Timely and flexible partnerships combined with planned growth are key to the evolution of food franchising in Oman

Nazia Khan

Circa the mid-90s: when it came to the food franchising business, Oman was perhaps a decade ahead of the times. It was home to several international brands, some of which were standalone in the GCC, and provided a good variety of snacks and meals. But back then, it was almost as if the market was not mature enough for the brands it housed. For franchisees, challenges ranged from supply chain concerns to pricing dilemmas and perhaps, expansions that were undertaken merely to fulfil requirements under the franchise agreement. Ultimately, issues prevailed over profits and several international food franchises packed up and left. (See box on page 45)

However, lessons were drawn from those cases, both by seasoned players in the industry and budding entrepreneurs. Today, the scenario is different. There has been a steady influx of new food franchises, with the promise of more to come. Besides, most of the food franchises seem to be evolving, continually adapting global concepts for a local market that has its own unique features and also its share of peculiarities.

Hail the franchise The franchise model works for the food industry first because of its inherent characteristics. Explains Ashfaque Ahmed, partner, Kobe Sizzlers, a franchise from India, which is one of the latest entrants in the business, “There is a lot of learning when you start your own restaurant. May be it is not direct cost, but time is money. There is a lot of learning that the franchisors have gone through to make their food, their service, and their systems work so well. It made more sense to us to take that model and achieve a quicker response.”

It is true enough that you do not have to reinvent the wheel when you take the franchising route. Hani Mirza, managing director, Bin Mirza International, who has the franchise for Nando’s, among other brands, points out more benefits of a concept that has been tried and tested in other markets. “People are very brand-aware these days. So buying a brand name can only help you.”

Most people in the business agree that it is more expensive to take on a well-known food franchise than it is to start a new restaurant. Upfront franchise fees (varying from US$25,000 upwards, depending on the strength of the brand) plus royalty fees out of sales (ranging from six to ten per cent) ensure that. Fudd-ruckers, for example, requires its franchisees to have a minimum net worth of US$750,000 and minimum liquid resources of US$350,000. Says an industry source, “Let us assume it costs you US$1,25,000 to start your own restaurant. It will perhaps cost you twice as much to obtain and start a food franchise.”

But it is also generally agreed that the cost to benefit ratio tends to work in a food franchisee’s favour. Vivek Pande, general manager, Lifestyle Group, Khimji Ramdas, franchisee for Pizza Hut, provides an example. “Pizza Hut has about 600 outlets in the MENAPAKT (Middle East, North Africa, Pakistan and Turkey) region. As a block, we have such large buying power that we get very good prices – whether it is for Cheddar cheese, pepperoni or chicken, mutton and beef. That helps us price our products competiti-vely.” There is another advantage that critical mass confers in the case of Pizza Hut. All franchisees in the region pay a certain percentage of their sales into the kitty of a cooperative that they have formed. These funds go towards shooting and running television commercials, which Pande describes as ‘by far the most powerful and effective media to reach people’, on networks in the region. Think 1,600 spots in 40 days, ensuring that at least half the people see the ads three times. It demonstrates the combined power of numbers and communication that can be leveraged for food franchising.

The way to work it One of the lessons learned from past examples has been that brand might can translate into growth only when it is accompanied by pla-nning. Karim Salem, marketing manager, Americana Oman, which has the franchise for KFC and Hardee’s in Oman, reinforces that sentiment. He explains the strategy related to KFC, which opened its first outlet in Oman in 1986. “We have expanded step-by-step, as per market needs. Oman’s market is different compared to other GCC countries, it is a healthy growing market and competition is becoming fiercer compared to previous years.” Currently, KFC has 12 outlets and Hardee’s three in Oman.

Phased expansion has been the philosophy for American pizza franchise Papa John’s as well. The brand, which came to Oman in 2004, has four branches at present. A fifth one will open shortly at MQ, and the location has been finalised for a sixth one at Al Khoud. S K Surati, operations manager for Oman, says that the growth strategy makes sense considering how the society is changing. “Someone who was a child when the first of the franchises came here has grown up with those foods. There is awareness among the newer generation, a generation of early earners, about the brands that are available.” Adds Ahmed, “The economy is booming in the Middle East. We have seen a lot of projects kick off in Oman. A lot of new international companies are entering the market, which means a lot more people are coming in.”

What is needed to further food franchising triumphs now is to continue to get the equation right. Says Salem, “The best dining experiences, which combine value-for-money, international quality standards, the convenience offered by consumer promotions, speed of service and home delivery service, have led to success for both KFC and Hardee’s. You have to get all the elements right to be successful.” The formula seems to be working because Salem describes 2006 as the best year for the fast food franchise industry in Oman. “Personally, we have enjoyed amazing growth rates for both brands compared to previous years.”

Delivering through time Selection and adaptation are also key to success in the business. Explains Mirza, “Throughout the world, the trend is moving away from fast food into fast casual. People are also moving towards healthier food. I chose Nando’s because of these reasons, among others.” Also, Nando’s in Oman provides full-service because it is expected, as opposed to counter-service in other parts of the world.

Pande points out that the menu mix at Pizza Hut, which has 15 outlets in Oman at present, has undergone a strategic shift in the last few years. “We don’t want to be perceived only as fast food. We want the perception to be ‘pizzas and more’. So we have introduced a variety of non-pizza products such as salads, pastas, beverages and desserts.”

It is true now that there are more opportunities in Oman than there were before. Customer satisfaction remains the ultimate goal, even in the pursuit of providing variety. To this end, the flexibility that franchisees enjoy will make a lot of difference. There are, of course, different food franchises depending on different budgets. But a good idea, Mirza believes, is to always negotiate. “The franchisors want to come into your market. If you believe that you can add value to them, you can always negotiate very hard. It is essentially a win-win situation. They want to enter the market and you want to bring them here.”

It is expected that pizza franchise Domino’s and restaurant franchise Japengo, that serves Japanese food, will be in the sultanate soon. Even Taco Bell, with its trademark tacos and burritos, might make a comeback. For the food franchising business to work, what is needed is a mutual partnership, as opposed to just a franchisee-franchisor relationship. Once that understanding takes root, options will only increase and become more adventurous for the diners in Oman.