franchising aspects Nov, 16 2009

Opt Franchising For A Smooth Sailing

In their lust to eat the maximum share of retail pie, big brands make large expansion announcements. However, sometimes they fail to accomplish such expansion plans. The factors behind the recent failure of the expansion of big brands have made people opt

By Abha Garyali
Sub Editor
Opt Franchising For A Smooth Sailing

Even at the time of economic uncertainty, the franchise businesses have not just reported survival stories but real success stories; further reinforcing the belief in the industry that franchising business is one of the most successful and durable business models across the world. Whereas compared to recent failure of a few organised retail brands running self –owned multi- chain outlets across the country have easily convinced entrepreneurs to adopt franchising model for expansion. The factors behind the expansion breakdown of a few renowned players in the industry are high rentals, hefty employee salaries, lesser footfall, brand recognition, localisation, management crisis etc. In case of expanding through company –owned outlets the owner has no other option than employing skilled managers for taking care of the new outlets whereas in a franchise business outlet the franchisee takes the sole responsibility to run the store successfully.

The major driving force behind the success in the expansion of the company owned outlet is based on the management because the owner is wholly dependent on the manager and staff to run the outlet successfully. Whereas the major cause of failure is also its management as most of the employees are not focused on promoting the brand as they do not share the profits. On the other hand if the store is franchised, the franchisee will make all efforts to make it work as he has invested his hard earned money in it. He will no doubt take franchisor’s help and experience for its success but will also make certain changes if they can benefit his business as he would know the preferences of his customers. He will employ different marketing techniques so that people become aware of his outlet.

There are a few other reasons as well that make franchising a better option for expansion of the organised stores. Opening company-owned outlets across the country requires a lot of investment which the company makes by taking loans. Would it not have been better if the companies could have franchised the outlets so that the franchisees could have invested themselves? The company then would not have had to repay all the profits they generated to the banks and could have employed better services for their franchised outlets. As per the recent media reports, Subhiksha, a Chennai based grocery store opened its outlets all over the country but all company-owned. The business collapsed and they had to shut down all the stores. According to Purnandu Kumar, Associate Vice President, Technopak Advisors, “Franchising could have helped in terms of investment and capital needed for its sustenance but the discounts offered at Subhiksha were the main reason for its collapse.” He further explains, “Subhiksha’s only strategy was to offer discounts to its patrons. They had added no frills to their outlets and were in competition with the local kiryana stores rather than the other organised stores.” If the outlets would have been franchised, maybe the entrepreneurs would have taken some steps at their end to make the outlets work while giving discounts also.

It is often seen that that the rapid expansion of the stores leads to improper back-end support leading to inconvenience to the customers. Customers are not convinced with the products and services offered. This predicament of breakdown and major losses would not have happened if the outlets had been franchised as the investments would have been made by the franchisees. Thereby the franchisees could have stocked up their outlets properly.

In the conclusion it would be apt to say that expanding retail stores can serve better and be more successful if they have been franchised. There are innumerable other reasons for the failure of  any retail company but all those can be sorted out if the expansion is properly done and who would not agree that retail franchise model is the best way for expansion? So if your successful business does not do well after its expansion, you can think of franchising it.

Related: An insight into Franchise Agreement

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