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Thursday 11th August, 2022

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Franchising in Saudi Arabia: a complete guide

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Franchising in Saudi Arabia: a complete guide

The Middle Eastern franchise market is sometimes overlooked by western franchisors and entrepreneurs, but this is a painful mistake that can lead to even the biggest brands missing out on potentially millions of untapped customers

The Middle Eastern franchise market is sometimes overlooked by western franchisors and entrepreneurs, but this is a painful mistake that can lead to even the biggest brands missing out on potentially millions of untapped customers, or the perfect prospective franchisee.

It’s surprising to see, for example, that questions like ‘Can you own a business in Saudi Arabia?’ are among the top trending on Google. Not only is the franchise model a proven form of business development in Saudi Arabia, but business owners have been using it for years to grow both popular international concepts, as well as strong emerging frontrunners.

To learn more about which Saudi Arabia cities would be best for your brand, what influence the Saudi Arabia government has on the franchise industry, and whether Saudi Arabia culture could impact your development, make sure to continue reading our complete guide to franchising in the Kingdom of Saudi Arabia.

Understanding Saudi Arabia’s franchise industry, and the Saudi Franchise Law

The Middle Eastern region is renowned for its strong franchising networks, but few countries in this part of the world rival Saudi Arabia in terms of reliable franchise business and a truly successful example of the business model. In fact, Saudi Arabia represents almost 60 per cent of the Middle Eastern franchise market, showcasing its prowess as a region worth considering for international brands.

And while brands like Fatburger Saudi Arabia and Chuck E. Cheese Saudi Arabia have been able to open in the country with great success over the past decade, this could just be the beginning of an exciting Saudi Arabian franchise renaissance.

This is thanks, in part, to the Saudi Franchise Law that came into effect on April 22, 2020. Consisting of 11 articles and divided into 27 sections, the Saudi Franchise Law details the disclosure requirements, registration requirements, and regulatory framework that both foreign investment and local businesses need to abide by when expanding throughout the country. It would be a very good idea for any foreign investor to clue up on the specifics of this law, as the franchising sector in Saudi Arabia is strictly governed by its framework.

That being said, the Saudi Franchise Law has many similarities to U.S. franchising laws, with one of the main differences being that the former is shorter and arguably easier to approach. The Saudi Arabia government seemed to aim to launch a fairly basic set of regulations in the first instance so that a positive and ethical franchise relationship could be fostered among franchisors and franchisees in the country, and then this can be built on and developed and upgraded as time goes on.

“The new Saudi Arabian franchise law commenced in April 2020. Under this law, both the disclosure document and the franchise agreement need to be in Arabic and registered with the Ministry of Commerce and Investment,” says Melissa Murray, a partner at international law firm Bird & Bird LLP.

“Given that most international franchise agreements are in excess of 50 pages in order to comprehensively cover all of the items necessary for a sophisticated brand, converting such a document into Arabic is going to be a hard task. Arabic and English do not directly translate – it is a transliteration – and therefore the process of translation into Arabic needs to be undertaken very carefully.

“The process of translating documents into Arabic is also usually very costly. It is however not recommended to simply have the franchisee convert the document into Arabic – it is important to have your lawyers check the translation to ensure the legal concepts are correctly represented as in the event of a dispute, the registered Arabic version can take precedence over the English document (regardless of any clause in the franchise agreement to the contrary).”

Beyond the Saudi Franchise Law, there are still a few subtleties to the market that international franchisors may not be aware of. As Melissa Murray continues: “I have seen franchisors who are new to the Middle East not realize the importance of trademark registrations and/or the length of time it can take to register a trademark in some jurisdictions.

“We have had a number of instances where franchisors do not realize that in the Middle East, it can take up to 12 months for a trademark to register which often causes difficulties when negotiating with a franchisee, or when the franchisee is looking to open their outlets.”

Franchising in the ‘new Arab world’

For countries like Saudi Arabia, the emerging franchise concept will become just as viable as the dominant international franchisor. In the new Arab world, homegrown franchise brands will expand into different parts of the world, and they will introduce more trends, tastes, products, and services. These emerging brands will contribute to revealing the true Arab culture to the world.

Royal decrees and legal reforms in Saudi Arabia have also given the Saudi Arabian people more opportunities to engage with concepts and entire industries that they may not have been able to access previously. Women’s rights in Saudi Arabia are a hot topic, for example, and considerable reforms over the past few years have now made it possible for women to exercise and keep fit.

In light of this, prominent international fitness brands like Xponential Fitness have announced new growth into the country; initially focused on the Saudi Arabia capital of Riyadh. At the time of this announcement, John Kersh, chief international development officer for Xponential Fitness, said, “These openings are not only a huge step forward for Xponential Fitness and its brands, but a cultural milestone in Saudi Arabia as we introduce its citizens to the exhilarating world of boutique fitness.

“Notably, Xponential Fitness is excited to bring the benefits of boutique fitness to the women of Saudi Arabia, who are now able to pursue and embrace a lifestyle of health and wellness, which is a new development. We expect this will be one of hundreds more successful international openings for our brands.”

Domestic fitness concepts in Saudi Arabia are proving just as popular, with Saudi-based Fitness Time announcing last December that it would roll out 70 new openings over the next five years.

As far as the food and beverage industry is concerned, this is also a very popular segment of the Saudi Arabian franchised business sphere that is seeing international interest. German Doner Kebab, a Scottish-based fast-casual brand, announced plans in 2019 to open 100 Saudi Arabian locations over the next 10 years, with the first located in Riyadh, Saudi Arabia.

And in the retail space, home repairs franchisor B&Q announced plans in March 2021 to expand to the Middle East in partnership with the Al-Futtaim Group. Truly any kind of foreign company can succeed in Saudi Arabia, as long as the appropriate due diligence and preparation is carried out beforehand. A knowledgeable master franchisee in the country helps a lot, too.

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