Overview
Investors and businesses in Pakistan are increasingly drawn to the franchising industry, with the hospitality sector in particular seeing a rise in acceptance of this business model. Major U.S. hotel chains and fast-food restaurants are already well-represented in Pakistan through franchising, with American brands holding a dominant 70% market share in this sector.
Prominent U.S. franchises that operate in Pakistan include Kentucky Fried Chicken (KFC), Nine West, Texas Chicken Dunkin Donuts, Baskin-Robbins, iHOP, Dickey’s Barbecue Pit, P.F. Chang, Uber, Crocs, Domino’s Pizza, , Hardees, McDonald’s, Subway, , Marriott, Ramada, , UPS, FedEx, and Berlitz. KFC already has 110 plus outlets in Pakistan and several more in the pipeline. McDonald’s has over 85 restaurants, Subway has 46 outlets, and Hardees has 21 stores across the country.
The market is constantly welcoming new franchise concepts, with notable recent additions such as iHOP, Cold Stone Creamery, Coffee Bean and Tea Leaf, and most recently Chili’s. Additionally, Papa John’s Pizza has made a successful re-entry into the market, and Dickey’s Barbecue Pit has also opened its doors.
U.S. brands were the first to enter Pakistan and dominate the franchise 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 service standards.
U.S. businesses are urged to choose multiple candidates and thoroughly consider each while looking for a franchisee in Pakistan. To safeguard the interests of the parties, the franchise agreement must be carefully designed. Even after the transfer of business and technical know-how, the franchisor must be able to exercise some direct control over operations. Territorial coverage, term, franchise fee, trade secret protection, quality control, and minimum performance provisions are essential components of the franchise agreement. The American company must make sure that its patents and trademarks are registered in its name alone, not the franchisee’s.
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 regarding their projects, primarily for approval of repatriation of franchise fees or any profits accrued.
Leading Sub-Sectors
Food Outlets
- Hospitality
- Retail
- Convenience Stores
- Ride Sharing
- Hotels and Motels
- Movie Theaters/Entertainment Complexes
- Cosmetic
- Pharmaceuticals Brands
- Education
- Courier Services
- Security Service
Opportunities
High brand demand and urban mall growth in Pakistan provide opportunities for food, retail chains, convenience stores, fashion, cosmetics, and movie theaters, with over 200 global brands investing more than $2.5 billion. Their cumulative annual revenue is around $4 billion in Pakistan.
As per the Deloitte report, franchisees pay $900 million annually in royalties, while Pakistan’s retail market grows to $155 billion. Consumer spending has risen 83.4 percent in the past five years, making it the seventh-largest food market in the Asia-Pacific (APAC)region.
The Pakistan Food Association estimates that each year, people in Pakistan spend $6 to $9 billion on eating out at restaurants. The ordinary Pakistani consumer is said to spend up to 42% of his salary, or around US $2,000, on food. Numerous international brands are starting to emerge, such as Next, Splash, Debenhams, Mango, Mini Minor, Monsoon, Giordano, Timberland, Levis, Dockers, Mother Care, Babyshop, Accessorize, The Body Shop, Crabtree and Evelyn, Nike, Adidas, Puma, Crox, Nine West, Pedro, Charles and Keith, Clarks and Sketchers, PF Chang’s, ALDO, Illy Coffee, and SPAR.
Other elements that contribute to Pakistan’s successful market include limited brand competition, and greater margins due to affordable labor, expanding transportation, and affordable real estate.
With franchising experiencing such rapid growth, many potential franchisees believe that investing in an international franchise is a wise decision since they get a ready-made, tested business model with clearly defined laws and procedures, ease of operation, and perhaps a quicker return on investment.
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 State Bank’s guidelines on the franchise fee. According to the SBP’s regulations, the franchise fee should not exceed $100,000/- irrespective of the number of outlets under one 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. In order to address the current account deficit and dwindling foreign exchange reserves, the State Bank of Pakistan (SBP) is currently restricting the approval of profit repatriation for foreign companies.
Pakistani law generally provides for the 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 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 by Islamic ritual).
Furthermore, Pakistan’s energy crisis and less developed processed food market (meat, fish, and poultry) pose challenges to franchisees who rely on the importation of input ingredients.
Resources
International Franchise Association
World Franchise Associates Pakistan
Other resources
- Industry contacts at post
- Pakistan Business Council (PBC) – research department
- Overseas Investment Chamber of Commerce (OICCI) – research department