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Dec, 01 2007

India and international markets

Franchising is in demand of today`s economy. Though in India franchise concept has started almost a decade ago, but in reality Indian franchise industry is still not developed enough compared to that America and Australia franchise market. In this article

Competition among various international F&B chains is increasing day by day. They now want to set up their restaurants in every nook and cranny of our country. The rise in the disposable incomes of the average salary earners is helping global F&B chains to set up base in India.

India today is listed among the top 10 markets for food consumption. Many new international are planning to invade India`s market. Dixy Chicken, Bernie`s and pizza outlet Papa John`s have already made a foray. A host of other brands, including SumoSalad and Panda Express, are associating with local partners to enter India.

Global chains go local

According to the data available, the F&B sector was estimated at $ 8 billion in 2005-2006 and is expected to grow by 6 to 7 per cent in the coming 10 years.

Several leading western fast food chains have established operations in India in the past decade, notably McDonald`s, Pizza Hut, Subway and KFC, which generally operated through one or more master franchisees. For example, McDonald`s has 50/50 joint ventures with two master franchisees, one for Delhi and north India, and another for Mumbai and south India.

Due to the presence of international F&B companies, the F&B industry in India has been witnessing a rise not only in the catering service but also in the trade of F&B manufacturing, processing, retail, and supporting industries.

Commenting on the issue, Mr Dev Amritesh, Vice-President, Marketing, Domino`s Pizza India Ltd, says: “The F&B market is seeing a lot of action from global players. While 10 years ago, the action was more from the global brands, today a plethora of QSR brands and formats are being launched in the food services franchise market and many of them are from Indian players as well.”

Customisation of Indian foods

Consumers' tastes and habits are changing in India as international coffee cafes and food restaurants spring up on the scene. Espresso, cappuccinos, pizzas and burgers are fast becoming popular beverages and food items in this tea-consuming nation.

Mr Virag Joshi CEO, Costa Coffee, opines: “Rising disposable incomes have prompted all sorts of consumption. Besides, changing lifestyles are driving the boom in the franchise sector, including the F&B business. Western food and beverages are now an accepted concept among Indians.”

However Mr Amritesh feels: “Indian consumers have not changed their eating habits, people have not really moved from the bhelpuri to pizza. The reality is that the Indian consumer will eat the bhelpuri as well as the pizza. The change is in terms of the number of options that people have today and the fact that many more consumers are exercising these options. Overall, there has been an increase in the out-of-home food consumption. In the consumer`s life, there are many occasions where his needs are different from the previous occasion and there are certain types of formats and cuisines designed to fit better into these various occasions. The consumer today is able to slot the right type of format and cuisine into the right occasion, and the various brands being launched are giving the option to choose.”

Due to the influence of western culture through cable television channels and the liberalisation of our economy, a large number of multinationals have set up shop in the country, causing people to be exposed to a variety of other cultures. Facing stiff competition from the international food and beverage chains, Indian F&B companies like Yo China, Smokin Joes, Café Coffee Day and Barista are all trying to popularise the Indian version not only domestically but also abroad.

The F&B chains of retail outlets are gradually entering the market of tierII and tierIII cities through franchise network providing the consumer with an opportunity to choose from a variety of food and drinks.

A more amazing fact is the way in which people have readily accepted these changes in the food culture. A majority of the consumers for these lies between the ages of 18 to 45.

Studies show that the young Indian consumer has a passion for visiting F&B outlets for fun and change. They feel that these international chains offer the highest value in terms of taste and quality followed by ambience and hygiene.

Mr Tarun Lal, Chief Operating Officer, Yum Restaurants, feels: “Young customers today are open to trying out new cuisines. This has fuelled the growth of the international QSR and the casual dine-in industry in India. The preference for traditional cuisines is more prevalent amongst the older generation … but tastes are gradually evolving. People, across age groups, are now exploring different types of cuisines, which can be seen in the growing number of customers eating out pizzas, burgers and other such stuff.”

The franchise route

Several international companies with strong brand names established a presence in India through franchising. International F&B companies that operate through franchises include Kentucky Fried Chicken, Domino`s Pizza, TGI Friday, Ruby Tuesday, Subway, and Baskin Robbins.

Says Mr Lal: “There are, of course, huge benefits of the franchise route. It helps a company bring in technical expertise as well as the ability to scale up businesses, and in collaboration with the local partner`s knowledge of the industry and environment, it provides a successful formula.”

India is a country with the largest young population in the world; a staggering 870 million people are below the age of 45; a market that will suit the products and services of multinational franchising companies dealing primarily in F&B.

The international recognition of its brand, together with the adaptation of its products to suit the preference of Indian consumers, which includes offering more spicy items in its menu, has resulted in McDonalds, Pizza Hut or Domino`s Pizza becoming a household name in India.

Mr Riyaz Amlani, CEO of Mocha Coffee, says: “India offers vast openings for a franchiser to set up business; create awareness for his products or services and exploit the enormous market offered. Thus, it comes as no surprise that India was recently declared the second most attractive destination for franchisers and retailers among 30 emerging markets.”

Government steps in

Changes have been introduced in the FDI policy with a view to making the emerging economy more liberal and transparent.

An international company hoping to introduce its brand in India, directly or through the franchise route, may have to first invest in the country. A proposed moved by the government will allow a number of foreign retail companies planning to license their popular brands to Indian firms.

The government is of the view that domestic firms entering into franchisee agreements with international companies to bring multiple brands and products into the country nullifies the very objective of foreign investment restrictions in the retail sector.

Present norms allow franchising of brands by Indian companies. But in the light of the increased interest shown by international brands in India, the government wants to bring in additional safeguards to prevent misuse. India allows 51 per cent foreign direct investment (FDI) in single-brand retailing, while 100 per cent FDI is allowed in wholesale trading.

However, the government is yet to take a call on the minimum level of investment, in terms of amount as well as shareholding, which the international company will have to take in an Indian firm.

Entering Indian Market

Burgers

McDonald`s arrived in India through 50:50 joint venture with Hardcastle Restaurants Pvt. Ltd owned by Amit Jatia and his family. Similarly, Vikram Bakshi entered into a JV with McDonald`s for Delhi. Both partners signed the JVs in April 1995

Similarly, Subway Systems India Pvt Ltd. brought America`s largest sandwich brand to India. Subway has more than 17,000 outlets in 75 countries around the world, which makes it the second largest fast-food chain globally.

Pizzas

In 1996, Domino`s set up base in India by entering into a long-term franchisee agreement with the Bhartia brothers. S.S. Bhartia and H.S. Bhartia of the Jubilant Organosys Group were the promoters of the company. The first Domino`s Pizza store in India opened in January, 1996, at New Delhi. Today, Domino`s Pizza India has grown into a countrywide network of over 165 outlets in 33 cities and is the leader in the fast food delivery segment.

Devyani International Limited (DIL), an associate company of RKJ Group, gets the credit for bringing Pizza Hut to India. At present, Pizza Hut has 136 restaurants across 35 cities, including Delhi, Mumbai, Bangalore, Chennai, Kolkata, Hyderabad, Pune, and Chandigarh.

Pizza Corner was created in 1996 by Global Franchise Architects (GFA). This winning idea is one among several supported by GFA, a builder of specialty retail franchisees since 1996. At present, the company has 12 outlets across India.

The US-based fast food pizza chain, Papa John`s, has appointed a master franchisee, Om Pizza Eats India Pvt Ltd, for expansion in north India. The company plans to open 100 outlets in the country over the next 11 years.

Coffee and juice chains

Ravi Rekhaja`s RKJ group takes the credit for bringing leading British cafe chain, Costa Coffee, a part of the 1.8 billion pound sterling Whitbread plc, to India. So far, Cost Coffee has opened 25 outlets across India and is planning to open more in the coming year.

Bernie's Coffee and Tea Company, one of the largest privately held specialty coffee shops in the US, has nominated Franchise India Holdings Ltd as their master franchisee.

Mr Orange Juicing Systems Pvt Ltd is country franchisee and brand promoter for the international brand Mr Orange, based in Canada, of installing fresh orange juicing systems in India. The group has a network of 14 chain stores/outlets all over Canada dealing in food items.

Chicken outlets

London-based Dixy Chicken is all set to enter India by forming Dixy Chicken India through franchise route with AB Resorts & Restaurants Pvt Ltd, owned by the Chennai-based Praveen Travels, and a restaurant chain, Dhabba Express, as its master franchisees. The company plans to open at least 80 restaurants across the country in the first three years.

Devyani International Limited is the master franchisee of KFC in India. At present, KFC has 20 outlets across India and is planning to open more.

The road ahead

Mr Ashit Patel, founder, Garcia`s Famous Pizza, says: “There`s nothing new about selling food. It is all about keeping the product fresh. It`s about being innovative in what is being offered. The basic need of the customer now is a clean restaurant; quick service is no more a standard. Authenticity is what the Indian guests are looking for; the tendency in India is to Indianise the product. When a guest orders pasta, he is expecting the same pasta that he will get in New York or Milan. The expectations do increase as the price is high.”

Mr Lal opines: “We believe that there is a huge potential for the Indian F&B industry to grow due to the presence of international F&B chains in India. This is fuelled by a growing young population with a growing disposable income. Also, the proliferation of new, exciting eating-out options is becoming a way of life. Convenience is also an important attribute that allows the F&B business in India to flourish.'

With the emerging business potential, more and more international players are eyeing Indian markets to set up their restaurant and beverage chains. The Indian F&B market provides vast business opportunities which are attracting the main players in the world. It promises a bright future. And for anyone looking to invest in or open an international franchise outlet in India, the time is just right.

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