Report on The U.S. based Franchises in Saudi Arabia

Introduction of The U.S. based Franchises in Saudi Arabia

               The business decision to expand from the local region to international borders is not an easy one to make, because there are so many aspects associated with this decision. A company has to look at so many factors before they decide that they will expand their business to any particular country. They have to analyze the overall political and economic situation of the country along with market segments to see whether entering this particular market will be good or bad. The decision will always be a cautious one with lots of planning and strategy because international expansion is not a little step; rather it is a huge step to make. One good way of expanding your business to another country is franchising. It means that franchise is given to people living in the target country, who invest in the venture and use the brand and name of the company to sell products & services. Certain rules and regulations are set during the business deal regarding sales profit margins as well as operations. So, there are many U.S based companies, who have opened franchises in Saudi Arabia. Some of them have been very successful, and few companies also experienced failure in this regard.

Food Franchises in Saudi Arabia

               It is a fact that fast food industry has been growing all over the world, and it has provide so much opportunities for fast food franchises to reach every corner of the world. There are so many famous international U.S based fast food brands, which have made considerable presence in all parts of the world, and everyone is very much familiar to these brands. The same is the case with Saudi Arabia, as fast food business is thriving in Saudi Arabia. It is important to know that there are not many entertaining opportunities in Saudi Arabia, so shopping and eating out are two activities for people to spend their spare time. That’s why fast food and restaurant chains have got great opportunity to target the Saudi market with their food brands. The disposable income of the Saudi people is good, and economic situation is also stable as it is an oil rich economy. In recent times, the Saudi culture is changing and it is getting the vibes of western culture, and increased trend of fast food eating is one of its signs (Aaron Allen & Associates, 2017)

               Keeping the fact in view that the fast-food industry has experienced extensive growth in the industry; it is vital to look at some major fast-food franchises in Saudi Arabia, which has been enjoying great success and market share. In the fast-food industry of Saudi Arabia, various independent major players have been associated with the restaurant business, but chains of fast food companies have been more successful than ever before. According to data, the fast-food sales in 2010 were around $4 billion, which reached to $6.1 billion in 2015, and it is expected that it will reach around $8 billion by 2020. It means that in ten years' time, the sales will grow almost 100%, whereas 49% was the expected growth of GDP for the same period. There are so many major international and local players in the market. One of the famous U.S based franchises in the country is McDonald’s, KFC, Burger King, Buskin-Robins, Dunkin’ Donuts, and Subway. Al Baik and Herfy have been the two major local players competing with international U.S based brands. The number one U.S based international brand in Saudi Arabia is McDonald’s as it has been capturing the more market share as compared to all other competitors. It is expected that the number of customers for these fast-food chains will grow exponentially in the future, which means that the future is looking bright for the fast-food franchises (Aaron Allen & Associates, 2017) 

The Success and Locations of McDonald’s, KFC, Burger King

               It is important to look at the success stories of 3 major U.S based franchises. The first one is McDonald’s. The franchises of McDonald’s are operating in Saudi Arabia since 1993, and it had gained so much success over the years. The great thing about McDonald’s is that it has covered all regions such as Northern, Eastern, and Central regions of Saudi Arabia. The other great thing about their franchise business is that all McDonald’s chains are locally owned, and these are operated by Riyadh International Catering Company. According to the company’s own website, there are around 162 fast-food restaurants and more than 5,007 people are employed in these restaurants (McDonald's, 2019). It is important to understand that McDonald’s has not achieved its own success with franchising all over the world and in Saudi Arabia, but the company is also a major example in the business arena for the successful operation of franchising. The companies look towards the McDonald’s model of franchising to get success in different parts of the world. That’s why McDonald’s is leading the way in this regard expanding its franchises in more than 100 countries (Bailey, 2015). In the context of franchising in Saudi Arabia, McDonald’s has been serving “safe and high quality halal” food to all of its customers and delivering them with an amazing inclusive McDonald’s experience is an ordinary significance. In addition to this, McDonald’s has also being a liable corporate citizen in which the company always thinks that “taking care of our people” are important features of constructing a brand trust. It is due to the trust that McDonald’s has constructed along with its entire consumers across the world that it could conceitedly claim that it has been serving an astounding 69 million of its customers daily within 119 countries (Saudigazette.com.sa, 2014).

               The second most successful U.S based fast-food franchise in Saudi Arabia is KFC. It has been extremely successful in covering different locations across Saudi Arabia and has been the center of attention for many fast food lovers. KFC is available in a variety of locations across the country, which makes it one of the successful U.S based franchises. The company is looking to expand its reach to more destinations across the Middle East region including countries such as Saudi Arabia, UAE, and Kuwait. According to the latest facts & figures, there are more than 558 franchise stores of KFC in the GCC region, and most stores are in Saudi Arabia leading with 220 franchises. The second best Middle Eastern destination in UAE with 151 franchise stores. The company is looking to grow even further in the Middle East region, and Saudi Arabia is their main stop in this regard where they are looking to invest more in its franchise business. The spending going to be made in the whole GCC region will be huge, and fifty percent of spending will be made in Saudi Arabia to capture more market share in the coming years. It shows that KFC has been extremely popular and successful in Saudi Arabia, that’s why they are looking to expand even further (Gibbon, 2019). The difference of KFC brand is placed in the ‘so good’ of its chicken taste that is actually came from the KFC’s secret recipe. The flavor has led this brand to become a favorite one for millions of fans across the world, including Saudi Arabia as well. Furthermore, it has appeared that KFC has been assuring that each meal is provided with the highest care ensuing the premier standards for the diverse phases and preparation processes, right from selecting the finest suppliers over and done with the final distribution to its customers (Arabnews.com, 2015).

               The third most successful U.S based franchise in Saudi Arabia is Burger King. In Saudi Arabia, the franchise is owned by the Olayan Group, which is working in the food business of the country since the 1990s. Their first major step of owning an international franchise was made, when they acquired the franchise of Burger King. The first Burger King store in Saudi Arabia was opened in 1992, and the start was made from the city of Riyadh. It is important to mention here that there were more than 400 stores were operated in the Middle East region in 2012 including Saudi Arabia by the Olayan Group (Burger King, 2019). Burger King has covered so many locations across Saudi Arabia, and there are various reasons behind their great success. One of the best reasons is their great marketing campaign, which they run in Saudi Arabia. One of their recent ads titled “It's A Whopper'” has got so many recognitions and viewership in Saudi Arabia. The video of Burger King was watched by more than 1 million viewers, and still counting. This hilarious ad has got so much attention from Saudi customers (StepFeed, 2019). Another great move was made by Burger King in 2018 when they came with a wonderful promotion. When the car driving ban was lifted in Saudi Arabia, Burger King came up with a promotion that women coming to their “Drive Through” will get free burgers. The campaign was started on the 24th of June, and it continued for the whole month until the 24th of July. Such kind of steps taken by Burger King has been the reason behind their great franchise success in Saudi Arabia (Srivastav, 2018)

The Success of Texas Roadhouse and Red Lobster in Saudi Arabia

                Texas Roadhouse is another American chain restaurant that specializes in steaks and stimulates a Western theme that has gained its success in Saudi Arabia. The reason is due to this restaurant offers it Legendary Food along with its Legendary Service. Instead, Texas Roadhouse is more performed as a place where everybody, from all ages, could visit and then have an excellent quality of the meal, along with great fun for an affordable price. The famous menu offered by the Texas Roadhouse, which has already discovered by steak lovers in Dubai and Kuwait, consists of the much-favorite Hand-Cut Steaks, Made-From-Scratch Sides, Fall-Off-The-Bone Veal Ribs, as well as Fresh-Baked Bread (Worldfranchiseassociates.com, 2013 ).

At the Texas Roadhouse the overall culture rate is 80/100 by the customer supports and operations like the two departments which rate the highest experiences. The Texas Roadhouse is compromised by the 527 units as well as it is also exceeding in revenue by the $2 billion by eth average units which is bringing the around about $5 million. Thus in 2017 the saw traffic is also decline through anywhere from the 1-7% at the most chains. And the Texas Roadhouse is also increased the traffic by the 3.6%.  (Upson, 2018)The chief for the financial officers of Texas Roadhouse said to the company the average unit of the volume grew 2.4% from April to June. As of late August, Texas Roadhouse had completed 132 bump outs over a five- to six-year span, adding 25 to 35 seats in each of the updated restaurants. Average seating in the Texas Roadhouse system is 256, Doster said. Texas Roadhouse has 433 units in 49 states and three foreign countries (Ruggless, 2014).

Red Lobster is the largest seafood restaurant company in world with 705 units in United States and Canada, and a growing international footprint. Market leader with nearly a 50% market share in the full-service seafood restaurant segment (Wright, 2014). At the Red Lobster the overall culture rate is 65/100 by the customer supports and operations like the two departments which rate the highest experiences. At the Red Lobster gender score rate is 68/100 by the customer supports and operations like the two departments which rate the highest experiences.

               The Cost of Starting a KFC Franchise in Saudi Arabia

               It is important to take one successful franchise an example to see how much it may cost for a franchisee to open a new KFC franchise across Saudi Arabia. It is difficult to come up with exact figures because currency fluctuation, as well as fluctuation in oil prices, are two important factors, which may have a considerable impact on the economy and operating businesses in Saudi Arabia. First of all, it is vital to look at laws, which are applied by the Saudi Government. If a U.S based company such as KFC is looking to open a new franchise in Saudi Arabia, then they will have to comply with Commercial company laws of the country as a baseline for operating business. The Saudi commercial agency law was established in 1992, which allowed franchises to work under this ministerial order with not too much documentation and requirement. It is recommended that any franchise coming to Saudi Arabia should make a consultation with a local attorney to get a complete picture of related laws and regulations to avoid any issues (Export.gov, 2018). Looking at the aspect of cost, if anyone wants to own the franchise business of KFC, they need to show a total net worth of %1.5 million, their liquid assets should be $75,000. The direct franchise fee charged by the company is $45,000. It is estimated that equipment, as well as building costs, can start from $695,000, and it can go up to $1.2m. So, these are some of the costs to open a franchise of KFC (Peterson, 2015)

The Failure of Franchises in Saudi Arabia

               It has been mentioned earlier that there are so many opportunities available for U.S based franchise companies to expand their business to Saudi Arabia, but many companies have failed to do so, or they pulled away from their business because franchising in the country also came with various issues and challenges. There are various barriers and issues, which companies have to face, and solutions are not optimum to get things going with the passage of time. It has been found that support in terms of marketing, financial and legal issues is not good enough for franchise owners, which makes life difficult for a business to sustain in Saudi Arabia. So, they will have to look at these issues and barriers and mitigate them to allow more U.S based firms to invest in the Saudi Market (Alharbi, 2014). However, there are no fast-food franchises that have failed to exist in the Saudi Arabia food markets. The reason might due to the young generation of Saudi Arabia has been evolving rapidly in the context of their living standards. In fact, many young generation in Saudi Arabia has been considering in making fast food franchises with food truck platforms (www. Aaronallen.com, 2017).

Conclusion of The U.S. based Franchises in Saudi Arabia

               It can be concluded in the end that several U.S based franchises have achieved so much success and recognition in the Saudi market. Taking the fast food industry as an example, it was observed that some famous U.S based international fast-food chains have great success and presence in Saudi Arabia, and they are looking to grow bigger in coming future. The three most successful fast-food chains in the country are McDonald’s, KFC, and Burger King. Moreover, it is important to understand that many franchises have failed too due to various reasons.

References of The U.S. based Franchises in Saudi Arabia