Franchise model sees growth

The franchise model could add value to both new entrepreneurs and established onesPicture: Supplied

Franchise business has been well established in the developed market for many years – not only in the real estate but also in other sectors, such as retail and hospitality. However, this model has started seeing growing demand in the UAE in recent times when some of the  homegrown companies, such as Asteco and Driven Properties, saw business opportunities in this.

Dubai being a highly fragmented market presents tough competition – which means small-size brokerage firms or new entrepreneurs looking to establish themselves have to work in a slim margin, ostensibly though, their cost of operation or initial investment remains high. Whereas, if they opt for a franchise partnership, it can provide them an immediate access to high-end services, business solutions and training of an established brokerage firm. Although this comes with a franchise fee or a fixed percentage of revenue that they will have to shell out to the franchisor, the business model allows them mitigate risk by keeping their initial investment and cost of operation low – something that is very important in today’s market scenario.

Asteco, which was among the firsts to offer franchise solution in this region, launched its Licensing Services division back in late September 2014. Omar Binder, Director – Licensing Services, Asteco, says, “For a company to develop a highproducing business, it requires more often than not, a significant investment of cash and marketing to raise brand awareness and build brand equity.” He says it’s a fact that many new business don’t survive. “With a franchise, essentially you are gaining access and leveraging the franchisor’s value to each of these business elements ensures your success rates are much higher,” adds

He says the market has been very much receptive to this business model. Last year, Asteco signed its first two franchisees with Dubaibased Livington Properties and Asset Value Real Estate Brokerage. The company is currently working with 10 licensed franchisees located in the three key Middle East gateway cities. “This year we will be exploring new opportunities further afield, with prospects in the GCC, Europe and North Africa,” Binder adds.

Another company to start a franchise business last year is Dubai-based Driven Properties, which the company claims, is the first of its kind in the UAE. “This is a traditional, tested model in the US and Europe, with the likes of REMAX and Century 21 taking the franchise route.

This model is new to the region and we are looking to pioneer this space and benefit from the first mover’s advantage,” says Abdullah Al Ajaji, Managing Director, Driven Properties. He says the franchise model virtually eliminates the risk that an entrepreneur is taking by starting a new operation. “Operating a franchise allows the entrepreneur to spend much less setting up a platform than if they were to do it all from scratch. In doing so, the franchisor acts as the advisor and mentor for the franchisee and guides them through every step of the way until success is reached,” says Al Ajaji. The company has entered into a joint venture with an international player to operate the Driven franchise out of Saudi Arabia.

Benefits of the franchise model

Technically, a franchise is granted to an individual or a firm to run a  business in an assigned territory using another firm’s proven brand and systems. In reality, Binder says, it is also a partnership between the franchisor and the franchisee, which, although, underpinned with a legal agreement, is dependent for its success on the delivery of the products and services by the franchisor and the commitment of the franchisee. “At the end of the day the franchisee runs their business their way and Asteco is on hand to support,” he adds.

According to Al Ajaji, the benefits of the franchise model are seven-fold. It gives immediate exposure and market presence through brand recognition, and access to diverse database of investors and endusers. “They can also get to use a state-of-the-art CRM system designed specifically for Driven Properties that would cater to the business rules of the company and its franchisees. Besides, they receive marketing support through our award-winning marketing team,” he says.

Also, Al Ajaji adds, Driven Properties’ presence in different locations in different cities allows franchisees to use any of the company’s facilities and offices. “Other important services such as HR and talent acquisition also come through a centralised system that caters to all franchisees. This also involves ERP solution linking all functionalities of the business such as payroll, finance, HR, and marketing,” he adds.

Franchise fees

Although, there are many benefits, some high-producing franchisee companies may feel they will end up paying too much to the franchisor since the fees are often based on company sales.

Al Ajaji says this is why they have adopted the model of fixed fees as opposed to a percentage of company sales. Typically, a franchisor is entitled to a percentage of a company’s top-line. “But we have adopted a model that is different and more adoptable to the local market, whereby a franchisee pays a fixed monthly fee, therefore allowing the franchisee to expand beyond reach and incentivising them to continue being a part of the Driven family,” he explains.

“Instead of limiting the growth of a franchisee by claiming a percentage of revenues, which can be significant, we empower franchisees to exploit their full potential. We, of course, need to ensure that the franchisee has the operating and financial means to do so,” Al Ajaji adds.

Established or new?

Industry experts say franchise model could add value to both new entrepreneurs and established ones who are looking to revitalise their business. “If we take the UAE residential property market as example, we know it’s a very competitive, fast changing environment so an Asteco franchise may suit an existing real estate brokerage operator looking to revitalise and relaunch his business or an ambitious employee wishing to set up on their own,” explains Binder.

Al Ajaji agrees that in a fragmented market like the Middle East, competition is extremely fierce. “Having an established firm with a strong brand, this risk is mitigated. With the right tools and innovative solutions, franchisees have the opportunity to benefit from our knowledge, resources, and systems to grow their operation.” The Dubai property market has the problem of plenty with too many agents chasing the same number of properties. Many feel the franchise model can help improve this situation.

Source: S.A. Kader, Special to PW


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