Restaurant Franchisors Remain Upbeat About Dubai
Dubai's downturn in real estate could help franchisees, according to American franchisors.
By David Farkas, Senior Editor -- Chain Leader, 4/1/2009
For months there had been speculation that Dubai's real estate bubble was ready to burst. It did in January, tanking real estate prices by 30 percent and putting the kibosh on the large construction projects that turned the city into one of the Middle East's--and certainly the United Arab Emirates'--most glamorous (and safest) playground.
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Dubai, despite the collapse of the real estate market, remains a viable market for American restaurant brands, franchisors claim. |
As grim as things appear, the situation hasn't significantly dimmed the hopes of two Atlanta-based restaurant franchisors with units in Dubai.
It's Helping, Not Hindering
"The downturn is actually going to help us," declares Zack Kollias, senior vice president, international operations, for Church's Chicken, which does business as Texas Chicken in the Middle East. "We will not have trouble finding construction people, who before didn't want to work on small projects like a restaurant."
Church's franchisee, Saudi Arabia-based the Olayan Group, recently opened a restaurant in Dubai and has plans to open two or three more in 2009, according to Kollias.
He isn't worried about the sudden absence of deep-pocketed foreigners, either. Customers at the month-old unit were locals with deep pockets. He describes them as "middle- to upper-class" people who haven't been affected by the slump.
Those who are affected, mainly Europeans, have been fleeing quickly. There are reports that many have abandoned luxury cars as the recession took hold.
No Layoffs, but Slower Growth
Many foreigners on their way out have been sacked by their employers. Not so at Cravia Inc., the Dubai-based franchisee of Cinnabon and Seattle's Best Coffee. "We haven't laid off anyone or cut down salaries," says Cravia CEO Walid Hajj.
"We're OK," he adds. "I look at reports every day expecting something to happen. We have not witnessed it yet." Still, Hajj expects to open just nine units this year compared to 16 in 2008. His brand stable also includes two full-service Lebanese concepts, Zaatar y Zeit and Roadster Diner.
Blame the slowdown on liquidity issues at banks in the wake of real estate's collapse and tumbling sales. "We were comping 15 percent to 20 percent last year. Now it's 5 percent to 6 percent. We have put a hold on new expansion," Hajj explains. Not that he is complaining. He has heard that at luxury brands, sales are down 50 percent.
Hajj believes the per-person ticket average of $5.50 to $10 keeps his franchised concepts affordable.
That may explain why Senior Vice President of International Mike Shattuck of Focus Brands, franchisor of Cinnabon and Seattle Best Coffee, remains hopeful about the area. "We are still getting interest there. People are looking for brands," he says, adding the company is making Moe's Southwestern Grill available.
Adds DLA Piper attorney Philip F. Zeidman, a specialist on international franchising: "We haven't detected a diminution of flow in [franchise-related] transactions in our Dubai office."
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