An Industry Perspective
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An Industry Perspective






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    An Industry Perspective An Industry Perspective Presentation Transcript

    • Franchising: An Industry Perspective Presented by Ritesh Vohra First Franchising Private Limited 16 th November 2002 / FICCI Footfalls 2002 / New Delhi
    • Agenda
      • Franchising Internationally
      • Franchising in India
      • Retail & Non Retail Franchising in India
      • Franchisor-Franchisee Relationship
      • Summary
    • Franchising Internationally
      • Very well accepted
      • Entrenched deeply within USA & Western Europe
      • Fairly well structured in terms of framework
      • In USA:
        • $1 Trillion is spent each year on goods bought at franchised outlets
        • One out of every 12 business establishments is a franchised business
        • A new franchise business opens every 8 minutes of every business day
        • 50% of retail trade is through franchised outlets
      • High growth areas are South-East Asia, Latin America & the Middle East
      • US franchisors lead the way in International expansion
    • Franchising in India
      • Acceptability growing by the day
      • Fairly conventional industry spread
      • Approximately 600 franchisors spread across industries like education, retailing, professional services, healthcare etc
      • Over 40,000 franchisees
      • Annual turnover from Franchising – anywhere between Rs.8000-Rs.10,000 crores
      • Total investments made by Franchisees – over Rs.5000 crores
      • Over 300,000 people directly employed by franchised businesses
      • Variety of hybrid formats in practice
      • Number of International franchises already existing, more coming in
      Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising
    • Factors Defining the Growth of Franchising in India
      • Positive Factors
        • Huge consuming class
        • Fast-growing consumerism
        • Shift towards Services from Agriculture & Manufacturing
        • Franchising has already proven to be successful in several sectors
        • Large entrepreneurial pool
    • Factors Defining the Growth of Franchising in India
      • Negative Factors
        • Lack of regulatory framework
        • Financing mechanisms not in place
        • Skewed real estate markets
    • Franchising Trends in India
      • The Education sector dominates the Indian franchising scenario, although Retail is fast catching up
      • Most of the franchisors are relatively new and small
      • Several large Indian corporates also going the franchising way
      • Newer & innovative concepts being introduced
      • Substantial interest from international franchisors as well as Indian business houses for master franchises
      • Franchising is now spread across the country, thereby providing opportunities to entrepreneurs everywhere
    • Benefits of Franchising
      • Franchising allows the franchisor to:
        • Have greater access to capital
        • Expand rapidly
        • Save operating costs
        • Capitalise on the abilities of independent entrepreneurs
    • Benefits of Franchising
      • Franchisees joining a franchise system enjoy the following benefits:
        • Backing of a bigger organisation
        • Shorter learning curve
        • Established trade mark or service mark
        • Economies of scale
        • Joint advertising and promotion
        • Transfer of management expertise
        • Training & support from the franchisor
    • Retail Franchising within India
      • Grew initially in the apparel & footwear sectors
      • Has gradually grown to cover a wide variety of sectors including food, consumer durables, jewelry, books, home décor etc
      • Two varieties of Retailers:
        • the manufacturer-retailers – typically Product Distribution Franchises – have been around for a while
        • the aggregators – typically Business Format Franchises – only now beginning to show up
      • Existent & likely to be successful only in smaller formats
      • Substantial action also happening in non metro locations
        • Thereby spreading organised retailing over a larger footprint
      • Has had to contend with the peculiarities of the Indian real estate markets
        • Result – MG (Minimum Guarantee) has become the key driver
    • Franchising in Retailing – A Variety of Models *many more varieties of the hybrid model exist.
    • Non Retail Franchising within India
      • Comprises of sectors like Education, Health & Beauty and Professional Services
      • Is widely practiced and accepted across the country
      • Differs from Retail franchising in terms of the importance given to the location
      • Pure franchises / Management contracts followed
    • Brief Sectoral Analysis
      • IT Education – Down for the moment but surely not out; likely to re-emerge through IT Enabled Services
      • Retail – Going strong but getting hurt because of the real estate markets
      • Vocational / Preparatory Education – Fundamentally strong because of huge population base and high competition in public examinations
      • F&B – Low level of activity currently but attractive long-term potential
      • Professional Services – Low level of activity currently but attractive long-term potential
    • Value Proposition from a Franchisor Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising Proven Business Format Economies of Scale Brand Name Value Proposition (Franchisors View) Brand Name 1 Economies of Scale 2 Proven Business Format 3 Value Proposition (Franchisees View) Ranking
    • Value Proposition from a Franchisee Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising Investment / Real Estate Business Experience / Background Local Market Knowledge Value Proposition (Franchisors View) Investment / Real Estate 1 Business Experience / Background 2 Local Market Knowledge 3 Value Proposition (Franchisees View) Ranking
    • Critical Success Factors for a Franchise System Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising Transparency 5 A Well Established Business Network 1 Constant New Product Development 2 Innovative Products / Services 3 Quality of Franchisees 4 Return on Investment to Franchisees 6 Factors Ranking
    • Most Common Causes of Friction between Franchisors & Franchisees Source: Annuals Surveys of the Indian Franchise Sector, conducted by FirstFranchising Transparency 1 Training and Support 2 Revenue Sharing 3 Product / Service Delivery 4 Causes of Friction Ranking
    • Key Concerns for the Indian Franchise Sector
      • Herd mentality – both franchisors as well as franchisees
      • Several wrong precedents of franchisors as well as franchisees
      • To an extent:
        • many franchisee’s commitment to service quality is missing
        • many franchisor’s commitment to provide the promised support to their franchisees is in doubt
      • Result – a tense relationship, which doesn’t help anyone
    • Key Concerns for the Indian Franchise Sector
      • Financing for franchises is a problem area with financial institutions
        • soft expenses not recognised as part of project cost by many institutions
      • Legal & disclosure framework for franchises is not in place
        • increases chances of fraud by fly-by-night franchisors
        • makes it difficult to resolve disputes
      • Real Estate markets completely unstructured & unrealistic
        • make Franchising unviable for start-up entrepreneurs
    • Way to go
      • Need for a Working Group / Regulatory Body on Franchising to identify correct priorities and lobby for them
      • Need for disclosure norms & legal framework on the regulatory side
      • Most importantly, Franchisors as well as Franchisees need to understand & honour their commitments & responsibilities towards each other
    • Thank You. [email_address]