franchising aspects Dec, 22 2010

Promising Franchise Destinations

Having captured the market in metros and big cities across the country franchisors are making their headway towards tier II and III cities. With a shift in Indian economy and consumer behavior, the franchising industry is witnessing a market shift towards

By Ramanjit Kaur
Feature Writer
Promising Franchise Destinations

The tier II and II cities of India are emerging as hot franchise destinations with majority of the franchisors and entrepreneurs targeting these markets for expansion. Businesses like retail, business outsourcing, IT and real estate investments and development have realised the potential offered by these tier II and III cities. The markets are continuously gaining momentum as they enable franchisors and entrepreneurs to capture the larger share of the market. However, when it comes to minting money and capturing the largest share of the pie, metros are still the focus of franchise brands. But with changing times and shifts in consumerism, tier II and III cities are more fertile for growth and profits. The article will give you an insight of the various factors that are contributing to the increasing potentiality of the tier II and III cities.

Inherent factors leading to market shift

Large number of well established brands like Jubilant FoodWorks, Nirula’s, Timex, Kimaya, Champion, Planet Fashion, Vati, and so on are exploring new markets in tier II and III cities for business expansion. Now the question arises why there is a shift in target markets by the franchisors. A number of factors that are driving the impetus towards these cities include:

  • Low Investment: Expanding in tier II and III cities offer lucrative options  compared to expansion in metro cities because of high rental and infrastructure costs. Real estate is available and affordable with low lease and acquisition costs, especially if the franchisee has premises to get the franchise business started from.  
  • Less Marketing and promotional costs: Cost on marketing and promotion is much cost-effective compared to metro cities. The best part of marketing the brand in smaller cities is that one can make use of the regional and local media much efficiently than in metros. As Alok Surana, MD, Champion says, “Marketing and promoting the brand, and boosting the sales of the franchised outlets in tier II and III cities are easier and much cost-effective compared to metro cities.” 
  • Low operating cost: Because of the sizeable population in these cities, the competition for labour is limited, as a result per day operational cost is much less due to low cost of skilled labour. Besides this, the acquiring man-power and recruitment costs are also lower in these cities than in metros. 
  • Advanced technology: With the changing scenario, tier II and III cities are no less in any way than the metro cities. Even connectivity is also not a problem in these cities anymore. Internet and latest technologies have made inroads in these cities. All thanks to the IT industry for developing interest in expanding in the tier II and III cities.
  • Low attrition rate: Changing lifestyles, improving purchasing powers of the middle class consumers and brand awareness has sprung-up many aspirants in such cities and towns. Thus, the attrition rate is also minor in tier II and III cities than in metros. 
  • Untapped Potentials: Franchise businesses in smaller cities have managed to achieve operational efficiency and opportunity to create market growth. As Sanjay Gupta, MD, City Mall 36 says, “There is no doubt that in metro cities, people are more aware of the brands and are much more brand conscious but their fast life and busy schedule do not offer them enough opportunity to shop often. However, with the increase in the disposable income of middle class people, a huge thrust in the habits of the consumers of tier II and III cities have been noticed. Also, these smaller cities offer enormous potentials and huge business opportunities not just to the franchisees but also the franchisors.”   

Prominent brands eyeing tier II and III cities

The talent pool, spending power and low penetration cost coupled with high aspiration and exposure keeps the brands of various sectors optimistic about their long haul. Be it the apparel industry (brands like Planet Fashion, apparel retail arm of Madura Garments, The Loot, KKCL), Footwear sectors (Bata India, Catwalk, Bigshoebazaar, etc), Food and Beverages (Jubilant FoodWorks, and Nirula’s), Education domain (AISECT, Edify Education, Veta, and NIIT) and brands like Canon India, Suvidhaa Infoserve, Crossword, MobileStore, and many others are eyeing tier II and III cities to cover a fair share of the rising Indian economy.

Challenges

In spite of the merits of tier II and III cities, there are certain challenges that franchisors and franchisees can face while expanding and operating the franchise business. These challenges can be the lack of proper infrastructure to reach out to the widely scattered consumers. In addition to this, deficit in soft skills such as training, hands-on demo and so on can be a cause of concern.

The rising demands of branded products and value for money in tier II and III cities is making them rewarding destinations for aspirants. However, it is true that tier I and II cities might not offer more ROI to the franchisors and franchisees compared to metro cities, but as saturation has already crept in to the metro cities of the nation, these cities are gaining thrust offering enough space for business growth.

The tier II and II cities of India are emerging as hot franchise destinations with majority of the franchisors and entrepreneurs targeting these markets for expansion. Businesses like retail, business outsourcing, IT and real estate investments and development have realised the potential offered by these tier II and III cities. The markets are continuously gaining momentum as they enable franchisors and entrepreneurs to capture the larger share of the market. However, when it comes to minting money and capturing the largest share of the pie, metros are still the focus of franchise brands. But with changing times and shifts in consumerism, tier II and III cities are more fertile for growth and profits. The article will give you an insight of the various factors that are contributing to the increasing potentiality of the tier II and III cities.

Inherent factors leading to market shift

Large number of well established brands like Jubilant FoodWorks, Nirula’s, Timex, Kimaya, Champion, Planet Fashion, Vati, and so on are exploring new markets in tier II and III cities for business expansion. Now the question arises why there is a shift in target markets by the franchisors. A number of factors that are driving the impetus towards these cities include:

  • Low Investment: Expanding in tier II and III cities offer lucrative options  compared to expansion in metro cities because of high rental and infrastructure costs. Real estate is available and affordable with low lease and acquisition costs, especially if the franchisee has premises to get the franchise business started from.  
  • Less Marketing and promotional costs: Cost on marketing and promotion is much cost-effective compared to metro cities. The best part of marketing the brand in smaller cities is that one can make use of the regional and local media much efficiently than in metros. As Alok Surana, MD, Champion says, “Marketing and promoting the brand, and boosting the sales of the franchised outlets in tier II and III cities are easier and much cost-effective compared to metro cities.” 
  • Low operating cost: Because of the sizeable population in these cities, the competition for labour is limited, as a result per day operational cost is much less due to low cost of skilled labour. Besides this, the acquiring man-power and recruitment costs are also lower in these cities than in metros. 
  • Advanced technology: With the changing scenario, tier II and III cities are no less in any way than the metro cities. Even connectivity is also not a problem in these cities anymore. Internet and latest technologies have made inroads in these cities. All thanks to the IT industry for developing interest in expanding in the tier II and III cities.
  • Low attrition rate: Changing lifestyles, improving purchasing powers of the middle class consumers and brand awareness has sprung-up many aspirants in such cities and towns. Thus, the attrition rate is also minor in tier II and III cities than in metros. 
  • Untapped Potentials: Franchise businesses in smaller cities have managed to achieve operational efficiency and opportunity to create market growth. As Sanjay Gupta, MD, City Mall 36 says, “There is no doubt that in metro cities, people are more aware of the brands and are much more brand conscious but their fast life and busy schedule do not offer them enough opportunity to shop often. However, with the increase in the disposable income of middle class people, a huge thrust in the habits of the consumers of tier II and III cities have been noticed. Also, these smaller cities offer enormous potentials and huge business opportunities not just to the franchisees but also the franchisors.”   

Prominent Brands Eyeing Tier II and III Cities

The talent pool, spending power and low penetration cost coupled with high aspiration and exposure keeps the brands of various sectors optimistic about their long haul. Be it the apparel industry (brands like Planet Fashion, apparel retail arm of Madura Garments, The Loot, KKCL), Footwear sectors (Bata India, Catwalk, Bigshoebazaar, etc), Food and Beverages (Jubilant FoodWorks, and Nirula’s), Education domain (AISECT, Edify Education, Veta, and NIIT) and brands like Canon India, Suvidhaa Infoserve, Crossword, MobileStore, and many others are eyeing tier II and III cities to cover a fair share of the rising Indian economy.

Challenges

In spite of the merits of tier II and III cities, there are certain challenges that franchisors and franchisees can face while expanding and operating the franchise business. These challenges can be the lack of proper infrastructure to reach out to the widely scattered consumers. In addition to this, deficit in soft skills such as training, hands-on demo and so on can be a cause of concern.

The rising demands of branded products and value for money in tier II and III cities is making them rewarding destinations for aspirants. However, it is true that tier I and II cities might not offer more ROI to the franchisors and franchisees compared to metro cities, but as saturation has already crept in to the metro cities of the nation, these cities are gaining thrust offering enough space for business growth.

Related: Web marketing at its best with 3 C's

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