India Retail Franchising

8/9/2019 India Retail Franchising

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The general concept

In simple terms it is the granting of ceanother (the franchisee) in return for a sthose rights under the guidance of the fr

The consumer's perception should be tcontrary, there is no difference betweenfranchised one. The decor of the shop pr the goods or services and uniforms of town outlets. The franchisor is rentingformat; hence the name 'business formbusiness format is for a limited period of actual ownership of the format or associthose of a tenant when leasing a house.full enjoyment of the demise, but the dayover the property at all.

r

tain rights by one Party (the franchisor) toum of money. The franchisee then exercisesnchisor.

hat, save for any express statement to thene of the franchisor's corporate outlets and a

emises, the livery of vehicles, the selection of e staff should be identical to the franchisor'she franchisee the right to use its businesst franchising'. However that right to use thetime. The franchisee gains no interest in theted marks. The rights he enjoys are similar toDuring the period of the lease the tenant hasafter the expiry of the lease he has no rights



3

The commercial bargain

In crude commercial terms thefranchisee entering into a contramake a profit. The franchisee maor services to the customer. Thefranchisee to use its package orights. The bargain is struck betwsupposedly equal bargaining psuccessful and established the

the franchisee and the wider thfranchisor enjoys. To obtain anowadays a major achievement.

r

eason for both the franchisor andtual relationship with each other is tokes a profit from supplying the goodsfranchisor makes it from allowing the

know-how and intellectual propertyeen two independent legal entities of wer. In reality however, the moreranchise becomes, the more eager

choice of potential franchisees thecDonald's franchise for example is



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Creation of a new business specifically for franchisors

An entirely new product or service can be createbusinesses such as Snappy Snaps in the UK - whassociated products such as picture frames and tit operates a contract cleaning business. Ver franchised concept in another market such as thown jurisdiction.

Development of an existing business

This is perhaps the most usual way of evolvingdeveloped by use of the franchising method. Sbusiness, the restaurant businesses and so on.

Conversion of existing business to the franchise format

Sometimes an established business can decide tThresher off-licence chain in the UK is a good exaof a desire to accelerate growth and reduce overh

Importation

This is a very common method of evolving a fragreat exporter of franchise concepts around thePizza Hut and McDonalds are all American expor has established itself around the world.

d

specifically for franchising. This has been done withich provides 1 hour film processing services and retailse like in the high street. Dublcheck is another example,

often a local businessman identifies a successfule USA, and decides to create a similar concept in his

a franchise. An existing product or service is further uch businesses include the Dyno-rod drain cleaning

convert its managed outlets to franchised outlets. Themple of this. Such decisions are usually taken becauseads without sacrificing quality control.

chise in the specific territory. The United States is theorld. Brands such as KFC, Holiday Inns, Hilton Hotels,ts. Body Shop is an example of a British franchise that



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Automotive products and services

Automotive supplies, tyres, parts, tools, etc.,

systems, rust proofing, sun-roofing fitting, tax

cleaning, vehicle rental, vehicle repair, vehi

repair, chauffeur hire.

Business aids and services

Accountancy, bookkeeping, advertising serv

centres, business brokerage, business couns

and debt counselling, job recruitment, tem

services, tax services, word processing bureau

Construction, home improvement and maintenanc

Air conditioning services, bathrooms and b

cleaning, chimney lining, heat and energy c

domestic boiler servicing, double glazing, dr

environmental cleaning, fireplaces, fitted kitch

other doors, gutters, insulation, loft conversion

concrete, roof insulation and repair, tiles, timb

x

le alignment, car valeting, engine tuning, exhaust

hire, transmission repairs, tyre remoulding, vehicle

le security, windscreen replacement, windscreen

ices, information bureaux, display cards, postal

lling, computer bureaux, data processing, financial

orary staff, office communications, photographic

x.

products and services

th renovations, brick and stone pointing, ceiling

nservation, condensation control, damp proofing,

ught exclusion, drain cleaning, electrical services,

ns, flooring materials and laying, garage doors and

, pavement surface repairs, plumbing, ready-mixed

r preservations, water softening equipment.



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Education services

Educational tuition, kindergartens, management s

Entertainment, recreation, etc.

Hotels, whirlpools, adventure games indoors and

Fast foods, restaurants and takeaways

Chicken, coffee, croissants, hamburgers, ice creasandwiches, steaks, general restaurants.

Food stalls

Baked goods, confectionery, convenience stores,fresh juices.

Health, medical and beauty care Acupuncture and hypnotherapy, ambulance ser

hairdressing, optical goods, skin care, fitness equi

Household services

Carpet cleaning, curtain design and fitting, domfurniture stripping and restoration, upholstery and

i

ll training, secretarial training.

utdoors.

m, orange juice, pancakes, pizzas, popcorn, potatoes,

dairy produce, eggs, fish, grocery stores, health foods,

ice, beauty centre, fitness health clubs and studios,ment.

estic cleaning services, furniture and fabric cleaning,inyl repair.



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Retailing (products and services not

Aquatic centres, bag stores amaternity wear, fashion wear, spand for hire, computer hardware

products, dry cleaning, giftware,wools, instant print and copying sbadges, picture framing, photogsewing machines, telephones anand equipment, window blinds.

Miscellaneous Driving schools, equipment le

publishing, local newspapers, ethire and instant accommodatiosupport services, wholesaling of equipment, will writing and storag

specified elsewhere)

d luggage, batteries, bridal wear,orts wear, ties, formal wear for saleand software, cosmetics and beauty

housewares and furnishings, knittinghops, linen, original art, personalisedaphic development, family histories,d car telephone services, video films

asing and hire, estate agencies,., security equipment services, tent

n hire, travel agencies, veterinaryarpets, biscuits, electrical and video

e.



Very well accepted Entrenched deeply withi Fairly well structured in t

In USA:¾ $1 Trillion is spent ea

outlets¾ One out of every 12 b

business¾ A new franchise busin

business day

¾ 50% of retail trade is thr High growth areas are S

Middle East US franchisors lead the

USA & Western Europeerms of framework

h year on goods bought at franchised

usiness establishments is a franchised

ess opens every 8 minutes of every

ugh franchised outletsouth-East Asia, Latin America & the

ay in International expansion



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International soft drink and hotelin the 1960s, but in 1977 theforeign brands from India. Thgradually from the mid µ80s. In

foreign franchises started comhiccups along the way especially

The well-known franchises relatior restaurants include Pepsi,Subway, McDonalds, TGIF, GePiazza, Dominos Pizza, O¶Brian¶Barrista. Retail franchises includPeroni, Pepe Jeans and Adamand DHL are there along wifranchises. The Government hasin relation to the retail industry an

ranchises arrived in India as early asovernment of the day had expelled

foreign brands started returningthe 1990¶s as the market opened,

ing in gradually, and faced manyKFC, Schweppes etc.

g to soft drinks, ice-cream parloursoke, Baskin Robbins, Movenpick,ffry¶s, Taco Bell, Pizza Hut, Pizza

s Sandwich Bar, Ruby Tuesdays andMarks & Spencer, West Side, Evita

. Courier companies like Air Actionh computer and software relatedliberalised the rules and regulations

d a boom in this sector is on its way.



Acceptability growing by th Fairly conventional industr Approximately 600 franc

education, retailing, profes

Over 40

,000

franchisees Annual turnover from FraRs.10,000 crores

Total investments made by Over 300,000 people direc Variety of hybrid formats in Number of International fr

in

Source: Annual Surveys of the Indian Franch

e dayspread

hisors spread across industries likesional services, healthcare etc

chising ± anywhere between Rs.8000-

Franchisees ± over Rs.5000 crorestly employed by franchised businessespracticenchises already existing, more coming

ise Sector, conducted by FirstFranchising



Positive Factors

¾ Huge consuming class

¾ Fast-growing consumeri

¾ Shift towards Servi

Manufacturing

¾ Franchising has alread

several sectors

¾ Large entrepreneurial p

m

es from Agriculture &

proven to be successful in

ol



Negative Factors

¾ Lack of regulatory frame

¾ Financing mechanisms

¾ Skewed real estate mar

work

ot in place

ets



The Education sector doscenario, although Retail i

Most of the franchisors are

Several large Indianfranchising way

Newer & innovative conce

Substantial interest from inas Indian business houses

Franchising is now spreaproviding opportunities to

inates the Indian franchisingfast catching up

relatively new and small

orporates also going the

ts being introduced

ternational franchisors as wellfor master franchises

across the country, therebyntrepreneurs everywhere



Franchising allows the

¾ Have greater access to

¾ Expand rapidly

¾ Save operating costs

¾ Capitalise on the

entrepreneurs

ranchisor to:

apital

abilities of independent



Franchisees joining a f following benefits:

¾ Backing of a bigger orga

¾ Shorter learning curve

¾ Established trade mark

¾ Economies of scale

¾ Joint advertising and pr

¾ Transfer of managemen

¾ Training & support from

anchise system enjoy the

nisation

r service mark

motion

expertise

he franchisor



Grew initially in the appare Has gradually grown to c

food, consumer durables, j Two varieties of Retailers:

¾ the manufacturer-retailershave been around for a whi

¾ the aggregators ± typicallbeginning to show up

Existent & likely to be succ Substantial action also ha

¾ Thereby spreading organis

Has had to contend with tmarkets¾ Result ± MG (Minimum Gu

l & footwear sectorsver a wide variety of sectors including

ewelry, books, home décor etc

± typically Product Distribution Franchises ±ley Business Format Franchises ± only now

essful only in smaller formatspening in non metro locationsd retailing over a larger footprint

e peculiarities of the Indian real estate

rantee) has become the key driver



Model Pure Franchise Management Contract Hybrid*

Player Franchisee Franchisor Franchisee Franchisor Franchisee Franchisor

Input

Premises D U U U Interiors U U (50%) (50%) Equipment U U (50%) (50%) Stocks U U U

(Consignment )

Management U U U Franchisees

Returns Margin on Sales Rent + %age of Sales Higher of Minimum Guarantee or

Margin on Sales

Model Pure Franchise Management Contract Hybrid*

Player Franchisee Franchisor Franchisee Franchisor Franchisee Franchisor

Input

Premises D U U U Interiors U U (50%) (50%) Equipment U U (50%) (50%) Stocks U U U

(Consignment )

Management U U U Franchisees

Returns Margin on Sales Rent + %age of Sales Higher of Minimum Guarantee or

Margin on Sales

*m any m ore varieties of the hybrid m odel exist.



Comprises of sectors

Beauty and Profession

Is widely practiced acountry

Differs from Retail fra

importance given to th

Pure franchises /

followed

like Education, Health &

l Services

d accepted across the

nchising in terms of the

location

Management contracts



IT Education ± Down for tlikely to re-emerge through

Retail ± Going strong butreal estate markets

Vocational / Preparatorystrong because of hugecompetition in public exami

F&B ± Low level of activitterm potential

Professional Services ± Lbut attractive long-term pot

e moment but surely not out;IT Enabled Services

getting hurt because of the

Education ± Fundamentallypopulation base and high

nations

currently but attractive long-

ow level of activity currentlyential



Ranking Value Proposi

(Franchisors

1 Brand Name

2 Eco nomies of S

3 Prove n Busine s

Source: Annual Survey s of the I ndian F ranch i

tion

iew)

Value Proposition

(Franchisees View)

Brand Name

ale Economie s of Scale

F ormat Prove n Busine ss F ormat

ise Se ctor, conduct e d by F irstFranch ising



Ranking Value Proposi

(Franchisors

1 Local Marke t K

2 Busine ss Expe ri

Background

3 I nve stme nt /

Re al Estat e

S ource: Annual S urvey s of t he I ndian F ranch i

tion

iew)

Value Proposition

(Franchisees View)

owle dge I nve stme nt /

Re al Estat e

e nce / Busine ss Expe rie nce /

Background

Local Marke t K nowle dge

ise Se ctor, conduct e d by F irst F ranch ising



Ranking Factors

1 A We ll Estab lish

2 Constant Ne w P

3 I nnovative Prod

4 Quality of Franc

5 Transpare ncy

6 Re turn on I nve s

Source: Annual Surve ys of the I ndian Franchise Se ctor,

e d Busine ss Ne twork

roduct De ve lopme nt

ucts / Se rvice s

hisee s

tme nt to Franchisee s

onduct e d b y FirstFranchising



Ranking Causes of Fric

1 Transpare ncy

2 Training and S

3 Re ve nue Sharin

4 Product / Se rvi

Source: Annuals Surve ys of the I ndian F ranc

tion

pport

g

e De live ry

ise Se ctor, conduct e d b y F irst F ranchising



Herd mentality ± both franchis

Several wrong precedents of f

To an extent:¾ many franchisee¶s commitment

¾ many franchisor¶s commitmentheir franchisees is in doubt

Result ± a tense relationship,

rs as well as franchisees

anchisors as well as franchisees

to service quality is missing

to provide the promised support to

hich doesn¶t help anyone



Financing for franchises isinstitutions¾ soft expenses not recognis

institutions

Legal & disclosure frameplace¾ increases chances of fraud b

¾

makes it difficult to resolve di

Real Estate marketsunrealistic¾ make Franchising unviable f

a problem area with financial

d as part of project cost by many

ork for franchises is not in

y fly-by-night franchisors

sputes

ompletely unstructured &

r start-up entrepreneurs



Need for a Working Gr Franchising to identify cothem

Need for disclosure nor regulatory side

Most importantly, Fr Franchisees need to ucommitments & responsi

oup / Regulatory Body onrrect priorities and lobby for

s & legal framework on the

anchisors as well asnderstand & honour their bilities towards each other



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India Retail Franchising

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