chains, local and regional homegrown brands and the single unit restaurant businesses that make up the market.
Your brand has its own USPs that differentiate it from its competition and are part of what makes it successful. Do the research to understand if those USPs give the brand the same advantage in your target European markets or if you are going to need to make adaptations to compete on locally. What sets your concept apart from the crowd in France may be different than what sets you apart in Germany.
The countries will have different levels of competition and market saturation. Germany, for example, has very different regions within the country where the price sensitivity, consumer behaviors and operating regulations all vary. Make sure that your USPs translate with the same impact or seek to add new USPs to give you an edge over your European competition.
“For Middle Eastern homegrown brands eyeing Europe as their first cross-continental jump, it’s extremely important to have a strategy and target specific markets that will give the brand its best opportunities to grow”
4. Proving the concept
The homegrown brands in the Middle East have always had to compete with international brands, forcing them to be innovative and creative, which has inspired some exciting and unique concepts. However, not having a proven concept or brand awareness in Europe poses more potential risks for franchisees who could be the first.
They will be the pioneers of your brand in the region who will commit to taking a risk on an unproven opportunity in the market and working through the learning curve with you of launching on a new continent. If they are successful, this will open the door to many more franchise opportunities and lay the groundwork for a prosperous franchise expansion journey.
The speed of success of your penetration into Europe is heavily dependent on those first few locations. To overcome this hurdle, opening a few units directly or with a JV partner in a market can be a good solution, which will allow you to work through the necessary adaptations to fortify the European operating model and prove the potential of the concept.
If you are going directly to franchising, take the time to vet your potential partners properly, ensure that they have the capability to establish the brand and operate successfully and give them the resources, time and attention needed to be successful. Your primary focus should be on ensuring the success of your first units and building on the success of this model from there.
5. Potential franchise models
When deciding in which markets to start, franchisors must take into consideration market size and development opportunity, barriers to entry, financial and legal requirements, and, most important, availability and capabilities of viable partners.
Many large European countries, like Germany, France and Spain, have very few restaurant operators and potential franchise partners with the capability to operate the entire country, but a great number of strong regional operators who know their regions and local consumer demands extremely well, making them ideal candidates.
Make sure you understand the pros and cons of each franchise model and the implications of the model for each country. A brand’s operating model may be a determinant in deciding which franchise model works best.
That said, brands like Starbucks and Pizza Hut have a mix of area development and master franchising, showing us that it’s not always the same solution for every country. Do the research to understand the advantages and disadvantages of each model when applied to your brand in each country.
Rebecca Viani is the head of international development & franchise advisory at WhiteSpace Partners, a strategic advisory firm specializing in restaurants and foodservice, with specializations in Europe and the Middle East