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How retailers can take advantage of franchise opportunities

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If one wants to be a retail entrepreneur, there are many ways to start a business. You can start with sole proprietorship – e-commerce or brick-and-mortar – but starting your own brand comes with little support, so taking advantage of one of dozens of franchise opportunities and having the power of an existing brand behind you is the smartest way forward. With the help of retail franchising, you can open a store based on the name, branding, trademark, and products of an existing business.

How retailers can take advantage of franchise opportunities
A franchise is a legal and commercial tie-up between the owner of a trademark, brand name or advertising symbol (the franchisor) and an individual or organisation (the franchisee) that wishes to use that identification for his or her business venture

What is Franchising?

A franchise is a legal and commercial tie-up between the owner of a trademark, brand name or advertising symbol (the franchisor) and an individual or organisation (the franchisee) that wishes to use that identification for his or her business venture. The franchise agreement governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor. In terms of entrepreneurship, franchising is the opportunity to work for yourself but not by yourself.

Advantages of Franchising

In a franchise agreement, the franchisor takes care of issues such as hunting for sites, negotiating leases, arranging for design and build-out, securing finance, training staff and purchasing equipment and inventory. In effect, the franchisee gets a ready-made business!

For the brand, franchising is the easiest way to grow, because the franchisee performs most of the tasks – the franchisor provides guidance, but the ground work is done by the franchisee. In short, it offers the brand an opportunity to expand quickly and at lower capital investment.

There are many reasons to think about getting a franchise. Franchising helps in lowering the number of roadblocks you’ll face if you have to create all these things yourself in an independent business. However, you do have to pay fees in a franchise that you could avoid in an independent business. However, using a franchise to meet your goal of starting a new business is a wonderful approach for most people, for all these reasons and many more.

This isn’t to say that opening a franchise doesn’t come with its own risks, but one of the benefits of opening a franchise rather than a sole proprietorship is the higher chance of success. Here are some other benefits to opening a retail franchise:

Faster Opening: Launching a franchise is much faster than opening a sole proprietorship business.

Training and Support: The franchisee and the employees he/she hires can rely on tried-and-tested training and ongoing support. Franchising is a team effort, so franchisors know that in order for their company and brand to maintain a solid reputation, it’s important to ensure that all of their franchise stores operate according to a certain standard.

Hunting for Location: Scouting out a location for a business can be one of the trickiest parts. Established franchises will provide assistance in finding an optimal site. After all, they’ve already done their research and have a proven track record of what areas work best for their business.

Brand Recall: The most important reason for zeroing in on a franchising business is the brand recognition and recall it enjoys with the people. Opening a franchise comes with the selling power of a known brand. So, when potential customers see your new franchise location, they already have an awareness of the brand and products and know exactly what to expect.

Franchising Business in India

Franchising is apt for India due to its sheer geographical size. Penetrating markets on its own can be an arduous task for brands. Further, the country is so diverse in culture that a franchisee is better placed to do business with their local connect, understanding and familiarisation with local conditions.

Talking about the franchising model of , , says, “Yellow Tie is the only locally-bred restaurant franchise company that has grown rapidly with in house capabilities of franchising.”

Director, , adds, “Over the last 50 years, franchising as a business model has proved to be extremely successful across the world. So much so that it is estimated that in developed economies like the US, over 50 per cent of all retail sales come through franchised businesses. Similar trends are being seen in Europe and increasingly in the Asia Pacific economies. In fact, the last few years have seen the fastest franchising growth taking place in the Asian and South American markets.”

Talking about the growth of franchising in furniture business, Biyani, says, ” With the global market, home furniture is the largest segment in the Indian furniture market. With a healthy economy and increased household and institutional spending, the franchisee concept is growing steadily. The Indian furniture industry covers the entire gamut of activities, from sourcing, manufacturing and distribution, to sales and after sales.”

Talking from his own experience, Director, , says, “Franchising in India is generally under developed, it is seen as the norm in most countries. However, most people in India prefer to launch their own brands and fail rather than associate with an already established business. We see this changing in the long term with more and more people accepting franchising as a viable business model. If you look at it in terms of ROI some franchising models have the ability to deliver tremendous ROI. Business people need to look more carefully at ROI Vs. topline.”

“Franchising in India has been a popular gaining industry. It has grown a lot and spread fairly across the country as well. Approximately 600 franchisors are spread across industries like education, retailing, professional services, healthcare etc in India. Retail franchising within India, grew initially in the apparel & footwear sectors and has gradually grown to cover a wide variety of sectors including food, consumer durables, and home decor,” explains MD, , .

Franchising in India opens many opportunity and new options for entrepreneurs. There are many factors that act as fuel in the growth of franchise – high demand by the consumer class, fast economic growth and even entrepreneurial population. Internationally, the investment by the person who takes franchise is done to run operations by himself and his team. India on the other hand, is more of investment model, the owner of individual property, who has surplus savings. Due to a diversified society in India, franchising has managed to make a place for itself but is still in the developing phase.

In European and Western countries, rules and regulations are flexible. Their market is much more mature than the Indian market. India is 2 per cent organised in franchising whereas the western countries explores about 52 per cent. It looks more at maximising his return on investment rather than running the operations. This is more for Indian brands rather than franchisee opportunity of international brands. The growth of franchise in India is at average of 40 per cent in the past few years. The western country fruitfully uses the advantage of sole language, religion, culture where India lacks behind. The infrastructure and market that they have is much better than us. We still need to work on the infrastructure.

“Franchising has been very successful for CKE in the US and overseas. The Carl’s Jr./ Hardee’s system is 74 per cent franchised, with international restaurants representing 17 per cent of the system. Outside the US, CKE is nearly 100 per cent franchised and we plan to open franchised restaurants here in India as well. India has a very diverse palate and is a very large country. So, it is natural for us to want to expand first in the neighbouring areas like Punjab from a logical supply chain perspective as well as from a palate perspective,” says, Director, Carl’s Jr. India, .

What’s Driving Franchising in India

The Indian retail sector is undergoing a metamorphosis; modern stores, shopping malls and multiplexes are emerging across the country. This transformation, along with the increasing purchasing power and changing lifestyles of people, particularly of the growing middle-class, has spearheaded the franchising movement in the Indian retail sector.

Franchising enables manufacturers to take advantage of India’s vast market with a degree of control, which the traditional forms of distribution cannot match. The model becomes especially attractive due to the following advantages it offers retailers:

Low capital investment: Franchising provides a favourable model to foreign retailers as well as their Indian counterparts, because there are many potential franchisees in India who have the capacity to finance the business or expand the current business.

Huge market: The demography of India is ideal for conducting business through the franchising model, particularly in the retail sector. Clubbing this with the expertise of people in the local market makes the franchise arrangement a great proposition.

Cultural Connection: Franchising suits the entrepreneurial psyche of Indian businessmen, who love to have a sense of ownership and control of operations and, being family-oriented, find it an attractive proposition to pass on the business to the next generation.

Laws: The current laws provide sufficient protection to a foreign franchisor in the event of emergence of any legal issues.

Stumbling Blocks

In order to let the franchise model grow to its true potential, some challenges need to be addressed. Some of the major problems faced in franchising in India are as follows:

High initial costs: Big franchise operations, at times, can involve very high initial costs – often more than what it would cost the franchise owner to have his own business – thereby affecting the profit potential.

Limited creativity: As the franchisee has to follow the rules set by the franchisor, franchise contracts usually have very specific standards, restricting any creativity on the part of the franchisee.

Restrictions on sourcing: Some franchise contracts lay strong emphasis on the fact that the franchisee must buy supplies only from an approved list of suppliers, which can cost the franchisee more.

Dependence on the franchisor: The reputation of the franchisee is as good as that of the franchisor, so any difficulty faced by the franchisor might have a direct impact on the
Franchisee.

“There are many challenges that India has to face in respect to the franchising here. For franchising in India, one has to go through a lot of laws, licensing and clearances which makes the whole process tedious. It is time consuming. Franchising needs to be certified by someone at each level, which might not be a good prospect for investors. There are different tax and licensing process for different products or services related to real estates. A lot of complexities with regard to law and regulation have served to create disinterest for entrepreneurs. The addition of GST has simplified the process at some level but at another level, the difference in tax and the number of products falling under different tax brackets has made the whole process tough. The law needs to be made much more flexible and strong in terms of trade marking and patenting. We still have the traditional approach towards franchising and we need more infrastructures for support, opines Founder, Mantra Gold Coatings, Pankaj Bhandari.

How to work this model:

Talking about how to work the franchise model, Chopra of Carl’s Jr India, says, “Maintaining standardization and quality control is the biggest challenge in franchising. Ensuring that standardization is maintained among franchisees, with all the quality controls in place is of utmost importance.

Talking of the nuances, which are typical to the business, Bhandari of Mantra Gold Coatings, says, “We are working on a three-model revenue for our franchisee store. We aim to get footfall sales, sales from neighbourhood shops under our control and the business given by interior designers. This model will be helpful for our franchise owner to break even earlier with better payback time. This, of course, is going to be followed with lean inventory systems, larger products availability through centralised inventory and visual display available thru use of technology. ”

“Mutual respect and trust builds co-operation and a well-knit team, which means a good relationship between a franchisor and the franchisee. A franchisee system consists of 3 things – a brand, a system and support of that system. We do it by networking, team unity, developing new marketing strategies to hit the market, media activities, advertising campaigns, brand building etc.” says, Biyani of Mobel.

Thirani of Mama Mia Foods, says, “Our company has been operating its own outlets for over a decade, we have been very selective in franchising and we prefer to only be engaged with people who have a passion to succeed and understand brand building and customer service.”

Talking from home furnishing point of business, Agarwal of Skipper, says, “Franchising in 2017 has been a brilliant experience for Skipper. We have opened two stores already in Dhanbad and Kolkata and will be opening three more before Diwali this year. We have been positioning ourselves as the country’s most loved and favorite furnishings brand. Lately we have repositioned ourselves as the ‘First Organized and Largest’ retail chain brand in the home furnishing industry. ”

“We opened the first Broaster Chicken store in Mumbai in August 2016. Once we opened first store we signed 15 franchise contracts, that emphasised on investors trust in our company. Till August 2017, ie in one year of opening our first store, we have opened stores across India including all metros like Bangalore, Pune, Delhi, Kolkata and Hyderabad. It was very exciting to open stores and be the first mover in the American diner category in smaller but exciting cities like Patna, Lucknow, Varanasi, Guwahati and many more. With the support of our franchise partners and our patrons, Broaster Chicken is one of the fastest growing brand in India’s history with a long way to go,” says, Tanna from Yellow Tie Hospitality.

Challenges faced by franchise owner Karan Tanna, Founder and CEO, Yellow Tie Hospitality

– Unprofessional approach by brands

– Non-standardized approach for projects

– Not enough training and hand holding during launch

– Incompetent IT support, data analysis etc

– Unorganized SOPs and recipe cards

– No focus on national level brand building

Challenges faced by Brands

– Limited R&D capabilities

– Poor ancillary support

– Nascent logistics / cold chain infrastructure

– Under evolved franchise mentality

– No product differentiators

– Negligible support on IT for franchise management

– Changing plates across geography of India

– Move with Caution

Franchising is an excellent tool for a company to pursue rapid growth and penetration, as a local player with local contacts and better understanding of the dynamics in the locality is better equipped to take care of the business.

It not only reduces the risk of the company, but also mitigates the risk for individuals or parties who want the marketing, brand and operational support of a well-known and proven brand.

This system can enable a brand to penetrate deeper into distant and difficult markets much faster than trying to do it on its own. But there is surely a risk of brand dilution, especially if the synergy between the franchisee and the company is not sound. That is why it is extremely important to have the right person as your franchisee (take him and treat him as a business partner) and then, through support, training and audits, have all your tools in place to check and correct deviations as and when they happen.

It is important that the uniformity in appearance and product delivery is maintained at all stores. While the lighting and signages can be same across all the stores, despite the geographical boundaries, what is more important is that the standards of experiential marketing are maintained across all stores.

Regular training of the staff at all franchised outlets is one of the ways, which helps to maintain uniformity in the stores. The retailers are increasingly laying down ground rules with the help of a manual, which lists out the standardisation rules to be followed by the franchisee, apart from regular audits to ensure the same quality across all stores.

This ensures that all retail outlets, whether company-owned or franchised, have standardised ambience including the interiors, designing, brand logo, transaction receipts, packaging etc.

The owners’ commitment is very important for the outlet to be successful. One of the largest dangers of franchising is if the owner loses focus in running the outlet. Quality control is another very crucial aspect in this format, since cheating the consumer with differentiated quality can harm the brand image in the longer run. For a food and beverage franchisor, it becomes imperative to maintain the authenticity in taste and the quality of the final product, apart from maintaining the same taste across all franchising outlets.

History of Franchising

The origins of franchising can be traced back to America’s Issac Singer, the man behind the world-famous Singer sewing machine. Post the US Civil War in the 1860s, Singer had achieved the ability to mass-produce his famous sewing machines, but he lacked an economically viable way of repairing and maintaining them across the US. Thus, he then began to license out servicing and repairs to local merchants around the country, who were later permitted to become regional salespeople for the machines too.

Singer’s use of a contract for this arrangement introduced the earliest form of franchise agreements, leading to the inception of the first modern franchise system.

Franchising became more widely used in the US as a way to standardize products and standards from one coast to another. First was the car dealership model pioneered by General Motors in the early 1900s, granting exclusive rights and territories to franchise business owners; then oil companies and grocery stores took advantage of a business model that offered them a route of fast growth towards national distribution with reduced risk. As we notice, in its earliest avatar, it was usually the franchisor looking out for an expansion and risk mitigation to have a broader brand presence to take care of customer service. However, the trend became a two-way phenomenon gradually, where it was not just a franchisor looking for franchisees for their business but also where individuals were seeking franchise rights of reputed brands or brands that were seen to have a long-term potential.