Saudi Arabia Has Been Buying Brands. Now It Wants to Build Them

By Sean Goldsmith

Kudu, Shawarmer and dr.CAFE have built successful Saudi chains. Now they face a harder test: turning them into international franchises.

Kudu, Shawarmer and dr.CAFE have spent years building the systems behind successful chains. Their next challenge is much harder: convincing operators outside Saudi Arabia that those systems can make money in their markets.

For decades, Saudi Arabia has been one of international franchising’s great customers. Saudi operators have taken concepts developed elsewhere and built them across the Kingdom, learning how international brands choose sites, control food costs, train staff, manage suppliers and maintain standards across large networks of restaurants.

That experience is now starting to work in the opposite direction. Saudi companies have built substantial businesses of their own, and some are beginning to pursue the same international franchise opportunities that foreign brands have successfully pursued in Saudi Arabia.

Kudu now has more than 350 locations. Shawarmer has built a 160 unit business around one of the Middle East’s most familiar foods, while dr.CAFE has developed its own franchise and investment models around a Saudi coffee business. These are very different companies, but they face the same commercial test. Building a successful Saudi chain is one thing. Convincing an operator in another country to invest their own capital in the model requires much more.

Kudu Has Spent 38 Years Getting to This Point

Kudu opened its first restaurant in Riyadh in 1988, began franchising domestically in 2004 and today has more than 350 locations. The store count gives Kudu considerable credibility, but the more interesting part of its franchise story is the infrastructure developed behind those restaurants.

The company has built bakery and meat production capabilities that give it greater control over important parts of its supply chain. It operates multiple store formats and has spent more than two decades working with franchisees alongside company owned locations. Kudu is now actively looking for experienced international multi unit franchisees.

For an overseas operator, that history changes the investment proposition. Kudu is not asking franchisees to back a fashionable Saudi restaurant that has enjoyed a few strong years. It can point to decades of trading, hundreds of stores, established production capabilities and years of experience managing franchise relationships.

There is a practical lesson in that history. International expansion becomes considerably more credible when the operational work has already been completed at home. Store openings attract attention, but production, training, purchasing and franchise support determine whether those openings can be repeated.

Shawarmer Had to Franchise the Shawarma

Shawarmer presents a different challenge. The company started in Riyadh in 1999 and has grown to 160 branches. Its franchise proposition is unusually specific, with the official Saudi franchise platform listing an investment requirement of between SAR750,000 and SAR1.5 million, a SAR150,000 franchise fee and an ongoing management fee of 8 percent.

Those figures help explain what Shawarmer has actually built. Shawarma is sold by thousands of restaurants, consumers already understand the product, and independent competitors do not need to pay anybody a franchise fee to put it on the menu. Shawarmer therefore has to give a franchisee something more valuable than access to the food itself.

Its value sits in the system surrounding the product. Recipes, purchasing, store design, training, service standards, marketing and operating controls allow one restaurant to perform like the rest of the network. The company also provides operational and managerial training through its training centres.

That is an important point for Saudi brands considering international expansion. They do not necessarily need to invent a new category to build an international franchise. There is considerable value in taking products the region already understands extremely well and developing a business system that allows another operator to sell them consistently and profitably.

dr.CAFE Is Selling More Than a Coffee Shop

Coffee creates another problem because Saudi Arabia has no shortage of cafés, and neither does the rest of the world. An international investor does not need a Saudi franchise agreement simply to sell coffee, so the franchise system has to provide a commercial advantage that an independent operator would struggle to reproduce.

That makes dr.CAFE’s approach worth examining. The company offers conventional franchising, but it also promotes a partnership structure under which an individual or company can own up to 49 percent of a store, region or country while leaving daily operations to dr.CAFE.

This creates a different proposition from a conventional franchise in which the investor receives a brand, operating system and support package and then runs the business. It also acknowledges a reality of international development: investors do not all want the same relationship with a brand. Some want to operate stores directly, while others want to deploy capital without taking responsibility for daily operations.

For Saudi franchisors looking overseas, that flexibility could become important. International expansion may require different ownership and operating structures depending on the market, the investor and the amount of capital required. The underlying business still has to work, but the route used to finance and operate it does not always need to be identical.

The Next Test Happens Outside Saudi Arabia

Saudi Arabia is actively trying to create more international franchisors, and companies such as Kudu, Shawarmer and dr.CAFE show that there is already a base of domestic operating experience to build from. The number of brands that sign overseas agreements, however, will tell us much less than the performance of the stores that follow.

A first international opening can be heavily supported by the franchisor, backed by an enthusiastic development partner and treated as a flagship. The real evidence comes when the same franchisee opens the second, third and tenth locations under normal operating conditions.

At that point, the questions become much more practical. The franchise has to work after local wages and rent are paid. The supply chain has to function across borders, quality has to remain consistent without constant intervention from the Saudi head office, and the franchisee still needs to earn an acceptable return after royalties and other fees.

If Saudi brands can prove those economics repeatedly, the Kingdom’s position in international franchising starts to change. For years, Saudi operators have paid overseas brand owners through franchise fees, royalties and development agreements. Successful Saudi franchisors have an opportunity to build the same revenue streams from operators investing outside the Kingdom.

What We Can Learn From This

Saudi brands considering international franchising should spend less time celebrating the first overseas agreement and more time proving that another operator can reproduce their economics. Kudu’s scale, Shawarmer’s standardisation and dr.CAFE’s approach to investor participation show three different parts of that preparation. The real milestone will be profitable repeat openings operated by franchise partners outside Saudi Arabia. If those arrive, the Kingdom will have created franchise systems capable of earning from capital deployed in other countries.

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