A casual drive around any of West Amman’s main neighborhoods will leave
you with an indisputable feeling that, at the very least, gastronomical globalization has come to Jordan. Zaina Steityeh sat down with some of the main franchisees in Jordan today to uncover the obstacles and opportunities inherent within the business.
 

That Jordanians are spoilt for choice is an unqualified statement - apart from when it comes to where to eat. It becomes more of a story of who can afford to eat at the numerous eateries, restaurants, bars, cafes and lounges that have sprung up across Amman’s main districts, brandishing international and regional names in every way possible.

Some of the world’s most globalized brands have arrived along the waves of modernity and as a result of more awareness and a more open economy, some would say. Others think back to a time when there wasn’t a Starbucks, a McDonalds, or a Burger King in just about every major commercial or residential area in the Jordanian capital. More observant spectators, on the other hand, would notice that the trend, which started with the influx of international fast-food brands, has moved on to more casual-dining outlets, requiring customers to spend more time - and money - on their culinary outings. The trend is growing, as opposed to people’s disposable incomes, leading many to question the sustainability of such ventures and wonder how local franchises cope with such venomous encroachments on a relatively small market.

Jordan’s Offering
Following perhaps more traditional methods of analysis, the starting point would be to the local crux of the issue. Local franchising is, as of yet, in a chrysalis, with only a few local contenders surfacing as true restaurant “chains.” Established in the mid-1980s, Chili House stands as a beacon of a healthy, profitable and all-round successful casual-dining chain of outlets, boasting over 17 locations across the Kingdom. “My father and his nephew decided to set up our first outlet near Eighth Circle back in 1985. Ever since, we’ve grown to unprecedented scales relative to other local brands. I’m proud to report that for the first quarter of 2008, Chili House registered double-digit growth, with [impressive] profits to match,” says Sami Tueimeh-Daoud, Chili House’s CEO, in an exclusive interview with Jordan Business. “The Chili House brand has continuously attracted a loyal following of customers along the years, but that’s not to say we haven’t had to adapt its concept, our brand positioning and contend with the influx of foreign brands into the market,” he adds.

Daoud is aware of the dichotomy of stresses he faces: the current economic dimension of Jordan’s business climate, and those associated with the influx of dozens of international franchises over the past few years. However, the Jordanian businessman doesn’t intend to sit on his hands and turn it into a spectator sport. In cooporation with Jordanian-based Lunar Resources Inc, Chili House’s managers have formulated a three-year master plan to counter the potential hurdles in the horizon. “We signed on with Lunar Resources Inc back in the last quarter of 2007. The master plan, due to take us through to the end of 2010, is comprised of seven phases and we’ve already successfully implemented two of them,” Daoud says. “On the one hand, we’re marketing ourselves as the cleanest, healthiest menu in the casual-dining sector within the country, and on the other, we’re heavily focusing on upgrading the restaurants’ interiors.”

Thus, in recognition of the fact that one of the key characteristics of a successful franchising chain lays in the standardization, of both interiors and quality consistency, the local Jordanian food chain has taken the bull by its horns. By the end of May, Chili House’s outlets, located in Abdoun Circle, Khalda, Eighth Circle and Marj El Hamam, will have been made in each other’s image. This, Daoud says, will be followed by interior upgrades to the remaining branches, which he expects will be completed by Ramadan later this year.

Moreover, the master plan’s marketing strategy has incorporated designs to re-attract Chili House’s older consumers who, now in their late 30s and early 40s, have moved away from what they perceive as unhealthy, high-trans fat eating options. “We’ve launched what we believe is the healthiest menu in the fast casual-dining segment. We only use soy oil for frying, and the meat used in all our burgers is 88% fat-free. Repositioning ourselves in this way is vital given the level of international attention on health, body image and better eating habits,” Daoud continues.

Eating Up Profits
“As with any developing country, the trend starts with the influx of fast-food chains, due mainly to the fact that they present relatively cheap products and quick service applicable and acceptable by all income groups,” says Haytham Dahleh, the general manager of the Jordan American Food Company (JAFCO). Dahleh, now established as Jordan’s main international franchisee guru, has portfolios in both the casual-dining and fast-food segments. “As more people move into the fast-food segment, investors begin to look for differentiation, thus sparking the beginning of casual dining,” continues the franchisee of some of the world’s most global brands.

Established in 1999, JAFCO’s overall portfolio can easily be dissected into two categories. Under the fast-food category, the civil engineer by training boasts some of the world’s most popular chains, including Pizza Hut, Popeye’s, Burger King and, as newly as 2008, Papa John’s Pizza. Also, in signifying its commercial evolvement, Dahleh has incorporated casual-dining concepts by acquiring Applebee’s in 2005 and Fuddruckers in late 2007, adding to the gallery of restaurants now lining Mecca Street. “We’re growing at a rate of 15% across our total portfolio, a trend we’ve been experiencing since 2003. That’s not to say we haven’t got our set of challenges; the rising costs across the board have forced us to reconsider our bottom line. It has forced us to increase prices, but we try to remain reasonable,” the executive confesses.

Putting A Price On Quality
The precarious economic situation Dahleh refers to is a common denominator facing other players in the business. However, while some are more optimistic, all are united in the prospect that, in the short to medium term, prices will go up in reflection of an increase in their cost margin.

“In the very near future, we might have to increase our prices by about 6 to 8%,” says Daoud. “It seems like an unavoidable endpoint,” he adds. However, the Chili House CEO is quick to follow this up with some optimism. “Having been in the market long enough to know our consumption means, we can engage in bulk purchases, budget ahead of time and run our operations efficiently. Also, as we are a local brand, we benefit from the fact that we don’t have to send royalty payments, which are a burden on any venture’s balance sheet. My guess is that this gives us about a 6 to 11% advantage over the foreign franchises now in the market,” Daoud says confidently.

Franchisees like Dahleh see it differently. “We pay royalties against a very essential and vital service from the franchisor, encompassing product and brand development, staff training and quality assurance,” Dahleh says. “These are all significant services that are important to the development of the brand and [are] intrinsic to the success of the business. It’s very important, in my opinion,” he asserts.

The Resurgence Of The Old
Those with memories stretching back a decade or so will remember that Amman has, in the past, experienced the rapid entry of foreign-food chains into its market. However, the now-barren locations, typified by the dismal state of what used to be the Hard Rock Café in Abdoun, show the manifest losses incurred in this “first franchising round.” What makes investors think they can do it a second time and succeed is the question on the minds of many observers. “The market just wasn’t ready, and Jordanians weren’t as exposed to international brands as they are now,” says Fadi Mubarak, the general manager of Vantage Capital, established by Jordinvest with the purpose of funding franchises across Jordan and the region. Now, Vantage is the official franchisee of Carvel Ice Ice Cream, Cinnabon and Caribou Coffee. “The investors themselves were more gullible, as the market was just unreceptive ten years ago, for a variety of factors,” he adds.

Dahleh, sitting in his quiet fifth floor office overlooking some of the most successful franchises he operates all throughout the Kingdom, has himself reintroduced one of these previously-failing franchises. In September 2007, Fuddruckers was granted new life in Jordan’s restaurant and dining scene with the establishment of its flagship location on Mecca Street. “In this business, economies of scale are of the utmost importance, especially in a country like Jordan where the market is very limited and where consumers have relatively low purchasing power,” Dahleh contends. “You cannot sustain a business by just opening one restaurant, like Fuddruckers, as it’s too early in Jordan to just have one leg in the casual-dining business. Fuddruckers definitively opened too early; the target market was very limited back then and the makeup of society was different,” he recalls. “Now, the makeup of society is different; we have thousands of Iraqis now living in Jordan, Arab tourism is increasing and the number of affluent Jordanians is on the rise,” he reasons. “Ironically, inflation has actually helped the fast-food and casual-dining sector. As everything has become more expensive, inflation has forced people to change their lifestyles. Couples are both working, which means they have less time to cook or eat at home. Also, along with their lifestyle change comes a heightened level of exposure to international brands, which is something we obviously benefit from,” he concludes.

From an investor’s standpoint, the situation is slightly different. “Helped by the windfall of oil profits from Gulf countries, investors hoping to acquire international franchises are doing so with deeper pockets,” says Daoud. “This time around, they are able to sustain the business until the market becomes more receptive and they break even. My estimation is that some of the bigger investors can stand to lose for three to five years without worrying about their sustainability. A noticeable trend is that these franchisees have a very diverse portfolio of business in other sectors, meaning they can spread their risk and use profits from one section of it to sustain losses in another,” Daoud says.

Location, Location, Location
A marketing 101 lecture at any university or college across the globe will stress the importance of product positioning to the profitability and success of the brand in question. “Real estate is becoming a big challenge for the business. We are lucky that we acquired our current locations and rented them before 2004 and 2005. The simple fact is we would be hard pushed to afford locations similar to the ones we have today had we started now,” comments Dahleh. “The spread of the franchises we have acquired obviously differs between fast-food chains and our casual-dining brands. The former, including Burger King and Popeye’s, can be found in every major city in Jordan, including Irbid and Zarqa. The latter, on the other hand, are for the most part confined to West Amman, as mainly dictated by our customer base and their socioeconomic capacities,” he continues. 

“Picking the locations for Caribou Coffee, Cinnabon and Carvel was one of our main concerns and the focus of a lot of our time and energy,” says Mubarak. “We first set up Caribou Coffee in Mecca Mall, followed up by our branch in the newly-established Baraka Mall. You can’t go wrong with opening up in malls, if only due to the amount of [foot] traffic passing by. With the prices of land, rent and construction as they are, having a self-standing store isn’t a very viable option at the moment,” he continues. “Cinnabon, which has been in Amman for four years now, has locations in Mecca Mall, Wakalat Street in Sweifieh and the Zara Center. All three locations guarantee a high amount of traffic, amounting to higher turnover.”

While this strategy seems to be working for the second-largest coffee brand in the US, others are less than forthcoming to the idea of setting up shop in some of the country’s newest malls. “While our fast-food chains have a presence in nearly every mall in the country, our casual-dining outlets have been restricted to independent establishments. For the latter, we must consider the mall’s retail mix, which, in turn, will determine the type and buying power of the clientele passing through it,” says Dahleh. “B- and C-class types of consumers are usually those found en masse in malls, meaning they are more targets for fast-food chains rather than casual dining at this time,” he adds. “However, that is not to say that our strategy involves building over-the-top establishments or over-investing in real estate. A friend of mine once told me not to buy a palace when, at the end of the day, we’re serving burgers. You have to be rational when it comes to the choice and type of location you’re pursuing,” Dahleh tells Jordan Business.

Lebanese Cuisine
JAFCO’s general manager has also formed his opinions on the rise in the number of Lebanese brands in Amman. “In my opinion, it’s still too early for Lebanese brands. Franchising is a very complicated endeavor; it’s not just about using the name,” Dahleh begins. “It implies a very specific level of standardization and royalty payments in return for a significant amount of value-added services and continual quality assurance. These new brands still lack the know-how of expanding and capitalizing on a franchise. I believe they still have a very long way to go,” he asserts.

Dahleh, supported by other businesspeople interviewed by Jordan Business, may very well have a good point. The new Lebanese arrivals have yet to make their differentiating mark in a market fast approaching its saturation point. Lebanese cuisine is, of itself, mostly associated with fine-dining concepts, offering the best the Arab world has to present in culinary terms. How this is translated into the quick-service casual-dining experience that these new entrants are trying to establish is yet to be seen. However, one thing’s for sure, observers are certainly questioning their sustainability, unless, of course, they manage to show a comparative advantage to more traditional Lebanese cuisine concepts. 

The Outlook
The three businessmen mentioned above are neither swayed nor dismayed at the prospect of 2008 turning out to be a soft year for business as many economists have noted. Like many businesses before them, the size of the Jordanian market, implying swift saturation, has forced them to look both within and without for new investment opportunities. However, there are obstacles to expansion, as can be expected. “Currently, there is a lack of A-list locations within the capital. Finding an unsaturated location - one that allows you to attract your target market - is quickly becoming one of the most difficult issues we have to contend with,” Mubarak says, describing Vantage Capital’s endeavors to stretch its tentacles and echoing the woes of others in the business.

“In 2004, we foresaw that Amman would soon become inundated with Chili Houses, so we decided to pursue an alternative casual-dining concept,” Daoud recalls. “In an effort to expand our portfolio within the Jordanian market, we established El Cantina in 2005, a casual-dining outlet with an Eastern feel, incorporating hubbly-bubbly and coffee, alongside a menu characterized by dishes mainly from southwest America,” says Daoud. “Given El Cantina’s steady growth, we have recently decided to re-brand it under the name El Cantina Grill, to firmly establish it as a casual-dining outlet. Also, we are currently opening two further outlets, alongside El Cantina’s flagship [restaurant] in Shmeisani.”

Back at the drawing board, Daoud tells Jordan Business that in September 2006, the company signed on a 14-country contract with Lee’s Famous Recipe Inc, in a bid to diversify its brand portfolio and to bring new US brands to the region. The fried-chicken brand operates 450 restaurants within the US, primarily in the mid-west and southeast regions. “We are now the sole franchisees of Lee’s Famous Recipe Chicken in the Levant, the Gulf and North Africa. We anticipate opening or first branch in Jordan around September 2008,” says Daoud enthusiastically. All the while, Chili House has also succeeded in establishing itself as a regional player, with outlets in Bahrain, Cairo, Damascus, and soon Doha.

“Five years down the line, I anticipate that about 30% of our total operational portfolio will be located within Jordan, with the remaining 70% spread across the region,” says Dahleh ambitiously. “While we are expanding with the Burger King, Popeye’s and Papa John’s brands throughout Jordan, the other prong to our fork involves our regional expansion plans,” he tells Jordan Business. “We’re looking to expand into countries such as Syria, Libya, Tunisia and the Sudan. In fact, we have already started construction of our first location in Khartoum, with plans to do the same in Syria by 2009. Although it’s harder to establish a brand in ‘near-virgin territory,’ we’re sure to get a head start if we establish ourselves there first. Markets in Saudi Arabia and the Gulf are fiercely competitive and brimming with brands.”

Another common denominator that transpires from talking to the main players in the business is the difficulty they’ve experienced in entering the UAE’s fast-food or casual-dining market. “The two main problems associated with entering the UAE market are site selection and the hefty investment involved. It’s a very expensive ordeal; landlords are very selective and there is a distinct lack of A-locations,” says Mubarak, echoing similar statements by other franchisees. “We’re looking into it, and hopefully we’ll succeed in finding a niche within the market soon,” he concludes.

Sustainable Developments
Despite the near palatable optimism reflected by the sector’s main players, and perhaps mostly represented by the sheer number and scale of the franchised outlets now found across the Kingdom, the paradox floats like a cannon ball. As cash-strapped Jordanians form the majority of the population, it stands to reason that many observers would be skeptical of the sustainable success, profitability and indeed, survivability of what are, in the best of times, luxury commodities and services. The next year or so seems to be the make-it or break-it point for many of these establishments, and while cynicism has very little place in successful strategizing, investors would be advised to heed the sector’s history.