Egyptian Franchise Market Report

The purpose of this report is to highlight issues regarding the status of franchising development in Egypt, our current role as business consultants in supporting Franchisees and Franchisors in addition to our future plans to share in the industry development. Figures in this summary report are based on a recent research study – 2005 done for the Franchising Industry in Egypt. This study covers 364 systems including 152 franchised systems and 212 Potential Systems for Franchising Other Information regarding Franchisors and Franchisees and their key strengths and weaknesses was based on a SWOT analysis study done by our company for the Franchising Industry in Egypt.

History of Franchising in Egypt

Franchising is known in Egypt since long ago through multinationals in different sectors such as: soft drinks, petrol stations etc. Since the 70s franchise in food sector has been actively growing, whereas since the 90s non-food sectors started to develop as well. In March 2003, Egypt is listed in USA co-operating countries in Intellectual Property Rights.

Capacity and Potential for Franchise Expansion in Egypt

It has been found that the Franchising Industry in Egypt has been witnessing pretty good expansion in the last period; as Franchising has increased by 800% over last 8 years, from approximately 25 to 260 franchise systems. The Graph below shows that Egypt has experienced increased progress with regard to Franchising during the previous 30 years.

On the other hand, there have found to be considerable attention to export from both the government and companies to reflect higher level of maturity and consideration for expansion, preferred countries to expand in were found to be inside Africa mainly Sudan, and KSA from outside Africa. This for Local Franchisor & Master Franchisee: Thus, Franchising is more active in neighboring countries than others, because of geographic and cultural proximity.

Other Indicators for Franchising Development Status in Egypt

Outlets in Egypt

Regarding the franchised outlets in Egypt, It has been found that 65% of the total outlets are located in Greater Cairo area. Outlets increased by 14% from end of 2002 till May 2004. On the other hand, only Less than 1% of the total franchised businesses have been closed during the 2 years. This reflects continuity of the franchising development and perceived future sustainability.

Turnover & Financial Sector Total annual turnover

generated by all franchised systems in Egypt is estimated as 5,216 Million EGP in 2005 whereas total investments in the franchise sector of the economy is estimated as 21,923 Million EGP

Funding

Almost all Franchisors (or potential) encourage internal sources of finance rather than external ones, for funding new franchisees, because of:

• High bank interest rates.

• Own finance provide higher commitment for the franchisee.(as perceived by franchisors)

On the other way around, Almost 96% of Franchisors (or potential) are not willing to assist franchisees financially

Employment Level

Employment in Franchising sector is estimated as 45,012. Employment growth rate in the sector witnessed about 24% in the last two years.          

Training & Other Services

A critical aspect for assuring the effectiveness & success of franchisees is supporting them with the appropriate training & coaching; In this respect different efforts have been found to be exerted for Franchisees, the following is an example;

                        1. Initial Training

• More than 50% of the total systems studies provide operational training to their Franchisees/outlets.

• Average duration = 20 days

                        2. Ongoing Training

• More than 50% of the total systems conducted provide operational training to their Franchisees/outlets.

• Average duration = 20 days

                        I- Other Services

                        • Visit their Franchisees/outlets to assist & solve problems

                        • (Average = 10.25 visit/month)

                        • Prepare the feasibility study / business plan for their Franchisees

                        • Monitor the Franchisees’ profitability at least on a monthly basis

                        • To elevate support if down

                        • Some operate an advertising and marketing fund

Franchising Systems in Egypt

Number of the franchise concepts now is 260 systems, increased by 50 concepts during 2005 and 1st half of 2006, and mostly in readymade garments, fashion and cafés.

Systems' Categories

According to the Research Study, systems were categorized as follows;

- Master franchisee; those who sub franchise (17%) and those who operate by themselves (40%)

- Local franchisor; Egyptian Brands (43%)

• Retail sector represents 48.9% of the total systems conducted as it covers:

                        – Clothing & fashion

                        – FMCG (Supermarkets)

                        – Home products & furniture

                        – Leather products…

                        • Other categories represent 51.1%, distributed among 20+ categories

General information on Franchisor/owner  

Based on respondents, the Franchisor/ Owner demographics were identified to be as follows;

• Business Type:

                        – 48% are Corporate Closed

 • Age of Owners:

                        – 50% are from 35 to 49 years old  

• Gender of Owners:

                        – 88% are Male

Egyptian Legal Framework for Franchises

To support and protect the franchising industry and those who are involved in the process, Egypt has introduced the following framework;

• Commercial Law 17/1999

                        – Contractual agreements

• Intellectual Property Rights Law 82/2002

                        – Patents

                        – Undisclosed information (trade secrets)

                        – Trademarks

                        – Industrial designs & trade dress

                        – Copyright

                        – Plant varieties

Key Issues for Franchising in Egypt

We perceive the main issues and/or challenges facing the Franchising Industry in Egypt to be as follows:

                        • Awareness issues

                        • Limited financial sources

                        • Capacity Building & Tech. Assistance; Issues with technical knowledge, processes and level of business skills

                        • Legal climate and framework mainly dispute resolution and Mediation

                        • The Manual

                        • Guidelines

                        • Training

                        • Qualified consultants

                        • Awareness & Info. Sharing

From all what have been shortly stated above, we perceive that there is considerable attention to importance of the franchising industry as well as efforts from franchisors and franchisees to contribute and sustain its perceived development; On the other hand, one can never ignore what id facing the whole industry of channels and popping up issues that need to be carefully handled with shared efforts from all stakeholders and participants.

To facilitate the franchising system in Egypt, we perceive, there is a need for:

                        • Facilitators for financial support to would-be franchisee

w This will enable franchisors to select based on personal potential for success rather than financial means (SFD can have a pivotal role)

n Increase success rate of franchisees

n Facilitate expansion for franchisors

                        • Technical support for local potential franchisors

w To expand local & regional

                        • Protect franchisor properties through effective law enforcement

                        • There is untapped opportunity in small scale franchising systems

w This will be more in need for financial support

                        • Supply chain is another area for expansion & support

w Assisting supply chain to upgrade their facilities to serve franchising networks