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Maldives: Will the rise of franchises kill the local businesses?

Meraki Coffee Roasters

The original Dhivehi article was published on website on 18th April 2018.

The following is a loose translation:

World famous franchises have entered the Maldives from ‘Gaadhoo entrance’. These international food brands, that the Maldivians had never thought would come to the Maldives, have now made their debut in the Maldives and has achieved a firm grip in the Maldives market. Some say it is what is called development. And it would immensely boost Maldives brand power in the world. Along with the advantage of having franchises, the concerns are also no less. The big question is, what would be the impact of these powerful brands on the existing local similar businesses? There is an immense fear that these franchises will come and kill the local businesses.

‘This would create challenges. Because they are international big brands. Most certainly, our food and service quality won’t be any lesser than theirs,’ said a senior official from Pizza Buona, a popular local pizza company currently expanding across the Maldives.

It can be observed that during the last four years, ‘food industry’ undergone a tremendous change. The local small businesses had especially emerged and had survived. Such as the small takeaway joints and new concept café’s run by young people. During such a time, world’s fast food giants had suddenly appeared here in the Maldives. These include pizzerias, coffee shops and other types of renowned food outlets. These are world famous brands and are places that are popular and familiar to the Maldivians. However, compared to these brands, the love towards the local brand’s tastes are no lesser. And then there are those who believe that local businesses will also benefit from the arrival of franchises.

A huge difference can be made through service

In the Maldives pricing of pizzas are in the range of MVR 90 to MVR 120. However, the foreign brands sell at a price more than MVR 200. Therefore, it will become a big challenge for foreign brands to compete with the local prices.

A senior in the local restaurant business believes that local businesses will benefit from franchises.

‘We might not be able to prepare food to the international standard. However, if quality improvements and better service begin, definitely, local businesses will remain competitive. It would become a big challenge for those franchises if the local businesses start to improve their service,’ said the restaurant worker.

Regarding the arrival of franchises, a popular name in the Maldives food industry, Ibrahim Amir (also known as Salsa Amir) said, it will affect local business to some extent, however, it is also an opportunity to improve the service.

‘They provide service to international standard. Therefore, it will bring challenges. But, the local brands aren’t any lesser. Certainly, we (Salsa outlets) will not be affected. We organize events like parties. Then there are the coffee crowds. But a change would be visible in normal restaurants,’ said Amir.

Can keep up?

There are now franchises of different categories in the Maldives. Among them, there is the high-end and mid-range, but popular outlets. In the franchise food bazaar, these are business of different ranking in the world. The franchises that started many years ago had also been successful in the Maldives. However, they had been established in a way that some costs are minimized or can be reduced. Therefore, some experts believe that it might be a challenge to thrive, after paying big money to purchase the franchise rights to bring big brands into the Maldives.

Generally, franchise fees range from USD 80,000 to USD 200,000 per year. And if operating such a food outlet in a large place have to pay MVR 120,000 per month as rent. The other challenge is Maldives market is small on average. So the question, after paying huge fees will these outlets survive in the long run?

Amir said that prices of items should also be increased after paying such huge franchise fees.

‘There are some outlets which are run in their own premise, the prices of those outlets are at a reasonable price. However, those outlets that are operated on premises with a huge rent will face challenges,’ said Amir.

A restaurant operating staff said that according to the world food trend, giant food brands popularity is decreasing.

‘Even in neighbouring countries franchises do close down. It is because junk food consumers are the young people. There are special small brands specially catering for the young people. That’s why the popularity goes down.’

Arrival of the franchise and the economy

The arrival of franchise outlets will further strengthen Maldives name. However, purchase franchising rights from elsewhere other than its headquarters will result in incurring more losses. Experts believe that buying franchise branches from neighbouring countries will drive benefit mostly for them rather than the Maldives.

Amir Mansoor, who first pioneered in opening a franchise restaurant, said if the main franchise is bought through a shortcut, it will be pricey and of low quality. Amir gave the example of Maldives resort management by a neighbouring to a European management.

We also strived to bring in franchises from the main franchisor. If we are to bring it this way the fees could hit around 2 million dollars and they have certain conditions, the outlets need to be opened for business in a stipulated time frame and if we fail to open the money paid up is not refundable. Amir who brought Secret Recipe and Marrybrown to the Maldives said.

‘Falling into the lap of someone else. All these recently acquired franchises’ royalties had already been taken by Sri Lankans. Likewise, when 7% is paid and for the Maldives another 7%, in total it makes 14% royalty. So how do you come up with a pricing model for those places? To date, there is no franchise that had been purchased directly from the main headquarters. Therefore, it will certainly be of lower in quality.’

Moreover, the other thing is staff and supplies. The supplies need to be sourced from the franchiser. And the senior staff of these franchises will also be staff appointed by the franchiser.

There are still more franchises to come into the Maldives. Question is, what would be the impact of these franchises to the local businesses? Will these brands be able to survive in the Maldives? What would be the effect of these on the Maldives economy?

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