Franchising in this transcontinental country has not always had the attention of foreign investors that it deserves. Could this signal a massive missed opportunity?
Franchising across the Middle East and North Africa (MENA) region is expanding rapidly. It first entered the Egyptian market with the implementation of the Open-Door Policy in 1973, after which the sector experienced rapid growth, resulting in hundreds of international brands establishing a presence in the country. Fast food franchises have always been among the strongest of these new brands, but in recent years a great variety of other industries have also adopted the model as a proven method for expansion.
Franchising is rapidly coming to be seen as one of the most successful mechanisms for entrepreneurship in the country. According to industry sources, the sector is now valued at around EGP 80bn, with annual sales of EGP 14bn. The industry provides an estimated 800,000 direct jobs and 1.6 million indirect jobs.
However, how these industries are achieving this growth suggests a distinct bias in the market: a majority of franchises now operating in the country were initiated by Egyptian entrepreneurs approaching foreign brands, rather than through any significant push for recruitment by these brands themselves. While this is a generalisation, of course, and stems partly from the entrepreneurial spirit of Egyptians, it does highlight a significant missed opportunity. International brands that take a more proactive approach to recruiting talented individuals in the country may soon find they have a significant edge over their more reticent competition.
If you’re considering taking advantage of this and expanding your operations into the region, we have prepared some key insights to help your plan your next move:
A rising interest in foreign brands
One of the effects of the political and societal changes in Egypt over the last nine years is the increase in spending power among its citizens. The country now has an estimated five million “A class” consumers, who have an average monthly income of above USD $1,200, with the average household income now more than double what it was 10 years ago.
Not only is this rising new class of end-users increasingly wealthy, they are also young (Egypt’s median age is just 24.6 years), well-educated and familiar with foreign goods and services. They continuously seek high-quality and well-priced goods, though price is not always the main factor. Egyptian consumers have become ever more brand-conscious as living standards have continued to rise, and as they have become increasingly more exposed to western culture and media.
Traditionally, fast-food is king
Although the first fast-food franchise to open in Egypt was an English brand, Wimpy, the franchise sector in Egypt is dominated by brands from the U.S. Since its arrival in the 1970s, the fast-food sector has never stopped growing and is expected to continue doing so at a rate of around 15 per cent over the next few years. The current fast-food market is estimated to be worth more than USD $800m.
Demand continues to rise, making this is a very tempting sector to break into, though franchisors should be aware that it is a crowded marketplace already dominated by all the big brands. In this respect, careful research should be done into market penetration with the aid of local consultants who understand how to develop the right strategy and leverage.
“Despite the growth of franchising in Egypt, there is still no specific legislation in the country regulating the relationship between franchisor and franchisee”
This is not to say that non-food franchises are not also doing extremely well in Egypt. in response to the urban population’s growing demand for modern lifestyle brands, retail franchises now account for 49 per cent of the non-food franchising sector, with clothing and fashion performing particularly well. Hotel management, childcare, car rental, foreign language teaching, health and fitness, and electronics are also showing considerable market potential with a number of American franchisors such as Coldwell Banker, Gold’s Gym, Harley-Davidson, Hertz Rent a Car, and Marriott/ Starwood Hotels expanding into the country. Maintenance and facility management services, nurseries, facilities offering contraceptive methods, and ambulance services are also in increasingly high demand.
Lack of legislation
Despite the growth of franchising in Egypt, there is still no specific legislation in the country regulating the relationship between franchisor and franchisee. This is a double-edged sword, of course. One the on hand, this means franchisors can avoid the time-consuming and costly red tape they would have to deal with in other countries, but on the other hand, it leaves both parties open to significantly more risk.
A number of bodies, such as the Egypt Franchise Development Association and the Micro Small and Medium Enterprises Development Authority, have stepped into this gap with their own ethical codes and legal frameworks. However, there is still a long way to go before Egypt has the comprehensive structures in place that other nations enjoy.
New franchisors are well advised to seek well-informed experts to help them draw up franchise propositions and agreements that suit the situation on the ground, rather than stick rigidly to models they have used elsewhere. Having the correct framework in place from the get-go will help to avoid confusion and conflict further down the line.
This is an approach that will serve you well in every aspect of a potential expansion into Egypt. Currently, the Egyptian franchising market lacks the kind of professional advice that could give international concepts the support they need to succeed. While there is a strong element of legal advice available locally, you would be strongly advised to seek help from international consultants who have experience of the region and can help plug the gap in terms of management and financial advice.
THE AUTHOR
Farrah Rose is head of international development at The Franchising Centre and is a long-term member of the British Franchise Association
Special thanks to Rania Habib, a prominent marketing consultant in Egypt, for all her research and support in producing this article.
