KFC, Subway, Steers: Talking restaurant franchising in East Africa
In the last five years a number of international restaurant franchises have opened in East Africa.
In the last five years a series of international restaurant franchises have opened in East Africa. American chains KFC, Naked Pizza and Subway; South African brands Big Square and Adega Restaurants, and UAE-owned Caramel Restaurant & Lounge are some that have launched in recent years.
More are set to open in coming months, including Mugg & Bean, a division of South African restaurant franchise group Famous Brands, and seafood chain Ocean Basket.
Fast-food franchise boss Azam Samanani says the “opportunity is obvious” in the food business. Samanani is managing director of Hoggers Limited, the Kenyan franchise holder for South African brands Debonairs Pizza, Steers and Ocean Basket.
“We have a growing population and a growing economy, and everyone likes to eat. There is also an additional value with established food brands,” he says. “It’s clear globally that Africa is the place that everyone wants to be, and when you look at the high-performing regions… East Africa is one of the obvious ones. It has infrastructure, a growing population and sophisticated clientele.”
“So all the fundamentals are there and, from an international standpoint, it seems to be less risky and also simpler compared with other regions.”
Sticking to a proven concept
Gavin Bell is the general manager of Kuku Foods Kenya (franchise holder of KFC in East Africa). As chairman of the Kenya Franchise Association, Bell says he has spent long periods trying to get people to understand the essence of franchising.
"Many a times I felt I was banging my head against a brick wall. I felt no one was listening and couldn’t understand why,” says Bell. "But now the industry is growing rapidly and I can tell you many more brands are coming. Over the last year I have been involved with a lot of people who want to become franchisees.”
Brands that have entered the East African market seem to making progress. Subway has six stores in Dar es Salaam, Tanzania. In Kenya it has just opened its third store, with one more in the pipeline. American entrepreneur Christopher J. Bak tells How we made it in Africa his company, Liberty Eagle Holdings, which operates Subway stores in Kenya and Tanzania, is negotiating several leases for 2015 and there are plans to develop up to 20 outlets in the region.
Former investment banker Ritesh Doshi quit his job in London to bring Naked Pizza to Kenya. The first store opened in Nairobi two years ago and Doshi says the brand is “performing well”.
“Our food truck launched a few weeks ago and is doing well, and we are on the verge of opening our third outlet in a few days. We have also committed to one store next year and are currently negotiating three more sites.”
Bell explains that franchises are thriving in the region because customers trust established brands since they uphold high quality and food safety standards, have fair price points and maintain consistency across multiple outlets.
Doshi says he decided to become a franchisee, as opposed to starting his own brand, because he had no experience in the food and quick service restaurant industries.
“The choice was to spend a number of years learning the hard way, or getting up and running with a proven concept that could be adapted for the local market. I chose the latter.”
For Pakistani-born entrepreneur Sadiq Surya, a lack of knowledge and understanding of the Kenyan market prompted him to become a franchisee. After 22 years living in Dubai, he relocated to Nairobi and opened the South African franchise Adega Restaurants.
“I did have different restaurant ideas and concepts which I wanted to do here, but this is a new market for me, one that I wasn’t very familiar with. When you are in a new place, everything you are doing is already a big risk. You don’t know the taste of the people, for instance.
“So I decided to bring Adega which is a popular restaurant in South Africa. I had eaten at Adega before during my visits to Africa and enjoyed it. Plus it is not restrictive since they allow us to have variety of food, including poultry, seafood and beef,” explains Surya.
After 18 years in business, Samanani says Hoggers has the capability and knowledge to build its own brands. However that choice has a trade off because it involves committing to the lengthy process of educating the public to something completely new.
“In the interest of speed we sometimes choose to take on a brand that people already know. With our most recent acquisition, Ocean Basket, we identified that there was a gap in the seafood market with most outlets being either over-priced or too limited in their menu variety and quality,” he explains.
‘Not completely on your own’
Franchisees run a business based on the franchisor’s established operational methods. In return they pay royalties to the franchisor. Subway’s Bak explains that a franchisee gets access to a well-tested toolkit that helps them train staff, control in-store operations and communicate with customers.
This support system, Doshi says, is one of the advantages about being a Naked Pizza franchisee because one can run the business without being “completely on their own”.
“The best thing about being a Subway franchisee is having hundreds of other business owners facing similar challenges, and are willing to share their knowledge and answers,” Bak adds.
Compared to operating your own brand, Doshi says being a franchisee involves running the business in a slightly different way, since the entrepreneur has to operate within tight guidelines with regard to recipes, standards, branding, and marketing needed to ensure maintaining high standards across the bar.
“Franchisors are not interested in franchisees who are trying to reinvent the wheel. There are a number of restrictions that are placed on you so that your offering replicates of the global experience of a brand. While this may be uncomfortable to some franchisees, you must understand that your royalties are paying for the knowledge and best practices of a global company.
“The best franchisors, however, recognise that not all markets are the same as their home market, and work with franchisees to adapt to local requirements,” says Bak.
Long, costly process
Despite the benefits, the road to becoming a franchisee can be long, taking even up to two years, and costly. According to Naked Pizza’s Doshi, some of the things a franchisor will expect from a potential franchisee include the entrepreneur’s commitment, their access to capital and either a track record of proven success in business or a high level of aptitude which shows that they can meet the challenges.
“Most reputable franchisors have a very intense screening process. This may involve background, financial and credit checks, academic testing, required training, assessments of business plans and so forth,” says Bak. “At the end of the day, they want to ensure that you have the capacity and willingness to operate their valuable brands at international standards in market environments that may be very challenging.
“In the case of Subway in Kenya, we spent almost five years working with the brand to test the supply chain and develop the strategy for the market.”
Bak also explains one of the downsides of being a franchisee is the slow decision-making common among large corporations adding that “the franchise system is necessarily bureaucratic”.
“The obstacles you have to go through to get something approved can be frustrating,” adds Bell of KFC. “There is the challenge of answering to a franchisor who doesn’t necessarily understand your market place. The essence of franchising is to localise a global brand, but some of the challenges are that you have to report to a regional office that may not fully understand the local environment.
“The regional office may think it understands how to apply the principles of the brand, but actually the best operator is the guy on the ground.”
Doshi concurs, noting that there are constraints in terms of menu development and how far a franchise can extend the brand. He adds that building someone else's brand as opposed to your own, and having “to pay franchise fees”, are also downsides.
Picking the right franchise
When considering taking up a particular brand Subway’s Bak advises entrepreneurs to look for franchisors who appreciate the importance of franchisee profitability. “There are a lot of natural conflicts in the franchisor-franchisee relationship. At the end of the day, the franchisor is taking a percentage of overall sales, while the franchisee is getting paid through profits.
“You want to find a franchisor who minimises these conflicts and is transparent about how they are making money from you,” says Bak.
Hoggers Limited boss Samanani notes it is critical for both parties to get to know each other, build a relationship and iron things out before signing any deals.
“In our part of the world, where our legal system is not that efficient and contracts aren’t easily enforceable, the most important thing is the relationship. So the first few months should be a ‘dating period’ where you are getting to know the partners.”