Nov Retail Franchising
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Nov Retail Franchising

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Fashion, apparel, textile, merchandising, garments

Fashion, apparel, textile, merchandising, garments

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Nov Retail Franchising Nov Retail Franchising 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]