Franchising Association of India (FAI) is holding its annual conclave at the IRF on 28th September 2010. The conclave will see some of the most successful franchisors and franchisees from India and overseas deliberating on the theme ’Franchising – The Future Of Retailing In India’.
Mr C Y Pal Chairman mentioned, "with the increasing spirit of enterprise in the retail sector, the franchising format is finding large and growing presence in hundreds of malls and otherwise all around the country. I believe that IRF 2010 will provide an excellent forum for debating the issues involved for managing orderly growth and for evolving the directional steps that the franchising industry should work towards in the coming years."
The backdrop of the event will revolve around how franchising as a business model has witnessed rapid growth in recent years, along with emergence of many modern retail formats, there is lot more that remains to be done to steer orderly growth of franchising to ensure ongoing successes in this domain and to minimise failures. Simply lobbying with the Government to bring in more regulation is not the right answer to the issues involved. Bringing in transparency and professionalism in Franchisor-Franchisee business relationships based on international best practices is going to be the major challenge.
The Discussion points being:
The current status: The number of franchising systems in the country and projected growth in the coming years.
Issues based on current experience.
Support systems required for orderly growth of the industry.
International best practices: Franchise agreements, disclosure norms.
Do we need Govt involvement and regulation?
Way forward in the coming years.
The conclave aims to foster the spirit of franchising in India which is growing at a very fast pace.The franchise event aims to bring the franchise industry together to discuss how they could collaborate to enhance franchise growth and play a vital role in the future of retailing in India .The conclave will see the franchise leaders and the entire franchise fraternity come together to celebrate the coming of age of franchising in India.
Members of the FAI could register online on:
http://www.indiaretailforum.in/fai.asp
Tags:FAI, Franchise Association India, Franchising Association Of India, Franchise Conclave, Franchise Event, Franchise Industry, franchising systems,india franchise, india franchising.
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Showing posts with label Franchising Association Of India. Show all posts
Showing posts with label Franchising Association Of India. Show all posts
Friday, August 13, 2010
Monday, May 3, 2010
Are You Seeking A Pie In The Growth Of Franchise Industry In India.
Though franchise companies represent a small portion of all US business, the franchise industry is big. In the United States, there are over 2,500 franchise systems, with more than 534,000 franchise units, which represent slightly more than three percent of US businesses. Yet that small percentage generates 35 percent of the retail and service revenue in the U.S. economy.
With franchise-related products and services estimated at $800 US billion annually, international demand for franchise brand name products and services is creating huge opportunities for American companies to expand overseas.
India, which has a growing middle-class of over one billion people, is now positioned as a major force in the global economy and fertile ground for investment in retail and business development. The franchising industry in India is expected to grow at an annual rate of 30 percent, and to drive the country’s current $330 retail sector even higher. In 2007, more than 750 national and international franchisors were operating in India, employing millions of people, and generating revenues in excess of $3 US million.
The industries cited as the top prospects for successful franchise opportunities in India include:
* Food and beverage
* Education
* Apparel
* Entertainment
* Courier Services
* Stationery and gift shops
* Health and beauty
* Fitness and nutrition
Many of the world’s largest and well-known franchise companies, such as UPS India, McDonald’s, Yum Brands, Baskin Robbins and Subway already have a visible presence in India. Other US companies, from diverse industry sectors, are now gaining a foothold too.
With India’s retail sector growing at more than eight percent a year, The Dollar Store is actively seeking franchisees. This retail chain, based in Florida, USA, sells low-priced general merchandise products and services. India is just one of the geographical areas targeted for the company’s multi-million dollar overseas business expansion.
And there are some surprising entries to franchising in India too, which at first glance, might not seem like a logical fit with traditional Indian culture and consumers.
Contours Express launched its first Indian center in Bangalore, with a second location in Mumbai. The company has 700 fitness centres for women in the U.S and additional locations across 24 countries, and plans to have at least 1000 Contours clubs operating around the world.
Pizza Corner aims to open 36 stores in India, and is extending efforts to expand in Sri Lanka, Nepal and Singapore.
Golf USA has grown to almost 100 stores in 32 states and 6 foreign countries; and is actively seeking entrepreneurs to operate stores in India.
According to statistics from the Franchising Association of India, franchises currently account for only two percent of retail revenues in India compared to almost 50 percent in the US. However, that two percent is growing at a fast pace, and the implications point to astounding market potential. The success rate for individual franchise business owners in the US is 92 percent, and since franchise businesses are based on proven systems, the success rate for Indian franchises should be comparable.
Franchising has a great future in India due to the convergence of many factors:
* The average Indian income is steadily rising and individuals have more purchasing power.
* Telecommunications and transportation infrastructure improvements facilitate the exchange of information and goods.
* Increasing levels of consumer spending, with greater recognition of brand value.
* Internet access is opening the world to India, making its population more aware of global trends and brands. And conversely, the Internet is making it easier for international companies to gain an understanding of India’ culture, geography and politics.
Tags:Courier Services, Retail Chain, franchise companies, dollar stores, contours express, Pizza Corner, Golf USA, Franchising Association Of India, Franchise Business, franchise related, franchise units.
With franchise-related products and services estimated at $800 US billion annually, international demand for franchise brand name products and services is creating huge opportunities for American companies to expand overseas.
India, which has a growing middle-class of over one billion people, is now positioned as a major force in the global economy and fertile ground for investment in retail and business development. The franchising industry in India is expected to grow at an annual rate of 30 percent, and to drive the country’s current $330 retail sector even higher. In 2007, more than 750 national and international franchisors were operating in India, employing millions of people, and generating revenues in excess of $3 US million.
The industries cited as the top prospects for successful franchise opportunities in India include:
* Food and beverage
* Education
* Apparel
* Entertainment
* Courier Services
* Stationery and gift shops
* Health and beauty
* Fitness and nutrition
Many of the world’s largest and well-known franchise companies, such as UPS India, McDonald’s, Yum Brands, Baskin Robbins and Subway already have a visible presence in India. Other US companies, from diverse industry sectors, are now gaining a foothold too.
With India’s retail sector growing at more than eight percent a year, The Dollar Store is actively seeking franchisees. This retail chain, based in Florida, USA, sells low-priced general merchandise products and services. India is just one of the geographical areas targeted for the company’s multi-million dollar overseas business expansion.
And there are some surprising entries to franchising in India too, which at first glance, might not seem like a logical fit with traditional Indian culture and consumers.
Contours Express launched its first Indian center in Bangalore, with a second location in Mumbai. The company has 700 fitness centres for women in the U.S and additional locations across 24 countries, and plans to have at least 1000 Contours clubs operating around the world.
Pizza Corner aims to open 36 stores in India, and is extending efforts to expand in Sri Lanka, Nepal and Singapore.
Golf USA has grown to almost 100 stores in 32 states and 6 foreign countries; and is actively seeking entrepreneurs to operate stores in India.
According to statistics from the Franchising Association of India, franchises currently account for only two percent of retail revenues in India compared to almost 50 percent in the US. However, that two percent is growing at a fast pace, and the implications point to astounding market potential. The success rate for individual franchise business owners in the US is 92 percent, and since franchise businesses are based on proven systems, the success rate for Indian franchises should be comparable.
Franchising has a great future in India due to the convergence of many factors:
* The average Indian income is steadily rising and individuals have more purchasing power.
* Telecommunications and transportation infrastructure improvements facilitate the exchange of information and goods.
* Increasing levels of consumer spending, with greater recognition of brand value.
* Internet access is opening the world to India, making its population more aware of global trends and brands. And conversely, the Internet is making it easier for international companies to gain an understanding of India’ culture, geography and politics.
Tags:Courier Services, Retail Chain, franchise companies, dollar stores, contours express, Pizza Corner, Golf USA, Franchising Association Of India, Franchise Business, franchise related, franchise units.
Wednesday, February 10, 2010
Franchise Management Programme For Entrepreneurs In India
Indian Franchise Association (IFA) has launched an interactive Franchise Management Program at the Mudra Institute of Communications, Ahmedabad (MICA).
To be implemented in a module format, the program will introduce aspiring entrepreneurs at MICA to the intricacies of franchising and establish the strategic approach by posing various case studies. "An entrepreneurial spirit is critical for franchising. Many entrepreneurs take up franchises but they are not hugely successful because of the lack of entrepreneurship in the franchisee. In order to address this and many other aspects of franchising for entrepreneneurs, we decided to launch this program for the students of MICA's entrepreneurship development centre,” said Gautam Raj Jain, chairman, entrepreneur program, MICA.
The conjunction with MICA is the first initiative of this kind for IFA, which plans to announce similar ventures with other premier institutes shortly. "Through this program, we want the aspiring entrepreneurs among our students to go global in their ventures day one onwards," said Ashok Ranchhod, director, MICA.
With such initiatives of franchise education and on training and nurturing entrepreneurs on all aspects of franchising is a healthy sign for the franchise industry, we definately see the programme adding to the growth of franchising in India.Typically today the entrepreneurs are only subject to franchise websites, franchise magazines and franchise exhibitions where they get to meet the companies directly and are not able to correctly understand everything they need to before they get started with taking up a new franchise.We hope that the course will be able to highlight these issues and help the entrepreneurs
To be implemented in a module format, the program will introduce aspiring entrepreneurs at MICA to the intricacies of franchising and establish the strategic approach by posing various case studies. "An entrepreneurial spirit is critical for franchising. Many entrepreneurs take up franchises but they are not hugely successful because of the lack of entrepreneurship in the franchisee. In order to address this and many other aspects of franchising for entrepreneneurs, we decided to launch this program for the students of MICA's entrepreneurship development centre,” said Gautam Raj Jain, chairman, entrepreneur program, MICA.
The conjunction with MICA is the first initiative of this kind for IFA, which plans to announce similar ventures with other premier institutes shortly. "Through this program, we want the aspiring entrepreneurs among our students to go global in their ventures day one onwards," said Ashok Ranchhod, director, MICA.
With such initiatives of franchise education and on training and nurturing entrepreneurs on all aspects of franchising is a healthy sign for the franchise industry, we definately see the programme adding to the growth of franchising in India.Typically today the entrepreneurs are only subject to franchise websites, franchise magazines and franchise exhibitions where they get to meet the companies directly and are not able to correctly understand everything they need to before they get started with taking up a new franchise.We hope that the course will be able to highlight these issues and help the entrepreneurs
Wednesday, December 9, 2009
Franchise Business In India:Pathway to Success & Wealth
Rajat Mathur, 36,
CookieMan Franchisee Mumbai
had always wanted to strike out on his own. So, when he left the i-flex Solutions office in Mumbai as its senior banking analyst for the last time, he did not regret it. An alumnus of the IIT-Mumbai and IIM-Lucknow, he had worked at Times Bank and ICICI Bank before i-flex.
You would walk into Orbit Mall on the Malad-Goregaon Road in Mumbai to the aroma of freshly baked cookies. The bouquet will lead you past the Good Earth store on your left, and round the corner to the Cookie Man shop. And there, presiding over chocolate and honey-almond cookies, you would meet Mathur again. Counting the cash, checking the cookies, and serving them straight out of the oven at the back to the crowds thronging the counter. “I always wanted to do something on my own as I think that’s where the real fun is. You can never get that in a nine-to-five job.” Mathur’s entrepreneurial spirit is alive and well.
Jaya Patodia 34
Lakme Beauty Salon, Delhi
She invested Rs 25 lakh initially and now has a monthly income of Rs 50,000-60,000. Her average monthly turnover is Rs 3.5 lakh
“I have a Swiss watch store in Khan Market, but that was not giving me good returns. The turnaround happened when a friend, who owned a Lakme franchise, told me about it.”Franchisee Checklist
While Mathur cut loose, a lot of others wanting to do so have not. With responsibilities and dependents, they don’t dare to leave the warmth of a regular income and plunge into the financial turbulence a new business could bring. But today, the ‘fresher’ can go in with the safety tube of franchising. That’s what Mathur did. T.K.S. Kumar, a franchisee of Whirlpool Service Centre in Chennai for a decade now, says: “I wanted to realise my long-cherished dream of becoming an employment giver from an employment seeker.” But P. Ramarao, president, Australian Foods, which owns Cookie Man, warns: “It’s not for people who aren’t passionate.”
WHAT IS A FRANCHISE?
During the Great Depression, Colonel Harland Sanders started selling fried chicken in the little town of Corbin, Kentucky, on the road to Florida. He is said to have used 11 herbs and spices in a secret recipe that gave the chicken its distinctive taste. Sanders’ fare gained fame and Corbin was a routine stop en route to Florida till a new highway bypassed it. That’s when the colonel shut shop and tried selling his chicken to restaurant owners. In 1952, Pete Harman of South Salt Lake, Utah, signed an agreement to sell Sanders’ chicken and pay him five cents for each piece sold. The eatery was called Kentucky Fried Chicken. It was the world’s first franchise. While Sanders was sharing proprietory knowledge and reputation with Harman for a fee, the latter was running the business on Sanders’ behalf. And that is the essence of a franchise even today.
WHY A FRANCHISE?
The simple answer is to mitigate risk. “The franchiser can expand its reach by investing almost no money and capital, while the franchisee is almost sure of success as he is working in a tested area,” says C.Y. Pal, president, Franchising Association of India, an industry body. A US Department of Commerce study conducted during 1971 to 1997 showed that less than five per cent of franchises closed down each year. In contrast, a study by the US Small Business Administration found that from 1978 to 1998, 62 per cent of non-franchised businesses could not make it past the sixth year. But remember that a franchise will never give the returns that a successful own business will. For example, Biocon CEO Kiran Mazumdar-Shaw, who started her business with Rs 10,000 in 1978, is now the richest woman in India with a net worth of about Rs 2,000 crore. Some franchises could give you annual returns of 70 per cent, but most will be in the 20-40 per cent range.
Good franchisers will help you get your business rolling and to keep it that way. Vivek Kaicker, 44, runs a US$ Dollar Store franchise in Delhi. “I had a retail business, but I liked this concept and thought it would increase footfall,” he says.
Retail giant Wal-Mart, with a turnover of $316 billion, announced that it would franchise its Indian operations to Sunil Mittal’s Bharti Enterprises. The latter would own and run Wal-Mart retail stores in India. Wal-Mart would also set up a joint venture with Bharti for the supply chain. Thus, systems honed over 46 years would be Bharti’s from Day One. Overnight, Bharti, whose retail plans had earlier been dwarfed by the Rs 3,200-crore investment announced by Mukesh Ambani’s Reliance Retail, was being billed as the company that would battle for supremacy in organised Indian retail. That’s the kind of fillip the right franchise can give. The model is versatile enough to work for Mittal, as well as Mathur. And it can work for you.
WHY IS THIS A GOOD TIME?
As a share of GDP, franchising accounts for 12 per cent in the US, but not even one per cent in India. The comparison gives an idea of where it could go. Industry estimates indicate franchising has grown to a Rs 8,000-crore sector now, from Rs 4,578 in 2004. Pal says there are over 750 franchisers in India today. Throw in the foreign franchisers, and the opportunity grows even bigger. It is attracting local talent in sectors such as food, lifestyle, retail, business services, healthcare, communication, education, entertainment and travel, among others. India is now the world’s largest franchise market after North America and is growing at about 30 per cent a year, says Tony White, managing director, White Connections, which advises franchise companies.
A big opportunity is in the Rs 40,000-crore organised retail sector, of which less than a fifth is franchised. It is expected to grow at 30 per cent a year for the next five years. But it may not be for everyone. “Retail often involves high costs as prime real estate, decoration and furnishing,” says Gaurav Marya, president, Franchise India Holdings, an integrated franchise solutions company. A cheaper option is a service franchise. Instead of the local guy, more people are getting specialists to, say, find a match, or clean a water tank. For a money-spinner education franchise, “in most cases all you need is a room and the course material”, Marya adds. “Eating out constitutes 11 per cent of the wallet of Indians; mom and pop stores are being replaced by organised F&B outlets,” says Ajay Bansal, director (business development), Yum International, which owns Kentucky Fried Chicken. But growth is concentrated more in the takeaways and value eateries than fine diners (see 26 Hot Franchises: An Invitation to Join the Fast-growing Fraternity, page 24).
WHICH FRANCHISE?
While buying a franchise, you have to consider several issues.
Abilities. This is the time for brutal self-assessment. Rule of thumb: stay off what does not interest you. If you are indifferent to food, stay off restaurants. If kids exasperate you, avoid play schools. But don’t lose heart. Your passion for travelling may make you one of the best equipped to plan holidays. Go for that. “I had already done a few beauty courses,” says Jaya Patodia, 34, who runs a Lakme Beauty Salon in Delhi.
More likely than not, a good franchiser will check out whether you fit the bill. Shahnaz Hussain, for instance, looks for people who are “passionate about beauty care”. Most franchisers will look for specific skills apart from “entrepreneurial attitude and open mind”. Institute of Computer & Finance Executives asks for no less then a chartered accountant, and Spykar Jeans wants a year’s experience in franchising.
Since this will be a new business, it will need a lot of hard work to get it running. “The initial one year is very important as this is when you build up a customer base,” says Hema Malini, 36, who, along with Ambika Viswanath, 24, run a Ferns ‘N’ Petals franchise in Chennai. Most franchisers want the franchisee to be involved personally. Ratan Jalan, CEO, The Apollo Clinic, says: “We need a person who is himself going to run the franchise.” But some may let you hire a manager and work at the franchise part-time. Remember, the monthly expense estimate franchisers give you assume that you will work full time.
Costs & finances. The big question is: how much can you invest in a franchise? Some service franchises could cost as little as Rs 2 lakh. You would need just a room, a table, a couple of chairs and a telephone connection. At the other end are beauty parlours, fine dining restaurants, or retail jewellery outlets. Here, investments could go to a crore or higher.
Now add on recurring costs—royalty (usually a percentage of sales to be paid every week or month). In some cases, Ferns 'N’ Petals and Angeos Academy, it is the higher of percentage of net sales or a lumpsum. There would also be working capital, which would include salary of staff, power bills, rent, and some fixed overheads like ad fees. When a franchiser talks about working capital needs, ask whether it includes rent. If not, this could be a chunky add-on. Check how much you can borrow from banks and at what rate and decide whether you want to do so (see Money Matters).
The amount of capital you can raise will partly determine how long you can wait for the business to pay back. Some franchisers will say that you can start making profits from the first month itself, but it is always wise to give yourself a cushion of at least a few months. Your reserves or savings will decide how critical immediate cash flow is. Also, ask yourself how much money you can afford to lose. It would be smart to have a contingency fund.
Goals. What do you want your franchise to do for you? Will it be the primary or a supplementary source of income? Are you looking to make any specific amount every year? What is the return you want on your investment? Develop a three-tier strategy for investing, a long-term strategy and an exit strategy. Ask where you see yourself five to 10 years down the line. Do you intend to make money and shut shop, or do you want to set up more outlets later? Remember, buying a very successful franchise for a high fee makes no sense until your outlet gives returns.
After you apply these filters, your list should get down to at most four or five franchises. But you still need to zero in on one.
Due diligence. Ultimately, you are investing in a franchise and need to know what you are buying. So, bring out the acid and do the test. The first thing to ask is whether the franchise is likely to be profitable. Check the record of the franchiser and the prospects of the industry it operates in. Find out how many franchisees it has, its growth plans and how many of its franchises have shut shop. Talk to the franchiser and at least five existing franchisees to get the low down. Often, even better known franchisers like Archies Gallery and Subway won’t give you their numbers. Others like Ferns ‘N’ Petals and Turtle will encourage you to meet franchisees. Cookie Man and Tech Kidz will even give you their profit and loss details. Says Pal: “In advanced countries, a franchiser is compelled by law to disclose information about its business, on other franchisees and expected earnings. In India, it’s not so.”
One proof of a franchiser is in the way it trains its franchisees, whether it provides initial training and upgrades your skills regularly. You may have to pay a small amount for that. It should also give steady help in marketing and managing the franchise. Cost of equipment and other inputs should also be lower than the market prices as the franchiser should buy them in bulk and supply them to you.
In most cases, the franchiser will help you find a spot, but check whether it has other franchises close by. The size of the area you serve could make the difference between profits and losses. Also remember all products and services are not in demand everywhere, or throughout the year. Stay with better brands as they could mean better business. “Brands can bring people into your store; the rest of the work you have to do yourself,” says Gagan Singh, managing director, Benetton India. Don’t buy a franchise just because someone will sell you one.
By now you should have enough information to home in on one. That would leave just one step—signing the agreement.
THE FINAL CHECKLIST
Understanding the franchise agreement is a must as it formalises your rights and obligations. Whether it is a two-pager or a whole booklet, once you sign it, you will have to abide by it. In the US, all the franchisers have to provide a uniform franchise offering circular (UFOC) to prospective franchisees at least 10 business days before any money is paid or agreement to purchase is signed.
There are strict guidelines about what the UFOC should include. There is no such rule in India. “The franchiser and the franchisee need to be on the same plane,” says Reebok India managing director Subhinder Singh. So, always get a lawyer to explain the agreement to you. He should also assist you with negotiations, if any. He may charge Rs 20,000-50,000, says Srijoy Das, an advocate at law firm Archer & Angels, but you should spend it as it might save you bigger losses later. And always look out for the following in the agreement you sign.
Term. The duration of the franchisee agreement and whether it is renewable should be clearly stated. Usually it would be for three years, and could be renewed for a fee.
Territorial rights. Most franchisers do not allow two outlets within 3 km of each other. But watch out for the ‘good business’ clause and make sure you know what it means in numbers. If you do not measure up, it will allow the franchiser to sell another franchise in your area. Also check out whether you can buy more franchises in neighbouring area if you want.
Exit and resale. But what if you want to shut shop before the term ends? Normally, there would be a notice period and you should get back any deposit you made. Deductions, if any, for a loss-making business should be included. Some franchisers let you sell the franchise. If the franchiser is part of the deal, you should know how much of your money you can recover. No franchiser actually likes to talk about selling options when you are buying a franchise. But it is good to be prepared for the worst.
Termination. In the whole franchisee game, the franchiser is bigger and stronger and, therefore, has the advantage over you. It might decide to terminate the franchise any time. Know by heart the reasons for which it can.
THE BOTTOM LINE
Franchising is an easier way to start your business, but certainly not an easy way to do it. It is a challenge, but one that may be worth taking. As the fraternity says: “When you are a franchisee, you are for yourself, but not by yourself.”
Source:Outlook Money.Com
CookieMan Franchisee Mumbai
had always wanted to strike out on his own. So, when he left the i-flex Solutions office in Mumbai as its senior banking analyst for the last time, he did not regret it. An alumnus of the IIT-Mumbai and IIM-Lucknow, he had worked at Times Bank and ICICI Bank before i-flex.
You would walk into Orbit Mall on the Malad-Goregaon Road in Mumbai to the aroma of freshly baked cookies. The bouquet will lead you past the Good Earth store on your left, and round the corner to the Cookie Man shop. And there, presiding over chocolate and honey-almond cookies, you would meet Mathur again. Counting the cash, checking the cookies, and serving them straight out of the oven at the back to the crowds thronging the counter. “I always wanted to do something on my own as I think that’s where the real fun is. You can never get that in a nine-to-five job.” Mathur’s entrepreneurial spirit is alive and well.
Jaya Patodia 34
Lakme Beauty Salon, Delhi
She invested Rs 25 lakh initially and now has a monthly income of Rs 50,000-60,000. Her average monthly turnover is Rs 3.5 lakh
“I have a Swiss watch store in Khan Market, but that was not giving me good returns. The turnaround happened when a friend, who owned a Lakme franchise, told me about it.”Franchisee Checklist
While Mathur cut loose, a lot of others wanting to do so have not. With responsibilities and dependents, they don’t dare to leave the warmth of a regular income and plunge into the financial turbulence a new business could bring. But today, the ‘fresher’ can go in with the safety tube of franchising. That’s what Mathur did. T.K.S. Kumar, a franchisee of Whirlpool Service Centre in Chennai for a decade now, says: “I wanted to realise my long-cherished dream of becoming an employment giver from an employment seeker.” But P. Ramarao, president, Australian Foods, which owns Cookie Man, warns: “It’s not for people who aren’t passionate.”
WHAT IS A FRANCHISE?
During the Great Depression, Colonel Harland Sanders started selling fried chicken in the little town of Corbin, Kentucky, on the road to Florida. He is said to have used 11 herbs and spices in a secret recipe that gave the chicken its distinctive taste. Sanders’ fare gained fame and Corbin was a routine stop en route to Florida till a new highway bypassed it. That’s when the colonel shut shop and tried selling his chicken to restaurant owners. In 1952, Pete Harman of South Salt Lake, Utah, signed an agreement to sell Sanders’ chicken and pay him five cents for each piece sold. The eatery was called Kentucky Fried Chicken. It was the world’s first franchise. While Sanders was sharing proprietory knowledge and reputation with Harman for a fee, the latter was running the business on Sanders’ behalf. And that is the essence of a franchise even today.
WHY A FRANCHISE?
The simple answer is to mitigate risk. “The franchiser can expand its reach by investing almost no money and capital, while the franchisee is almost sure of success as he is working in a tested area,” says C.Y. Pal, president, Franchising Association of India, an industry body. A US Department of Commerce study conducted during 1971 to 1997 showed that less than five per cent of franchises closed down each year. In contrast, a study by the US Small Business Administration found that from 1978 to 1998, 62 per cent of non-franchised businesses could not make it past the sixth year. But remember that a franchise will never give the returns that a successful own business will. For example, Biocon CEO Kiran Mazumdar-Shaw, who started her business with Rs 10,000 in 1978, is now the richest woman in India with a net worth of about Rs 2,000 crore. Some franchises could give you annual returns of 70 per cent, but most will be in the 20-40 per cent range.
Good franchisers will help you get your business rolling and to keep it that way. Vivek Kaicker, 44, runs a US$ Dollar Store franchise in Delhi. “I had a retail business, but I liked this concept and thought it would increase footfall,” he says.
Retail giant Wal-Mart, with a turnover of $316 billion, announced that it would franchise its Indian operations to Sunil Mittal’s Bharti Enterprises. The latter would own and run Wal-Mart retail stores in India. Wal-Mart would also set up a joint venture with Bharti for the supply chain. Thus, systems honed over 46 years would be Bharti’s from Day One. Overnight, Bharti, whose retail plans had earlier been dwarfed by the Rs 3,200-crore investment announced by Mukesh Ambani’s Reliance Retail, was being billed as the company that would battle for supremacy in organised Indian retail. That’s the kind of fillip the right franchise can give. The model is versatile enough to work for Mittal, as well as Mathur. And it can work for you.
WHY IS THIS A GOOD TIME?
As a share of GDP, franchising accounts for 12 per cent in the US, but not even one per cent in India. The comparison gives an idea of where it could go. Industry estimates indicate franchising has grown to a Rs 8,000-crore sector now, from Rs 4,578 in 2004. Pal says there are over 750 franchisers in India today. Throw in the foreign franchisers, and the opportunity grows even bigger. It is attracting local talent in sectors such as food, lifestyle, retail, business services, healthcare, communication, education, entertainment and travel, among others. India is now the world’s largest franchise market after North America and is growing at about 30 per cent a year, says Tony White, managing director, White Connections, which advises franchise companies.
A big opportunity is in the Rs 40,000-crore organised retail sector, of which less than a fifth is franchised. It is expected to grow at 30 per cent a year for the next five years. But it may not be for everyone. “Retail often involves high costs as prime real estate, decoration and furnishing,” says Gaurav Marya, president, Franchise India Holdings, an integrated franchise solutions company. A cheaper option is a service franchise. Instead of the local guy, more people are getting specialists to, say, find a match, or clean a water tank. For a money-spinner education franchise, “in most cases all you need is a room and the course material”, Marya adds. “Eating out constitutes 11 per cent of the wallet of Indians; mom and pop stores are being replaced by organised F&B outlets,” says Ajay Bansal, director (business development), Yum International, which owns Kentucky Fried Chicken. But growth is concentrated more in the takeaways and value eateries than fine diners (see 26 Hot Franchises: An Invitation to Join the Fast-growing Fraternity, page 24).
WHICH FRANCHISE?
While buying a franchise, you have to consider several issues.
Abilities. This is the time for brutal self-assessment. Rule of thumb: stay off what does not interest you. If you are indifferent to food, stay off restaurants. If kids exasperate you, avoid play schools. But don’t lose heart. Your passion for travelling may make you one of the best equipped to plan holidays. Go for that. “I had already done a few beauty courses,” says Jaya Patodia, 34, who runs a Lakme Beauty Salon in Delhi.
More likely than not, a good franchiser will check out whether you fit the bill. Shahnaz Hussain, for instance, looks for people who are “passionate about beauty care”. Most franchisers will look for specific skills apart from “entrepreneurial attitude and open mind”. Institute of Computer & Finance Executives asks for no less then a chartered accountant, and Spykar Jeans wants a year’s experience in franchising.
Since this will be a new business, it will need a lot of hard work to get it running. “The initial one year is very important as this is when you build up a customer base,” says Hema Malini, 36, who, along with Ambika Viswanath, 24, run a Ferns ‘N’ Petals franchise in Chennai. Most franchisers want the franchisee to be involved personally. Ratan Jalan, CEO, The Apollo Clinic, says: “We need a person who is himself going to run the franchise.” But some may let you hire a manager and work at the franchise part-time. Remember, the monthly expense estimate franchisers give you assume that you will work full time.
Costs & finances. The big question is: how much can you invest in a franchise? Some service franchises could cost as little as Rs 2 lakh. You would need just a room, a table, a couple of chairs and a telephone connection. At the other end are beauty parlours, fine dining restaurants, or retail jewellery outlets. Here, investments could go to a crore or higher.
Now add on recurring costs—royalty (usually a percentage of sales to be paid every week or month). In some cases, Ferns 'N’ Petals and Angeos Academy, it is the higher of percentage of net sales or a lumpsum. There would also be working capital, which would include salary of staff, power bills, rent, and some fixed overheads like ad fees. When a franchiser talks about working capital needs, ask whether it includes rent. If not, this could be a chunky add-on. Check how much you can borrow from banks and at what rate and decide whether you want to do so (see Money Matters).
The amount of capital you can raise will partly determine how long you can wait for the business to pay back. Some franchisers will say that you can start making profits from the first month itself, but it is always wise to give yourself a cushion of at least a few months. Your reserves or savings will decide how critical immediate cash flow is. Also, ask yourself how much money you can afford to lose. It would be smart to have a contingency fund.
Goals. What do you want your franchise to do for you? Will it be the primary or a supplementary source of income? Are you looking to make any specific amount every year? What is the return you want on your investment? Develop a three-tier strategy for investing, a long-term strategy and an exit strategy. Ask where you see yourself five to 10 years down the line. Do you intend to make money and shut shop, or do you want to set up more outlets later? Remember, buying a very successful franchise for a high fee makes no sense until your outlet gives returns.
After you apply these filters, your list should get down to at most four or five franchises. But you still need to zero in on one.
Due diligence. Ultimately, you are investing in a franchise and need to know what you are buying. So, bring out the acid and do the test. The first thing to ask is whether the franchise is likely to be profitable. Check the record of the franchiser and the prospects of the industry it operates in. Find out how many franchisees it has, its growth plans and how many of its franchises have shut shop. Talk to the franchiser and at least five existing franchisees to get the low down. Often, even better known franchisers like Archies Gallery and Subway won’t give you their numbers. Others like Ferns ‘N’ Petals and Turtle will encourage you to meet franchisees. Cookie Man and Tech Kidz will even give you their profit and loss details. Says Pal: “In advanced countries, a franchiser is compelled by law to disclose information about its business, on other franchisees and expected earnings. In India, it’s not so.”
One proof of a franchiser is in the way it trains its franchisees, whether it provides initial training and upgrades your skills regularly. You may have to pay a small amount for that. It should also give steady help in marketing and managing the franchise. Cost of equipment and other inputs should also be lower than the market prices as the franchiser should buy them in bulk and supply them to you.
In most cases, the franchiser will help you find a spot, but check whether it has other franchises close by. The size of the area you serve could make the difference between profits and losses. Also remember all products and services are not in demand everywhere, or throughout the year. Stay with better brands as they could mean better business. “Brands can bring people into your store; the rest of the work you have to do yourself,” says Gagan Singh, managing director, Benetton India. Don’t buy a franchise just because someone will sell you one.
By now you should have enough information to home in on one. That would leave just one step—signing the agreement.
THE FINAL CHECKLIST
Understanding the franchise agreement is a must as it formalises your rights and obligations. Whether it is a two-pager or a whole booklet, once you sign it, you will have to abide by it. In the US, all the franchisers have to provide a uniform franchise offering circular (UFOC) to prospective franchisees at least 10 business days before any money is paid or agreement to purchase is signed.
There are strict guidelines about what the UFOC should include. There is no such rule in India. “The franchiser and the franchisee need to be on the same plane,” says Reebok India managing director Subhinder Singh. So, always get a lawyer to explain the agreement to you. He should also assist you with negotiations, if any. He may charge Rs 20,000-50,000, says Srijoy Das, an advocate at law firm Archer & Angels, but you should spend it as it might save you bigger losses later. And always look out for the following in the agreement you sign.
Term. The duration of the franchisee agreement and whether it is renewable should be clearly stated. Usually it would be for three years, and could be renewed for a fee.
Territorial rights. Most franchisers do not allow two outlets within 3 km of each other. But watch out for the ‘good business’ clause and make sure you know what it means in numbers. If you do not measure up, it will allow the franchiser to sell another franchise in your area. Also check out whether you can buy more franchises in neighbouring area if you want.
Exit and resale. But what if you want to shut shop before the term ends? Normally, there would be a notice period and you should get back any deposit you made. Deductions, if any, for a loss-making business should be included. Some franchisers let you sell the franchise. If the franchiser is part of the deal, you should know how much of your money you can recover. No franchiser actually likes to talk about selling options when you are buying a franchise. But it is good to be prepared for the worst.
Termination. In the whole franchisee game, the franchiser is bigger and stronger and, therefore, has the advantage over you. It might decide to terminate the franchise any time. Know by heart the reasons for which it can.
THE BOTTOM LINE
Franchising is an easier way to start your business, but certainly not an easy way to do it. It is a challenge, but one that may be worth taking. As the fraternity says: “When you are a franchisee, you are for yourself, but not by yourself.”
Source:Outlook Money.Com
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