11
1. Introduction and Methodology
The Lebanese Franchise Association (LFA) is a non-profit organization that develops, promotes and protects the franchising sector in Lebanon. The LFA comprises franchisors, franchisees, and Associate franchisors. Associate members are franchisor candidates working towards fulfilling their membership requirements namely setting up a franchise structure and achieving their first franchise sales transaction. Other LFA members are the “College of Experts” with firms providing legal, marketing, franchising and other pertinent consulting services.
The Project “Capacity Building at the Lebanese Franchise Association (LFA)” has been funded by the EU delegation in Lebanon and contracted to the consortium TRANSTEC/EQUINOCCIO/SEQUA. The general objective of the Project is “To enhance the perspectives of socio-economic development in Lebanon through the strengthening of its private sector.” More specifically, the Project provides support to the LFA in institutional capacity building, in undertaking a survey of the franchising industry, and in developing capacities of selected SMEs operating in the franchising sector.
Within the Project, the consortium TRANSTEC/EQUINOCCIO/SEQUA designed the Survey of the Lebanese Franchising Industry to meet the following objectives:
• Gather up to date information about the Lebanese franchising industry. • Estimate the franchise sector contribution to the Lebanese economy’s GDP and
employment. • Provide information about franchisors and franchisees, barriers for expansion,
constraints, revenue and profitability, regional reach, and outlook for the future.
The survey was subcontracted to InfoPro to undertake the fieldwork, data analysis and report writing under the supervision of the consortium. InfoPro proceeded in three stages, namely desk research using its data base of around 11 thousand companies, company screening of around 1300 companies, and face-to-face interviews with 200 companies, of which around 50% were located in Beirut and Mount Lebanon and the balance distributed over the rest of the Lebanese regions.
The 200 companies interviewed in the second half of 2013were divided into 91 franchisors and 109 franchisee companies. The companies were distributed over the following sectors: retail, restaurant, services, hotels, education and entertainment, department stores & hypermarkets, gas stations, automotive, beverages and others.
Table 1: Estimated General Penetration
Type Estimated
Penetration in Overall Population
Estimated Penetration in
Franchising
Sample Distribution
Franchisor 2.5% 42% 91 Franchisee 3.5% 58% 109 Total 6.0% 100% 200
Table 2: Estimated Number of Concepts*
Type Number of
Concepts in Sample**
Average Number of concepts
by Company in Sample
Estimated Number of
Companies in Franchise Universe
Estimated Number of
Concepts in Franchise Universe
Franchisors 138 1.52 299 453 Franchisees 162 1.47 445 652 Total 300 744 1,105 *Weighted by sector **The average number of concepts was multiplied by the number of companies in the franchise universe to reach the total number of concepts in the franchise universe
2. The Franchising Industry in Lebanon
Franchising companies are estimated to constitute around 6% of total companies operating in Lebanon. The franchising universe is estimated to comprise around a thousand one hundred franchise concepts.
There are approximately 744 companies in the franchising sector operating in Lebanon. The industry contributes close to 1.5 billion U.S. dollars to the national economy, or about four percent of the entire GDP.
Table 3: Key Indicators (Rounded Figures) Estimated Penetration rate of franchising activity in Lebanon 6% Estimated Total Franchise Concepts in Lebanon 1,100 Estimated Overall Franchise Units (POS) in Lebanon 5,500 Estimated Contribution to Lebanese GDP in USD 1.5bn Estimated Contribution to Lebanese GDP in Percent 4%
Estimated Total Employees Working within the franchise industry in Lebanon
99,000
Estimated Total Lebanese Franchisor Concepts 450 Estimated Total Franchisee Concepts 650 Estimated Total Lebanese Franchisor Units (POS) in Lebanon 2,400 Estimated Total Franchisee Units (POS) in Lebanon 3,100 Percentage of franchisees of Foreign Franchisor concepts in sample 86% Percentage of franchisees of Lebanese Franchisors concepts in sample
14%
Percentage of Lebanese Franchisors company owned units (POS) in export countries in sample
13%
Percentage of franchised units (POS) in export countries in sample 87% Percentage of Lebanese franchisors company owned units closures (POS-locally and abroad) in sample
9%
Percentage of Lebanese franchisors contract terminations (locally and abroad) in sample
3%
Percentage of Lebanese franchisors having franchise related litigations in sample
11%
The franchising sector employs nearly a hundred thousand people, or an estimated nine percent of workers in the country.
Table 4: Estimated Employment in the Franchising sector
Franchisors Franchisees Total
Full Timers
Part timers
Full Timers
Part timers
Number of Companies in Franchise Universe
299 445 744
Estimated Franchising Industry Total 45,051 15,806 31,000 7,585 99,443
Franchisor Full-time Base: 88 -Franchisor Part-time Base: 27 -Franchisee Full-time Base: 108 -Franchisee Part -time Base: 30 Single Response
Around 44% of franchisees’ concepts available in Lebanon originated from Europe, 38% from the USA and Canada and 13% were created locally by Lebanese franchisors.
Base: 109 Single Response
3. Motivations of Being a Franchisor and a Franchisee
Surveyed franchisors indicated that they decided to turn to franchising because it provides additional sources of revenue and notoriety, facilitiates expansion, spreads business risk, and enhances business image, among others.
Base: 91 - Multiple Responses
Europe44%
USA and Canada28%
Lebanon13%
Asia9%
Gulf and Middle East4%
Other2%
Country of Origin of Franchisor
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Rapid fame and notoriety
Enjoying more sources of revenues
Ease of expansion and spreading of business risks
Possibility of expanding anywhere we want
Better business image
Appearing to be larger in size (or part of a chain)
Higher expectations of quality by franchisees and customers
I have control over my line and quality of my products
Protect and organize brand expansion
No clear benefits
45%
45%
30%
20%
18%
10%
8%
7%
6%
1%
Benefits of Being a Franchisor
Surveyed Franchisees: The Franchisors’ Origin
For franchisees, the benefits of being in the franchise business include benefiting from the success of an established brand, benefiting from franchisor technical assistance, and being his/her own boss, to name a few.
Base: 109 Multiple Responses
4. Source of Franchise Leads
Franchisors indicated that the main source of franchise sales leads is online search, word of mouth, exhibitions and a strong brand that lets franchisees seek them out. Some depend on PR, referrals and brokers to a minor extent.
PR includes magazine and newspapers articles / TV appearances Base: 91 - Single Response
0% 5% 10% 15% 20% 25% 30% 35% 40%
Benefit from the success of others
The franchisor is always there to assist me
Benefit from the brand recognition and success
Can increase revenue depending on my own productivity
I am my own boss
Appearing to be larger in size (or part of a chain)
I benefit from the exclusivity in the franchise agreement
Higher expectations of quality by customers
Work with international / high standards set by Franchisor
No clear benefits
Other
36%
33%
21%
20%
18%
11%
10%
7%
6%
4%
3%
Benefits of Being a Franchisee
0% 5% 10% 15% 20% 25%
Online search
Word of mouth
Exhibitions
Franchisees seek us out
PR
Franchise outlet referrals
Brokers
My own website / facebook
Acquaintances
Others
None
Do not know / Refused
21%
16%
11%
10%
9%
8%
5%
4%
2%
5%
5%
4%
Franchisors Main Source for Franchise Leads
Almost all franchisors have websites and most of them provide Facebook pages. However, only up to 73% have a dedicated section on their website for franchise opportunities.
Base: 64 Single Response
Franchisees indicated that they were introduced to the franchise concept by visiting a franchise store and through word of mouth or a friend in most cases. A minority indicated online search, exhibitions, market research, and magazine articles as other sources.
Base: 109 - Multiple Responses
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Has a website Has a clear “franchise opportunities” section
Has a Facebook page
90%
54%
85%
100%
67%
91%
100%
73%
94%
Franchisors' Online Presence versus Total Number of Units
Up to 5 Units 5 to 14 Units Over 15 Units
0% 5% 10% 15% 20% 25% 30% 35%
By visiting a franchise store
A friend/word of mouth
Well known brand
Internet search
An exhibition
The franchisor is a relative/family member
Market research
A magazine, an article, or brochure
Other
Do not know
35%
30%
8%
6%
5%
3%
3%
1%
5%
4%
Method of Introduction of the Surveyed Franchisee to the Franchise
5. Franchise Contracts
Most of the interviewed franchisees are granted the largest possible leeway by their franchisors (mostly international companies) under the franchise agreement. Lebanese franchisors appear more restrictive by comparison, since they more often grant area development or single unit rights. The automotive sector is structured differently in that its franchisees operate under exclusive agreements with their franchisors.
Around 46% of franchisors indicated that it normally takes them one to three months to sign a franchise contract with a franchisee. Another 19% indicated that it takes them 4 to 6 months.
Surveyed franchisors said that they charge average initial franchise fees of USD 55,000 for Lebanon and USD184,000 for markets abroad. Their royalty fees range between 5 and 5.5% and their marketing fees around 2% of sakes. Franchisees identified much higher fees, probably as most are paid to international franchisors.
Table 5: Franchise Fees Charged by Surveyed Franchisors
Lebanon Abroad
Type of fees Mean Number of respondents Mean Number of
respondents
Franchise fees (’000 USD) 55.0 18 184.4 37
Royalty fees (% of sales per month) 4.9
26 5.4
49
Marketing fees (% of sales per month) 1.9
19 2.1
26
Table 6: Franchise Fees Paid by Surveyed Franchisees
Type of fees Mean Number of respondents
Franchise fees (’000 USD) 156.9 20
Royalty fees (Percentage of sales per month) 9.2 33
Marketing fees (Percentage of sales per month) 4.0 10
Base: 78 Multiple Responses
Base: 109 Multiple Responses
6. International Markets
Franchising is the preferred growth strategy abroad while franchisors prefer to run company owned units in Lebanon in general. Some 51 percent of local franchisors have franchised operations abroad, and 38 percent run company-owned operations outside of Lebanon.
0% 5% 10% 15% 20% 25% 30%
Area development rights
Single Units rights
Master rights (with opportunity to sub-‐franchise)
No fixed strategy: You decide on case by case basis
Others (Mixed strategies)
Do not know
30%
27%
26%
13%
1%
2%
Type of Franchise RightsOffered by Lebanese Franchisors Abroad
0% 5% 10% 15% 20% 25% 30% 35%
Master rights for Lebanon and other countries (withopportunity to sub-‐franchise)
Master rights for Lebanon only (with opportunity to sub-‐franchise)
Area development rights in Lebanon (multiple stores)
Exclusive importer -‐ Dealer
Single Units rights in Lebanon (one store)
Don’t know
Refused
32%
24%
16%
14%
9%
4%
5%
Franchisees: Type of Franchise Agreement
The main export countries for surveyed franchisors are located in the Gulf and the Middle East, namely, Dubai and Abu Dhabi in the UAE, followed by Riyadh and Jeddah in the KSA, Doha in Qatar, Erbil and Baghdad in Iraq, as well as Paris and London.
Base: 91 Multiple Responses
7. Challenges
For franchisors and franchisees, security conditions, the high cost of operations (mostly rent), and difficulty to access financing are the strongest barriers to developing the business in Lebanon. Complex government regulations, the lack of qualified employees, and employees’ high turnover and high costs were also named as obstacles.
Moreover, obstacles to expanding to other countries include poor economic conditions, restrictive legislation, high marketing expenses, and the shortage in franchising exhibitions.
The average investment for opening a franchise in Lebanon is around USD 500000 (excluding franchise fees). Franchisors have better access to third party financing than franchisees, whereas franchisees rely mostly on equity to finance their expansion.
Potential franchisees are rejected by franchisors mainly because of lack of capital and/ or lack of expertise in the sector.
KSA24%
UAE19%
Kuwait14%
Qatar10%Bahrain
5%
Oman3%
Egypt4%
Jordan4%
Europe3%
Africa4%
USA/ Canada3%
Others7%
Franchisors’ Export Countries Distribution of Concepts
Franchisor Base: 91 Franchisee Base: 109 Single Response
Base: 109 Multiple Responses
In reality, when a franchisor does not grant franchise rights to a prospect franchisee, its mostly because the prospect does not have sufficient capital, does not have a proper location in the target market, lacks experience and confidence, did not provide a business plan and performed poorly in interview, among others.
0%
5%
10%
15%
20%
25%
30%
35%
Less than$250,000
$250,000 to$500,000
$501,000 to$750,000
$751,000 to$1,000,000
$1,001,000 to$1,500,000
More than$1,500,000
Refused / Donot know
25%
31%
17%
6%4%
8%
10%
32%
25%
17%
7%5%
3%
12%
Level of Investment Needed to Launch One Franchise Unit
Franchisor Franchisee
0% 10% 20% 30% 40% 50% 60% 70% 80%
Personal money
Bank Loan
Partnership
SME loan
Support/budget from the parent company
Do not know/ Refused
73%
38%
10%
5%
2%
4%
Franchisees' Means of Financing their Franchise Business
Base: 91 Multiple Responses
Franchisors generated an average number of 14 leads per company per year, which is very low considering than only 2 to 3 percent of leads close deals. Franchisors indicated that they need to improve their marketing efforts. Also Less than half of surveyed franchisors have a franchise support team to help international franchised units, which is a shortcoming.
Base: 109 Multiple Responses
0% 5% 10% 15% 20% 25% 30% 35% 40%
Insufficient capital
No proper locations in target market
Lack of self-‐confidence
Lack of experience / qualifications
Did not provide a business plan
Poor performance of prospect at interview
Franchisee lacking the reputation and image required
Inability to maintain standards
Not serious candidates / lack of commitment
Lack of transparency
Difference in visions
Franchisor not ready yet to sell the franchise
No specific reason
Others
Refused / Do not know
35%
23%
23%
19%
18%
14%
13%
8%
7%
6%
3%
2%
5%
5%
2%
Franchisors' Reasons for Not Granting a Franchise
0% 5% 10% 15% 20% 25% 30%
Marketing
Franchise Sales
HR/ Training
IT
R & D
Accounting
Sales
Production
Operations
Others
No specific area
27%
20%
14%
11%
4%
4%
4%
3%
2%
9%
22%
Areas of Franchisor's Business That Need Improvement
As far as the employer-employee relationship is concerned, the surveyed franchisors were mostly concerned with the lack of qualified employees and high employee turnover.
Base: 91 Multiple Responses
8. Current Profitability and Future Growth Prospects
Around 22% of franchisees declared that their annual sales exceed USD2mn and 11% indicated a sales level of USD1 to 2mn, the rest either identified a lower level of sales or declined to answer (higher sales brackets were noticed in car franchisees).
Franchisors’ sales from company owned operations ranged from less than USD 250,000 (9%) to more than USD 5mn (12%). The highest percentage (18%) belonged to franchisors generating revenue ranging between USD 250,000 and USD 750,000 from their company owned operations. Thirty percent of franchisors did not provide an answer.
0% 5% 10% 15% 20% 25% 30% 35%
Lack of qualified employees
High employee turnover
Cost and complexity of registration process at social security
High cost of labor
Continuous salary adjustments
Theft
Lack of team work and re-‐training of employees
Lack of employees with flexible work hours
Obtaining permits for foreign employees
Others
No concern with managing my employees
33%
22%
17%
16%
13%
6%
5%
4%
3%
7%
19%
Franchisors' Concerns With Their Employees
Base: 91 - Single Response
In 2013, 79 franchises were sold by surveyed franchisors compared to 21 contract terminations. Around four closures are estimated to take place in the next year by franchisors and ten closures by franchisees, mainly in the retail sector.
Most franchisors and franchisees reported marginal profits or breaking even in 2012. Franchisors were generally more profitable than franchisees, especially those with more than five units. Three out of five franchisees were breaking even or making profits.
For around 60 percent of franchisors and franchisees, the turnover for the first half of 2013 was beneath their earlier expectations. Around half of the franchisors and franchisees estimated that turnover for the second half of 2013 will either be stable or show a moderate decline. Not surprisingly, around 55% of franchisors and franchisees reflected negative level of confidence in the Lebanese economy within the next 12 months following the survey followed by around 38% that said they are only somewhat confident.
0%
5%
10%
15%
20%
25%
30%
Less than$250,000
$250,000 to$749,000
$750,000 to$1,499,000
$1,500,000 to$2,500,000
$2,500,000 to$4,999,000
More than$5,000,000
Refused
9%
18%
12%10%
8%
12%
30%
Franchisors' Total Annual Sales Range in Lebanonfrom Company-‐Owned Operations in 2012 (USD)
Franchisor Base: 91 Franchisee Base: 109 Single Response
Franchisor Base: 91 Franchisee Base: 109 Single Response
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
High losses Marginal losses Breaking even Marginal profits High profits Refused / Do notknow
3%
10%
22%
42%
13%
6%8%
11%
22%
34%
5%
19%
Profitability of Franchisors and Franchisees in 2012
Franchisor Franchisee
0%
10%
20%
30%
40%
50%
60%
Not confident at all Somewhat confident Fully confident
56%
35%
3%
55%
38%
6%
Franchisors' and Franchisees'Level of Confidence in the General Lebanese
Economy in the Next 12 Months
Franchisor Franchisee
9. LFA Membership and Expected Role
LFA membership is more common among franchisors than among franchisees. Close to half of the surveyed franchisors are LFA members vs. only 30% of surveyed franchisees. Among franchisors as well as franchisees, restaurant chains are more likely to be LFA members than retailers, and also more interested in joining. Among the 15 franchisees that were interviewed in the automotive sector, there was not a single LFA member. Four wished to join, five declined, and six were not sure.
For franchisees, the main reason for not being a member of the LFA is a lack of awareness of LFA services.
For both franchisors and franchisees, the current most beneficial service of the LFA is the organization of networking events. For franchisors, the most important services LFA could offer include assistance in prospecting, the introduction of their brand to markets abroad, and providing franchise awareness, technical assistance and training.
Base: 58 Multiple Responses - Compiled
0% 5% 10% 15% 20% 25% 30% 35%
Prospecting & Opening New Franchise Opportunities Abroad
Provide Support, Training and Advice
Provide Networking Opportunities
Increase Awareness of Franchising
Lobbying
Others
34%
25%
15%
12%
8%
5%
Most Important Service the LFA Could Provide to Franchisors in the Future
