nov-retail-franchising

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Published on January 9, 2009

Author: aSGuest9855

Source: authorstream.com

Franchising: An Industry Perspective : Franchising: An Industry Perspective Presented by Ritesh Vohra First Franchising Private Limited 16th November 2002 / FICCI Footfalls 2002 / New Delhi Agenda : Agenda Franchising Internationally Franchising in India Retail & Non Retail Franchising in India Franchisor-Franchisee Relationship Summary Franchising Internationally : 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 : 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 : 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 : 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 : 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 : 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 : 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 : 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 : Franchising in Retailing – A Variety of Models *many more varieties of the hybrid model exist. Non Retail Franchising within India : 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 : 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 : Value Proposition from a Franchisor Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising Value Proposition from a Franchisee : Value Proposition from a Franchisee Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising Critical Success Factors for a Franchise System : Critical Success Factors for a Franchise System Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising Most Common Causes of Friction between Franchisors & Franchisees : Most Common Causes of Friction between Franchisors & Franchisees Source: Annuals Surveys of the Indian Franchise Sector, conducted by FirstFranchising Key Concerns for the Indian Franchise Sector : 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 : 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 : 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.ritesh.vohra@firstfranchising.com : Thank You.ritesh.vohra@firstfranchising.com

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