This is a best prospect industry for this country. Includes a market overview and trade data.
Franchising is among the most appealing sectors for investors and businesses in Pakistan. The concept of franchising has gradually gained acceptance in Pakistan, especially in the hospitality sector. Several major U.S. hotel chains, along with a number of major U.S. restaurants and fast food chains are currently represented in Pakistan through franchisees. According to the World Franchise Association, the current market size of internationally franchised food outlets in Pakistan is estimated at $150 million in annual sales. 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), Dunkin Donuts, Domino’s Pizza, Hardees, McDonald’s, TGI Friday’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 has recently 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 64 outlets in Pakistan and several more in the pipeline. McDonald’s has 27 and Subway has 39 restaurants. New franchise concepts are opening all the time, most recently Baskin Robbins, iHOP, Golden Chick, Cold Store Creamery, Coffee Bean and Tea Leaf, Claire’s, Burger King, Francorp, Nine West, Fatburger, Texas Chicken, and Swensens Ice Cream.
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 the 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 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.
- Food Outlets
- Convenience Stores
- Hotels and Motels
- Courier Services
- Security Service
- Movie Theaters/Entertainment Complexes
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. There is also growth in the retail sector, with retail market size of $155 billion according to Delloitte, 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. There is an emergence of many international brands including Next, Splash, Debenhams, Mango, 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 factors that make Pakistan a lucrative market are low competition among brands, better margins due to low labor costs, and low-cost real estate.
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).
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.