India Franchise Companies and Top Brands waking up to entrepreneurs in Tier II, III cities.

AHMEDABAD: A small town in Parbhani, around 400 km from the financial hub of Mumbai, has of late woken up to the concept of sending their toddlers to a branded pre-school. Never before a parent of the town actually dressed up his child in neat uniform for something that seemed essentially a plaything.

For EuroKids International Ltd, however, it was about spotting a local entrepreneur to lap up its flagship pre-school brand EuroKid as its new franchisee. With the untapped tier II and III cities showing a phenomenal 40-45% growth in the $16 billion Indian franchising industry, the decision to go to Parbhani was obvious.

Not just education service providers, even retailers, travel operators and FMCG companies are thronging lesser known towns and cities to find franchisees in local entrepreneurs. “The Indian market that has never witnessed such excitement in the franchise industry,” notes Ritu Marya, the director of Franchise India. From 300 franchisers in 2005, the numbers doubled in 2008 while standing at 1,150 in 2010, she observes. “With understanding of the franchise business, companies are eager to explore opportunities in the market that is growing at 32-35% YoY.

However, with metros and tier I cities close to saturation in terms of growth of brands through the franchise model, brands are looking at virgin markets. So be it tier II or III cities or rural India, which contribute about 25% and 5% respectively to the franchise turnover basket, brands are expected to penetrate those markets more aggressively than ever before in next five years time,” she adds. That explains presence of EuroKids’ franchisee in markets like Akot, Angangaon (both Maharashtra), Navsari and Nadiad (Gujarat) or kitchenware retailer Prestige’s franchisee in Rajapalyam (TN) and Haldia (WB) and AMUL’s in almost every nook and corner of its home state Gujarat and elsewhere.

Says KG George, VP (retail), TTK Prestige Ltd: “Our presence in 160 towns through 246 franchisees have paid off very well. In fact, in certain cases, like the outlet in Rajapalyam, the turnover (Rs 40 lakh per month) surpasses the cumulative turnover of Prestige from multi-branded outlets. Now, we are keen to scale our number by 50 additional franchisees to achieve a 13% growth this fiscal and would essentially go to smaller towns where we are not represented well.” Big brands eager to set shop in these new markets essentially assess the disposable income of the consumers. “Brands look for a market where an average income of a family would be Rs 8-10 lakh per annum. Growth in infrastructure in those pockets, low rentals and high disposable incomes have given a thrust to this process,” Marya adds.

For Debashis Chattopadhayay, who has been retailing everything from buttermilk satches to ice-creams and pizzas under the AMUL brand, saying no to eager franchise takers has understandably been a daunting task.

The deputy Manager (retail) at Gujarat Co-operative Milk Marketing Federation Ltd that markets AMUL, who seeks to take the number of franchised outlets from current 5,000 to 10,000 by 2012, has experienced the brand-pull of AMUL. “We aspire to grow in smaller markets with partners who are passionate about the business and not just thinking of quick financial returns,” he says.

Franchising essentially needs a long-term approach and has to be looked at in terms of 5-10 years period. Considering it is an alternative to people, time and money, one has to be very sure about the model.Education topping the charts of the most franchised business in India (28%), followed by apparel retailing, companies playing in those sectors have adopted franchise route as their expansion strategies.

Uttam Saklani (area manager-West), EuroKids, could not agree less. Inching closer to take its tally of branded pre-schools to more than 900 in the current fiscal, the company is very sure about the potential growth markets. “With nearly 70% of our target group residing in the smaller towns and cities, we are aggressive about entering those markets through the franchise route,” he says adding that 40% of such franchised pre-schools are in smaller markets.

Tags:franchise model, franchise in tier II cities, franchise turnover, franchise penetration, franchise small towns, franchise smaller cities, franchising in small cities, franchise small markets

Source:12 Aug 2010, 1502 hrs IST,Shramana Ganguly Mehta,ET Bureau.

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