Discusses opportunities for U.S. franchisors and legal requirements in the market.
Last Published: 1/22/2020

Overview
Saudi Arabia is about one-fifth the size of the United States by geographic area and has a total population of about 33.8 million.  The Saudi economy is expected to grow in 2019 at an average rate of 1.9 percent according to the IMF.  Saudi Arabia is the largest retail market in the Gulf with an estimated 83 percent of the population living in urban areas where most of franchise outlets are located.  The franchise market in Saudi Arabia has witnessed remarkable growth in the past decade with many successful American, European and local franchise concepts taking root.  Catching on the trend, many local Saudi franchise developers have managed to promote Saudi concepts with some of them having gone international.  Franchising is perceived to be an ideal business model for small and medium-sized enterprises (SMEs) in Saudi Arabia.

Many of the American and European brand names are already well entrenched in the market.  Most of those franchises are held by several local and regional companies, including Al Hokair Fashion Retail, Olayan, Saudi Catering & Contracting Co., Shahia Food Ltd. Co., Kuwait Food Company (Americana), Naghi Group, Al Safwa Food Group, Arabian Entertainment Co. Ltd., M.H. Alshaya Co., Landmark Group, and Al Sawani, among others.  Likewise, many Saudi entrepreneurs already established their local concepts in this sector, including, Herfy, Kudu, Shawarmer, Coffee Day, Dr. Café, Munch Bakery, Burgerizzr, Aani & Dani, and Maestro Pizza, among others.

The latest trade data indicate that U.S. exports of services to Saudi Arabia amounted to over $9.0 billion in 2018 (https://www.census.gov/foreign-trade/Press-Release/current_press_release/exh20b.pdf).  From U.S. statistical figures, nearly a third is accounted for by charges for the use of Intellectual Property and Other Business Services, which include franchise fees and royalties.

Commercial company law is used as a baseline for the franchise business model.Although there is no specific franchise legislation, a ministerial order was issued in March 22, 1992 allowing for the franchisee business to be treated under the Saudi commercial agency law and it is rumored that franchise legislation in coming soon to help regulate the sector.

The Saudi Arabia Government (SAG) liberalized the wholesale, retail, and franchise sectors in 2016 allowing full foreign ownership of retail and wholesale businesses by removing the former 25 percent local ownership requirement.  An increasing number of companies, including U.S. firms, are taking advantage of the new regulation.  All industrial enterprises are open to non-Saudis, and investors can also trade in the products they manufacture.  We recommend that U.S. franchisors consult with an attorney familiar with Saudi law before establishing, changing, or terminating a franchise agreement.

Leading Sub-Sectors
Retail
Saudi Arabia is the largest retail market in the Arabian Gulf with a significant domestic market, and the retail franchising sector will continue to draw more international companies and pave the way for more Saudi entrepreneurs to create local concepts, especially in the food sector. 

Research by BMI indicates that total household spending in the retail sector is estimated to reach $ 293 billion in 2019.  Expanding population and a substantial spending power dovetail for a positive impact on the Saudi retail sector, which is expected to grow to $350 billion in 2022.  From a franchise perspective, food is estimated to continue to top the list of spending accounting for more than 17 percent in 2017, at about $44.6 billion, while clothing and footwear spending reached $14.8 billion in the same year.
Shopping tops the list of pastimes in Saudi Arabia.  Saudis will usually visit a mall at least once a week, and growth in the construction of shopping malls is boosting the franchising sector, though many of the franchises repeat themselves in almost every mall. 

According to BMI, per capita GDP is forecasted to reach $24,360 in 2020.  Many Saudis travel overseas and gain experience with new concepts and brands.  Saudi Arabia’s expanding population, with nearly 58.5 percent under the age of 30, provides a solid base for continued growth in this sector.  The influx of more than 17 million religious tourists annually and internet penetration also have supported continued growth in the retail sector; the advent of online ordering and home delivery for both food and non-food items created a channel for local companies to promote their services over the Internet.

Opportunities
Franchising is a popular and successful approach to establish consumer-oriented businesses in Saudi Arabia.  Franchising opportunities exist in many business categories, including apparel, laundry and dry-cleaning services, automotive parts and servicing, restaurants, mail and package services, printing, and convenience stores.  There are no verified figures for the number of franchise outlets and brands in Saudi Arabia, however, industry sources project that there are more than 300 foreign companies that have franchisees in Saudi Arabia.

Events
The following trade events in Saudi Arabia offer excellent opportunities for U.S. franchises:
Saudi Franchise Expo
Location: Riyadh
Date: February 4-6, 2020
Website: www.saudifranchiseexpo.com/

Web Resources
Saudi Ministry of Commerce & Industry: https://mci.gov.sa/en
Saudi Arabian General Investment Authority (SAGIA): https://sagia.gov.sa
Eastern Province (Asharqia) Chamber of Commerce & Industry: https://chamber.org.sa

For More Information contact the U.S. Commercial Service in Dhahran, Saudi Arabia at: Tareq.Ghazal@trade.gov; Phone: 966 13 330 3200 X 3065; Fax: 966 13 330 2190; or visit our website: https://www.export.gov/saudiarabia.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.