Overview
Franchising is among the most appealing sectors for investors and businesses in Pakistan. The franchising concept has gradually gained acceptance in Pakistan, especially in the hospitality sector. Several major U.S. hotel chains, along with several major U.S. restaurants and fast-food chains are currently represented in Pakistan through franchisees. U.S brands has about 70% market share in this sector in Pakistan.
Prominent U.S. franchises that operate in Pakistan include Pizza Hut, Kentucky Fried Chicken (KFC), Burger King, Dunkin Donuts, Baskin-Robbins, Cold Stone Creamery, IHOP, Dickey’s Barbecue Pit, Texas Chicken, P.F Chang, Uber, Crocs, Domino’s Pizza, Hardees, McDonald’s, Subway, Days Inn, Best Western, Marriott, Ramada, Nike Retail, UPS, FedEx, Berlitz, Gymboree, Hertz and Avis. Pizza Hut already has more than 70 units in Pakistan and in 2019, signed a new master franchise agreement with a local partner to open as many as 150 new units in Pakistan over the next five years. KFC already has 110 plus outlets in Pakistan and several more in the pipeline. McDonald’s has 74 and, Subway has 46 restaurants, and Hardees has 21 stores across the country. New franchise concepts are opening all the time, most recently, IHOP, Cold Store Creamery, Coffee Bean and Tea Leaf, Claire’s, Burger King, Nine West, Texas Chicken, and Swensen’s Ice Cream and Dickey’s Barbecue Pit opened in this market including re-entry of Papa John’s Pizza.
U.S. brands were the first to enter Pakistan and dominate the sector, backed by strong brand marketing. U.S. brands like McDonald’s and KFC had brand recognition in Pakistan even before starting their operations in the country. Pakistanis appreciate their superior quality control and customer services standards.
When seeking a Pakistani franchisee, U.S. firms are advised to identify a number of candidates and evaluate each carefully. The franchise agreement must be carefully drafted to protect the interests of the parties. The franchisor must be able to retain some direct control over operations, even after the transfer of business and technical know-how. Crucial elements of the franchise agreement include territorial coverage, duration, franchise rate, and protection of trade secrets, quality control and minimum performance clauses. The U.S. firm should ensure that its patents and trademarks will be registered in its own name rather than that of the franchisee.
The Government of Pakistan does not impose any restrictions on investors, but foreign investors are required to inform the Board of Investment and the State Bank of Pakistan, primarily for the purpose of repatriation of franchise fees or any profits accrued.
Leading Sub-Sectors
- Cosmetic
- Pharmaceuticals Brands
- Food Outlets
- Hospitality
- Education
- Retail
- Ride Sharing
- Convenience Stores
- Hotels and Motels
- Courier Services
- Security Service
- Movie Theaters/Entertainment Complexes
Opportunities
Demand for brands remains high and pronounced growth in the number of shopping malls in larger urban areas will offer further opportunities for food outlets, fashion retail and movie theaters. Currently, more than 200 Global Brands are in Pakistan, these Multinational firms have collectively invested over $2.5 billion, and their cumulative annual revenue is around $4 billion in Pakistan. Approximately $900 million Paid by Franchisees every year as royalties. There is also growth in the retail sector, with retail market size of $155 billion according to Deloitte, consumer spending in Pakistan has increased 83.4 percent in the past five years compared with 48.7 percent in the Asia-Pacific region according to Euromonitor International and is the seventh largest food market in APAC region out of 24 countries reported by Planet Retail. The Pakistan Food Association estimates that Pakistanis spend $6-9Bn on eating out at restaurants countrywide every year. It is estimated that the average Pakistani consumer spends up to 42% of his income on food (approx. US $2,000). There is an emergence of many international brands including Next, Splash, Debenhams, Mango, Mini Minor, Monsoon, Giordano, Timberland, Levi’s, Dockers, Mother Care, Babyshop, Accessorize, The Body Shop, Crabtree and Evelyn, Nike, Adidas, Puma, Crocs, Nine West, Pedro, Charles and Keith, Clarks and Sketchers, PF Chang’s, ALDO, Illy Coffee, and SPAR among many other international brands.
Other factors that make Pakistan a lucrative market is low competition among brands, better margins due to low labor costs, transportation, and low-cost real estate.
With franchising gaining such tremendous popularity many prospective Franchisees feel, buying into an international franchise is a good investment because they gain a ready-made, proven business model with defined policies and processes, Ease to operate and likely to have a shorter ROI time.
Challenges: One major concern in Pakistan’s franchising sector is the State Bank of Pakistan’s (SBP) exchange regulations, which deter sector growth. The biggest concern is the Central Bank’s guidelines on commercial remittances, limiting the initial franchise fee to $100,000 (regardless of the number of outlets) for the duration of the franchise. Similarly, the SBP also limits the annual franchise fee to five percent of monthly net sales, curtailing franchisors’ ability to charge their regular fees.
Pakistani law generally provides for protection of intellectual property rights (IPR). Nevertheless, IPR violations in Pakistan remain widespread. For example, KFC’s popular, trademarked Zinger Burger chicken sandwich is often copied by local businesses. In May 2018, the Competition Commission of Pakistan (CCP) issued a notice to a Lahore-based restaurant for prima facie fraudulently selling Starbucks coffee in Pakistan.
A key consideration in establishing a franchise operation in Pakistan is quality control, particularly if the enterprise proposes using locally produced items. In Pakistan, all relevant imported food items must be certifiably “halal” (slaughtered in accordance with Islamic ritual).
In May 2022, the Government of Pakistan, thru SRO 598, implemented a temporary ban on the imports of thirty-three categories of luxury/non-luxury items that also impacted local U.S. franchise industry in food & beverages sector. The government removed the ban on August 19. Details of this SRO is covered in the later section of CCG under section “Customs Regulations & Standards”.
Furthermore, Pakistan’s energy crisis and less developed processed food market (meat, fish and poultry) pose challenges to franchisees who rely on importation of input ingredients.
Resources
International Franchise Association
World Franchise Associates Pakistan
Other resources
- Industry contacts at post: https://www.trade.gov/pakistan
- Pakistan Business Council (PBC) – research department
- Overseas Investment Chamber of Commerce (OICCI) – research department