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Advisory 2009-12-10

To be or not to be in franchising

Owing and developing a business is what every aspiring entrepreneur dreams about. Once the brand is established the next step forward for an ambitious entrepreneur is to expand his business to new horizons. Under prevailing market conditions, almost every

By Pallavi Majha Chief Sub Editor

Indian business market appears to be quite ripe for the big brands to expand. This can be attributed to the fact that lots of international brands have made their presence felt in Indian markets and Indian brands are also graduating to their next level to match the standards of international brands. To add to these are the factors like increased awareness and brand consciousness of the middle class, rising entrepreneurial culture, transforming lifestyles and increasing working class.

Large numbers of options are available to expand a business today, like expanding through, via franchise route, by following shop-in-shop formats, by authorised distributor and dealer outlets. The significant players who have expanded successfully via franchise route are Raymonds, Titan, Barista, Koutons and the best examples of the companies which are expanding via non franchised route may include Future Group and Subhiksha.

Why franchising?

Over the years franchising has grown as most successful expansion model with numerous companies opting for franchise route to expand. However, still there are companies who are not in favour of franchising. Through this article we are trying to find the reasons for why and why not companies are in favour of franchising.

Let us discuss these reasons:

Well defined operating system: Franchising provides a well defined operating system and a brand built in carefully over several years. The aspiring franchisees do not need to go through the painful learning curve of starting a fresh business.

Twin strength: Franchising gives an opportunity to both the franchisors and franchisees to gain from each other’s strength and grow the business.

Manpower solution: Franchising is a solution to the manpower problem that retail industry is facing.

Apt for speedy growth: Franchising has emerged as an apt business model for those looking at speedy growth through partnerships with prospective partners.

Effective way to reach the local masses: Franchising is an excellent mode of expansion. It converts a shop owner to an entrepreneur. Franchisee, being aware of the locality understands the demands of the people of a particular area thus helping the company to reach local masses.

Dependency on work force: Franchisee having invested a huge amount of money in the franchised store is more responsible for the performance of the store, as compared to the manager of a company-owned store who is a salaried employee.

Why not franchising?

  • Dilution of the business: Some companies who are not following franchise route for expansion believe that following a franchise route for expansion will dilute the business strategy that they have developed over the years.
  • Costly affair: Organised retail involves lot of technologies, mechanism, and strategies. The training required for these requires huge investments which is a costly affair from a franchising perspective.
  • Time consuming process: Expansion through franchising needs lot of time and patience. However considering huge expansion announcements by various companies need fast pace expansion, quick decision-making, constant adaptation to changing requirements of customers, managing unexpected challenges in different markets and steady-flow of funds to finance this expansion. All these factors are best addressed through a business model based on company-owned stores then franchising.
  • Suitable for small formats: Majority of the retail companies believe that franchising is successful for small format stores, as it is easy to manage and organise them via franchise route where as in case of large format stores company owned and company operated route is best suited.

The best way forward

Franchising, is a great option for people who want to own their business with a lower risk and assured minimum returns. For a company with a product or service to sell, franchising provides an excellent opportunity for rapid expansion without an enormous outlay of capital. For expansion through franchising factors like land backup, capitalist ability, rapid expansion and co-opting support plays a significant role.  However, the best way forward would be to initially test the company owned model in order to understand the basics of the business model itself before you considering franchising.

Comment
dEEPAK 13, Nov 2009 at 03:25 AM
There are a few Professionals in Leather Footwear marketing in India. It is Largely a one man show and has no Organizational set up as in European or u.s market. There is no such position as Range Director , buying Director etc in our market. Footwear in India is in a transition mode and will take few more years to evolve if the industry leaders do not go aggressive.
VIVEK 13, Nov 2009 at 10:59 AM
great article i would be interested in such frenchese vevek
prasad mokashi 22, Nov 2009 at 01:59 AM
pls let me know abt this opportunity
hemant pasricha 16, Oct 2011 at 10:44 AM
dear sirs,\r\nread your article highly inspired by that, i am already having a footwear outlet in a well established commercial place in thrissur since 15 years.i am interested in converting my shop partialy or semipartialy into a franchisee based branded showroom. having a place of 1250sq feet. can invest upto 1.5 lacs presently. my humble suggestion to you is we can also work mutually as commission on sales or profit sharing with minimum guaranteed returns. having a good sales team can guarantee good sales turnover if i get support from my franchisor. i kindly invite a franchisor interested in my proposal to come and visit our outlet and get an idea about the area.
suresh khandwekar 11, Jun 2015 at 09:38 AM
Footwear is a highly needed as well as it is a fashion and lifestyle product, North east India has a great demon, it is far away from the footwear manufacturing centers of India. At least one or two state government must plan to attract investors and footwear manufactures to establish few foo footwear units it will enhance employment opportunities and revenue.
D Harini 14, Oct 2015 at 05:16 PM
We plan to start Leo coffee franchise in vellore district please let me if any possibility
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