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Why Franchises are Gravitating Towards the Middle East: Sprinkles, Smashburger, Shake Shack

Mar 09, 2013 02:23 PM EST | By Staff Reporter

When you think of franchises, the Middle East does not usually come to mind. Yet that is where franchises are increasingly turning to find expansion opportunities.

The appeal of the Middle East is simple: demand and capital. Franchises rely on a ready stream of entrepreneurs who have enough capital to build their stores. In return, franchise businesses receive a fee and a cut of profits. The Middle East has benefited from oil wealth, and many businessmen are turning to franchising to expand their portfolio of companies. Their capital makes the region a desirable expansion opportunity for franchise businesses.

Driving this interest is an increasing demand for American brands. Foreign workers account for some of this, as many who come to the Middle East are drawn to internationally recognizable Western food. Especially in malls and similar consumer attractions, a restaurant serving American food can be a big success.

Middle Eastern businessmen also enjoy the ready-made business plan and proven profit model that comes with franchising. Some disagree, however, in that not all franchises have a breakthrough or original concept to offer. In a few cases, the businessmen are paying for only the name and a simple concept. Those who disagree would say that this is all that is needed.

Brands that have expanded to Dubai, a commercial powerhouse in the region, include Shake Shack, Magnolia Bakery, and the venerable Sprinkles Cupcakes. Smashburger has recently opened in Kuwait as well.

There are risks on both sides in franchising. For franchises, quality control is the number one issue. Ensuring that the food translates over to a new context properly can be difficult, even more so when the culture and supply chain is worlds apart as it is in the Middle East. On the other hand, businessmen are taking the chance that the draw of the brand and the business model will have enough upsides to justify the cost of franchising.

For now, it seems that the guidance and system provided by franchisers has provided enough benefits to draw a supply of capital and partners. Perhaps the Middle East will be a boon for franchisers willing to lend their brands to partners on another continent.

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