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Nov, 01 2007

Accelerating on franchising

An important part of completing vacation plans is arranging transportation. Most people use car rental services as a manageable and cost worthy solution to travel needs. If you are considering business ownership and are interested in the travel industry,

The car rental industry is one of the young flourishing industries of India. Although the industry is part of the unorganised sector, yet it has shown considerable amount of growth in the last few years. Car rental industry in India has many players who have been operating locally in their base cities for the last 30-40 years and some of them have been reasonably successful in their business. Initially, the quality of cars used was not of very high standard but now, with the process of change and development shown by the industry, making aspects of it are slowly changing. The industry has also gone through a lot of changes in the last few years. For example, the cars that are being provided now are mostly branded. The concept of branded car rentals, already a big hit in the West is slowly entering the business culture on the Indian shores as well.

As we look at the Indian car rental space currently, we find that the principal difference is in the business vision, geographical spread, commitment to consistent service standards, ability to make large investments required in this business, ability to attract talent, ability to get into trade partnerships and today while there are local players who have been there for many years but the branded players have expanded much faster, established a national footprint, built large fleets, customer base, professional teams and improved service standards.

Growth in the sector

A major leap has been made by the car rental industry in India as the estimated worth of the industry has grown up to approximately Rs 9,000 crore from Rs 3,000 crore in last few years. Out of this 10 per cent of the business comes from the corporate and 90 per cent from individuals. Amongst the corporate, about 50 per cent of the business goes to the organised sector and the rest is shared between the semi-organised and the un-organised sectors.

Commenting on the growth opportunity, Rajiv K Vij, CEO, Hertz India, says, “With globalisation of the Indian economy and more Indians travelling overseas on business and leisure, this segment of the travel industry is heading north. Moreover, the value of brands in terms of quality and reliability of service is being appreciated today, which has also contributed to the growth of this sector. The infrastructure in the country is also developing and this will further boost the growth of this sector.”

The drastic change in the economic scenario of the country, growth of the tourism and aviation industry and the improvement in road conditions in recent years has fueled the growth of the car rental industry. This has been a huge boost for the industry, as after seeing the growth prospects of the car rental industry in India, many big foreign car rental companies have decided to invest and open offices in India. Most of the foreign car rental companies are working on setting up offices in major cities and on setting up desks in airports and hotels in India. They are also trying to set up fleet management and chauffeur driven cars for corporates. They have even gone to the extent of offering holiday packages to their customers as they have tie-ups with hotels throughout the country.

Gautam Nath, Country Manager, Europcar, opines, “The car rental sector is growing at a rate of 20-25 per cent per annum and has witnessed high growth in the last 2-3 years which is mainly triggered by the exceptionally high growth of both international and domestic tourism. Almost all the major international players are now established or planning to enter Indian markets through the franchise route. Foreign companies bring in technology and worldwide access as value addition to the conventional cab service industry in the country.”

The organised car rental sector largely dominated by branded players like Hertz, Avis, Routes, Europcar, Eco and Sixt is expanding at a much faster rate than the growth in the industry and consolidation of the Industry (which is highly fragmented) is on the cards.

Till now the normal protocol for almost all the car rental companies in India had been to rent cars with chauffeurs. However, now slowly with the growth of the industry the norms are changing as well. The car rental companies are now of the opinion that the Indian customers have finally arrived at a juncture, where they can handle rented cars without the need of a chauffeur. This is very important as there are many customers who want to drive on their own and does not like the car being driven by a chauffeur.

Self-drive concept The concept of renting a car and self-driving it has long been associated as a facility only available in the West. Very few people know that it is available in India also and that too since quite long.

It was in the late 80s when the Government of India passed the rent-a-car scheme, permitting car rental operators to offer self-drive cars, besides a chauffeur driven option.

According to a study conducted by Hertz, self-drive as a concept has a lot of latent demand. Vij says, “We conducted a survey in the age group of 25-35 ‘young corporate executives’ and found that 90 per cent had no clue that self-drive was available in India, and an equal percentage said that they would love to have the facility.”

To hire a self-drive car, one has to be above the age of 25 years with a minimum of three years driving experience. Rates for hiring depend on car model, time frame and city.

Technology tactics

The Internet has opened the floodgates of opportunity for car rental companies and has helped companies remove barriers to customer acquisition, thereby simplifying the purchase process. It tends to foster transparency and greater the transparency, less the differentiation among rental companies and their products. Another industry trend is a move towards radio cabs.

What is a radio cab?

Radio taxis are cabs of international standard that are increasingly visible on the streets of big cities. Comfortable, air-conditioned, responsive and professional, these 24x7 services are accessible on a single central number. While several cities have on-call cabs with radio communication devices, only taxis equipped with GPRS monitors and two-way communication systems with the central reservation centre are bonafide radio cabs.

Satellite technology and other features make these the preferred mode of transport for tourists and business travellers. Safety of passengers is ensured by the fact that radio cabs are constantly monitored at a central office and its drivers are not only trained but their identity is also verified before they are recruited. On receiving a call for a pick-up, the reservation centre uses its GPRS screen to direct the nearest available taxi to the client and informs him of the time the taxi is expected to take to reach him. Costs are calculated on a kilometre basis from pick-up to drop-off.

Vij says, “This trend is bound to pick up in cities like Mumbai, Delhi, Hyderabad, Bangalore and Chennai where it already exists but in a fragmented manner. Some large players need to enter this particular segment and set up GPRS-based infrastructure, which will boost radio cab operations.”

Other services like fleet management and vehicle leasing for corporates, by international players is also catching up fast in India. As of now, there are 50,000 cars that are bought by corporates, of which only 5,000 cars operate on lease and fleet management.

Franchising the cabs

Following the economic liberalisation of 1991, several US companies with strong brand names established their presence through franchising as this has been the preferred method for starting operations in India. International players like Hertz, Europcar and Avis already have an established presence in the country, and are also ramping up fast through franchising.

Speaking on the merits of franchising, Nath says, “Franchising expands reach and network which is critical in this business. Certain locations need local expertise which only a franchisee can provide.”

This sector has tremendous potential but the industry is still largely unorganised. Vij opines, “Several international players are looking at entering India largely through the franchise model.” He also adds that Hertz currently with a fleet of over 2,000 cars in 25 locations, plans to extend to 35 cities and have a fleet of 5,000 cars in the next three years.

Stepping on the gas

Drastic change in the Indian economic scenario, growth of tourism and the aviation industry, and improvement in road conditions in recent years have played their respective roles in fuelling the growth of car rentals in India. According to industry experts and global operators, the focus is now on international standards with the branded segment all set to have a larger share of the expected growing pie. Today the car rental industry is almost Rs 9,000 crore but the organised players have just 3 per cent market share with a turnover of Rs 550-600 crore and about 6,000 cars in their portfolio. However, the industry has been seeing a buoyant growth of about 35-50 per cent in the last two years and the entry of internationals is likely to bring in more action.

The car rental concept has picked up in the subcontinent in the last couple of years and global giants in this segment are now stepping on the accelerator after crawling in the slow lane for more than a decade. The major players in this segment feel that there is immense scope and opportunity as it is an untapped market. So looking at the current trend and with high economic growth, opportunity for the continuous growth of this sector through franchise network is strong. The car rental business has emerged as a respected business in the last few years and is accelerating at a fast speed through franchising.

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