Feeding frenzy for local eating outlets

Investors and entrepreneurs are rushing to open restaurant franchises across the UAE as the retail market replaces property as the next big investment.

The number of entrepreneurs and investors looking to open Subway stores was more than double the brand's expected level of expansion in the next few years. Gabriela Maj / Bloomberg News

Investors and entrepreneurs are rushing to open local restaurant franchises so fast that some see an analogy with the property boom of five years ago.

Outlets such as Subway and Just Falafel are reporting a huge increase in demand to open stores, far exceeding the pace of expansion planned by management.

Marwan Al Hamar, the development manager for Subway in the UAE, said the number of entrepreneurs and investors looking to open stores was more than double the brand's expected level of expansion in the next few years.

"A lot of people are actively searching for food franchises and products because everybody has figured out that it's a smaller investment than real estate," he said.

"It's not about building buildings, it's putting people in those buildings and serving consumers. That's the sustainable economy."

The retail market is winning a huge amount of investment from major retailers and developers looking to tap into growing consumer confidence and spending both by residents and the large numbers of tourists visiting the country each year.

A number of the UAE's major developers, such as Majid Al Futtaim and Emaar, are already reaping the rewards of previous investment in the retail, hospitality and leisure sectors that have been the best performers in the economy over the past year.

Emaar, the region's largest developer, has switched its focus from developing residential and commercial properties to investing in retail and leisure infrastructure that provides a recurring, safe income.

"What started the recovery was food and medical. We have seen a huge movement to those areas," said Mohammed Ali Yasin, the chief investment officer at CAPM Investment. "A lot of people are looking to invest in food chains, restaurants or creating new things."

He said both institutions and individual investors were examining the food and restaurant sector, because it was highly cash generative.

Subway has 121 outlets in the UAE, more than any other fast-food brand, and the company hopes to add 25 stores each year until 2015.

"If you invest a million dollars in an apartment, you will get about 4 per cent back in return," said Mr Al Hamar.

"[At Subway] if you put about Dh1m in you do better than 4 per cent. Your return in retail should look about 15 to 20 per cent."

"We are seeing incredible demand," said Fadi Malas, the chief executive of Just Falafel, which is expanding rapidly across the Emirates. "We get around 15 requests a day for franchising of the brand."

Just Falafel has 12 outlets in the country and expects to have 73 within three years.

"I think the interest in franchising in the quick-service industry is the liquidity factor that is attached to it," said Mr Malas. "Very quickly it's a cash-generative business ."

Winona Gagan, the exhibition manager of the annual Franchising Middle East event, said Dubai had become "the hot spot" for franchising in the region, with opportunities to open retail outlets starting from Dh500,000 (US$136,128).

"Franchising is a ready-made business plan, it is safer for people to take on an established brand," she said.

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