Franchising Your Concept in Egypt
Franchising World, April 2007
Egypt holds the promise of much needed expansion in the private sector.
Franchising in Egypt began in 1973 with President Anwar al-Sadat’s “open door” policy. This followed a period of strict social and economic control during which the market had been stagnated and distanced from the rest of the world. Wimpy was the first brand to take advantage of the new openness, by signing an Egyptian franchise contract, and opening its first restaurant in Cairo. The franchise was so successful that, initially, it couldn’t cope with the endless lines of customers who craved their product. Hamburgers quickly became fashionable, and Wimpy expanded throughout Egypt. Following the triumph of the Wimpy experiment, the word spread and franchising began to take off with other international chains rushing to follow the example.
The changes which occurred in the retail business during the 1970s were amazing. The rapid chain of events that ensued was truly remarkable as franchising in the food sector was swiftly developing. At first, every ingredient was imported, but after three to four years, young Egyptian investors began building food factories licensed by international brands manufacturing ketchup, french fries and pastries. Consequently, factories became so efficient in the production of quality goods, that after fulfilling the local demand, they began exporting their products to countries throughout the Middle East and Europe.
The direct effect of demand regarding varying concepts spurred a steady growth pattern, which translated into all sectors. The poultry industry, for example, flourished, with the high demand of chicken product needed to fulfill the mounting requirements of poultry chains. Hundreds of international breeds began to invest in Egypt, building numerous modern slaughter houses.
Local restaurants changed their image, which also necessitated an increase in the production of ceramic tiles, compelling factories to produce and expand. Small factories developed to produce uniforms for these chains, to avoid incurring the high costs of importation. Training became an important part of this development as well. Suddenly, this expansion in the private sector was creating jobs and educating the population.
Large refrigerated trucks were suddenly seen in the city, where none had existed before, supplying food products to restaurant chains and new modern supermarkets. Additionally, many small, local factories specializing in building small and middle-size cold storage rooms were created.
New marketing and advertising firms flooded the nation with modern, impressive publicity through local TV, and generated a new way of thinking with the development of concepts for the work force and consumer, such as bonuses and coupons, forever changing the appearance of printed material.
Packing materials were developed with creative designs using more efficient and superior materials to meet the demands of retailers and service providers.
After several years, competition between the chains escalated, resulting in a continuous stream of remodeling efforts and constant improvements, incorporating the latest technology with a variety of tools such as cash machines, signage and decoration.
Progress and Benefits
By the start of the 1980s, young Egyptian entrepreneurs launched their own chains based on the Western modern image, and within a few years, a plethora of international and typical Egyptian foods were available to the consumer in hundreds of modern restaurants at reasonable prices. As a result of local and foreign investment fostering economic development across the board, the demand for franchises increased dramatically and new concepts were introduced to meet mounting needs.
From here was born the concept of home delivery, a hugely-profitable business today. Now, one can order virtually any consumer product by telephone for delivery and tens of thousands of young people are employed in this sector. As consumers became frequent customers, the database developed into a very important asset. Promoting sales and keeping information classified was a must, not to mention boosting an already-escalating competitive environment.
Socially, these food chains created many changes within Egyptian behavioral patterns as well. Cleanliness and quality allowed families to feel safe and comfortable, permitting their children to go out on their own. A cheerful atmosphere and fun promotional items and gifts available at these chains attracted children and the younger generation began to frequent them often, meeting friends and planning and parties. It gave the Egyptian youth a safe acceptable place to patronize.
Many of the local and international chains began fulfilling their obligation towards the community by providing funds to modernize schools and subsidize hospitals, something greatly needed and deeply appreciated by the public, as well as the government.
The country is entering a new and exciting era. Just a few years ago, European chains in the fashion industry began their expansion into the Egyptian market; this clearly holds the promise of having the same snowball effect on the private sector that the food industry produced. Large modern factories will need to be established with international licenses to cater to the needs of retail shops creating thousands of decent jobs. Egypt is still an emerging market with much room for advancement.
Presently, the Egyptian Franchise Development Association, founded in 2001 by a group of experienced businessmen with more than 35 years of experience in franchising in the Middle East, is the first association of its kind in the country. It is dedicated solely to promoting and building awareness for the franchising sector. The creators of this non-governmental organization believe that franchising is one of the most important tools to develop the country and generate decent jobs to face the growing increase in population. Egypt’s population currently stands at nearly 76 million people and is expected to reach 100 million in 10 years, more than half of them under 20 years of age.
With the cooperation of the governmental financial body: the Social Fund for Developments, EFDA is able to provide financing to small- and medium-sized enterprises, encouraging young entrepreneurs to invest in successful franchise concepts.
Each year EFDA organizes an international franchise conference and exhibition which attracts many international companies, as well as locals and allows them to display their concepts and meet with qualified prospects. During this conference and exhibition, there is a two-day seminar discussing the various aspects of franchising to increase awareness and highlight its benefits.
Egypt’s economy is becoming one of the most open, resilient and internationally integrated markets in the region. With a unique geographic location, an estimated 300 million consumers in the region, there is a great deal of potential for successful endeavors.
Choosing Egypt as a location for investment has becoming increasingly attractive; in just the past year, there has been an economic growth of 6.9 percent and within three years it is expected to each 10 percent. Not only has the market been the best performing emerging market worldwide over the past three years, but the country’s major advantages in availability of natural resources, a skilled and competitively priced work force, advanced infrastructure and opportunities for combining trade and investment strategies have made it one of the most attractive regions globally for franchising enterprises. In just six years, franchising ventures have grown by 800 percent in the country.
Egypt provides many important advantages to all private-investment projects, domestic and foreign, in all industries. It is a gateway to other Arab and Middle Eastern countries and by the year 2010, there will be a gradual tax reduction between all European and Mediterranean countries as well.
As the population grows, there is a greater need for more facilities, variation, different venues and modernization. There is a great demand for a diversity of services including fashion, information technology, training and ambulances, just to name a few. Egypt holds the promise of much needed expansion in the private sector.
EFDA has a three-part plan for the future of franchising in Egypt. A short-term one is to increase awareness not only for young investors, but with financial institutions, to create specialized departments and counseling with respect to franchising. A longer-term goal is to develop a program on franchising to be incorporated in the final years of university studies, particularly in the faculty of commerce and law. In the long term and on an on-going process, the goal is to work with the government to adjust laws and regulations to conform with new activities and evolvement of the market to a free- market economy, thus allowing for new franchises from all over the world to be introduced to the Egyptian market.
Hussein Aboul Fath is the secretary general of the Egyptian Franchise Development Association. He can be reached at firstname.lastname@example.org.