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Francast Report 2019-11-26

India's Stance in the World's Franchise Market

Franchising makes for one of the most successful business stories across the world. In that respect, India has not lagged behind. It is now the second-largest franchise market, globally. Here is a comparative assessment of franchise markets in the world.

India's Stance in the World's Franchise Market

India is already the second-largest franchise market in the world, after the US, with over 4,600 active franchisers and nearly 2, 00,000 outlets operated by almost 1.7 lakh franchisees. There is a strong demand for American and European brands from segments like food and beverage, retail, fashion, fitness, education, and beauty and wellness. Over the last 20 years, India has developed into a major hotspot for international brands, including Adidas, Anytime Fitness, Baskin Robbins, Burger King, Chem-Dry, Domino’s, Dunkin’ Donuts, Gold’s Gym, KFC, Krispy Kreme, Levi’s, McDonalds, Pizza Hut, Radisson, Re/ Max, Subway, and Toni and Guy.

Global Brands Success Story

Few of the global brands have performed better than others in India. For instance, Domino’s Pizza represents one of the most successful franchise growth stories in India. The company opened its first pizza outlet in New Delhi in 1996 through Jubilant Foodworks and has grown the store base to over 1,250 stores in India. Another example is of Subway, which holds the title of the world’s largest fast food chain with over 44,700 franchises. Subway began its operations in India in 2001 and currently operates a chain of about 650 restaurants across over 70 cities. The company’s key USPs consist of strong marketing, supply chain management, a value-driven business operation, and complete back-end support to entrepreneurs.

While so far brands from North America, Australia and UK have taken the lead in India, brands from APAC and China region are now aggressively entering the market. Mobile phone brands from China and specialty retailers like Miniso or Mumoso and lifestyle brands like Muji have been vying for the attention of Indian customers. More service-based formats like cleaning services, home care, eldercare and home healthcare services are expected to move from these countries to India.

COMPARATIVE ANALYSIS

The franchising industry in India contributes 2% to the GDP in comparison to 7.5% of GDP contribution in the US and 10% in case of Canada. India has moved up one place to rank as the 43rd most competitive economy in the world on the back of its robust economic growth, a large labour force, and its huge market size. In the 2019 edition of IMD World Competitiveness Rankings, India has scored well on several economic parameters and tax policies but has lagged in terms of public finance, societal framework, education infrastructure, health and environment. While this reflects high interest on the FDI front and an influx of global brands, India still has a long way to go.

For example, India is yet to be covered adequately by the franchising industry, especially considering the large population in all its diversity. On the other hand, Indian domestic brands are successfully foraying into the overseas market. While most of the Indian brands are still focused on opportunities within the national market, many of the brands are finding growing demand in the overseas markets in MENA and APAC regions in categories like food service overseas markets in MENA and APAC regions in categories like food service, fashion retail, bags and accessories, and beauty and wellness, amongst others.

A lot of Indian franchising brands have gone international and are doing well. The most famous ones are Cafe Coffee Day, which is already in Austria, Malaysia, Egypt and Czech Republic and premium casual dining brand Farzi Café. Indian fashion and home brand Fab India, hotel chain OYO and taxi aggregator OLA cabs are seeing success abroad. Seeing their success and growth, more food and beverage and apparel brands will soon take the global route. Typically, private equity-funded Indian brands have shown the most aggression to step outside India for growth. Here are the largest markets for franchising globally:

Australia

Australia has more franchising outlets per capita than any other country and three times more than the United States, but over 92% of the franchises are Australian-developed. According to an official study by the Griffith University in Queensland, there are over 1,100 franchisers, 65,000 franchise units, and 8,000 company-owned units. Australia has the fifth-highest average household net disposable income rate in the OECD. With a high level of discretionary spending, Australia is an important market for premium and luxury items. The Australian market is receptive to new concepts that speak to current and emerging trends.

For example, Australia has an ageing population and by 2020 there will be more 65-year-olds than one-year-olds. Demand for senior care services will continue to increase. It is also anticipated that older Australian generations will have an increased preference for independent living arrangements supported by community care and more affluent lifestyles. Additionally, data shows a rise in participation rates in non-competitive activities. With fewer organised sports and less time for leisure activities, the 24-hour gym concept and personal trainers are increasingly popular.

Brazil

The Brazilian franchise sector is among the world’s largest and most sophisticated markets in terms of business practices and in adapting concepts from both foreign and domestic franchisers. The sector has consistently grown faster than Brazil’s overall economy. The Brazilian franchise sector is growing at 8.3%, and the total sector revenue is about USD 50 billion. The best opportunities are in food, health and beauty, and fashion.

Canada

Canada has the 2nd largest franchise industry in the world, behind only the United States. The majority of the top 100 franchise brands in Canada are US-owned concepts, followed closely by Canadian brands. The sector currently accounts for 10% of Canada’s GDP, and over 10,00,000 Canadians, or one of every 14 Canadians are directly or indirectly employed by the franchise industry. Roughly 4,300 new franchise outlets open in Canada each year.

Canada, like many other Western countries, has an increasing number of retirees and seniors. Based on a Euromonitor report on Canada’s demographic profile in 2030, population growth in the future will be driven by huge increases in the population aged 60+ which will expand by 47%. As Canadians grow older, demand for health and assisted care facilities will rise exponentially. This segment of the population is more interested in independent living situations and will increase demand on home care and fitness services.

France

France ranks fourth in the world in terms of the number of total franchisers and franchisees and first in Europe in franchise network sales. Although very competitive with 1,900 franchisers and 71,508 franchisees, the French market offers many opportunities for innovative franchises. As much as 7% of the franchises operating in France are foreign, of which 22% are American. Total franchising sales are estimated at USD 59 billion (Euro 55.10 billion). The French market is mature and extremely competitive but also very receptive to the franchising model providing the franchise brings innovation or a strong business model. 

Germany

The German economy is the world’s fourth-largest and accounts for more than one-fifth of the European Union’s GDP. Germany is the largest consumer market in the European Union with a population of 80.6 million. The country has a fairly even population distribution throughout most of the country, with urban areas comprising larger and denser populations, particularly in the far western part of the industrial state of North Rhine-Westphalia. The major urban areas are Berlin (3.5 million), Hamburg (1.8 million), Munich (1.4 million) and Cologne (1 million).

Although Germany is a country with the highest concentration of franchises in Europe, followed closely by the UK and France, there is potential for more growth. Demographic change – more than 40% of the German population are 50 years or older – results in an increasing demand for services and products in the health, senior care, wellness, leisure industries, and others.

United States

Modern franchising emerged from the US, hence it is regarded as the world’s most mature franchise market. In the US, franchised business directly accounts for more than 7,33,000 establishments that support nearly 9.1 million direct jobs, USD 674.3 billion of economic output for the US economy and 3% of GDP. The US has inlay of over USD 6.1 billion as franchise fee as compared to USD 177 million worth franchise fee that goes from the country to overseas’ franchisers.

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