Saudi Arabia is the largest market in the Gulf region, and the franchising model continues to expand in several business sectors. Half of the Saudi population is under the age of 15 and many have traveled to the United States and Europe, where they acquired a taste for Western culture, lifestyle and food. Over the past 10 years, the number of franchises has increased in Saudi Arabia, the largest market in the Middle East. Most of the international franchise concepts are available, some of them under “the exclusive agency” concept by which agents are used to opening numerous stores and branches under their own ownership.
American franchises account for more than 70% of all franchised operations in Saudi Arabia. Recent estimates point to investments in this sector of about $250 million, growing at an average of 20% every year. There are more than 300 foreign companies that have established a franchise in Saudi Arabia. Additionally, many local companies are now pursuing their own franchising concepts, and have expanded domestically and regionally.
The Saudi government is keen to encourage growth in the private sector to increase employment opportunities for Saudi graduates, and at the same time to lessen the dependence on oil resources. Studies indicate that franchises have made significant contributions to the country’s economy, stimulated growth and diversified business concepts, which, in turn, prompted young Saudi entrepreneurs to explore and invest in the franchise sector. This has also boosted the demand for franchise consulting and development services.
Franchising opportunities are expanding beyond restaurants. The franchise market is not limited to this sector only, but it also covers automotive services, beauty, laundry services, printing, hotels, logistics, medical, retail, furniture and food and beverages. There is a demand for anything related to automobiles – customization, accessories, products and services. Likewise, specialty retail stores, educational products and services, and home furnishing franchises are in demand.
U.S. franchisers have led the market and recently, with names like Krispy Kreme, Gap & TGIF entering this growing market.
Saudis are encouraged by the various Chambers of Commerce to look to franchising as a way to create jobs, provide additional training to new job entrants, and encourage small business development. The retail industry is booming in Saudi Arabia and this phenomenal expansion is creating tremendous opportunities for new products and services, which in turn, has created intense competition among brands, retailers, vendors and other service providers.
Success in the Saudi market is often attributed to finding the appropriate franchisee and location. Usually, fast food franchises are situated near shopping centers or areas with high traffic flow. Non-food franchises account for 55-65% of the franchise market, especially apparel and fashion retail outlets.
The large expatriate work force in Saudi Arabia patronizes franchises as a way of obtaining the same quality and level of services received at home. There are approximately 7 million expatriates living and working in Saudi Arabia.
Franchisers should take into account the culture and religious background of the Saudi people in order to appropriately tailor their franchise concepts. In turn, this has presented a window of opportunity for U.S. and foreign companies; for instance, restaurants are required to have two entrances and two eating areas, one for Singles (males without their families), and another for Families, which has prompted foreign and U.S. companies to expand their seating areas and thus their daily capacities.
Saudi consumer trend has changed dramatically in the last five to six years – transforming them into more refined, savvy consumers who demands value for money, a recognized brand and quality customer service — like any other consumer in the world.
U.S. companies interested in finding Saudi franchisees should consider attending the Saudi Franchise Show, to be held at the Intercontinental Hotel in Riyadh on June 1-3, 2010.