Business Categories
Sep, 01 2007

Is retail franchise viable?

BEGINNING his day early, Krishna Kumar, who owns a retail shop serving daily needs to the customers in his locality, handles the shop from morning till late evening.

BEGINNING his day early, Krishna Kumar, who owns a retail shop serving daily needs to the customers in his locality, handles the shop from morning till late evening. During lunch time, his wife and son attend to the shop. A typical picture of our very own neighbourhood retail store.

But, Krishna frowns when asked about the impact big retailers will have on his small shop. Krishna is a part of the huge unorganised retail segment in India which has become a bone of contention even for the government.

The advent of retailing is as old as the consumer. As there has always been the needs and requirements of people and there have been people who serves these demands.

India is known as a nation of shopkeepers, which form a large chunk of 1.2 crore outlets. More than 80 per cent of these outlets use household labour and are family-owned businesses. These shops serve a large chunk of customers which fall as the second largest population all over the world. India has 4.5 crore consumers who have a consumption of Rs 1.7 lakh to Rs 4 lakh annually. Out of this, 50 lakh consumers spend over Rs 4 lakh. The large market in retail has attracted many big companies not only from India but the world over. Today, retail ranks as the fastest-growing sector in the country. With more companies entering this sector, more opportunities are expected for the entrepreneur as he extends his local knowledge to the national level retailers.

The retail sector in India is still in a much unorganised stage and can take help from franchising to further develop the industry. In India, retail franchising employs 4 lakh people and by 2010 over 15 per cent of organised retail would happen through franchising. Top retailers like Reliance, Bharti, Tata, RPG and ITC are already using franchising as a format for expansion.

Disclosing S Kumars Nationwide`s plans to franchise its operations, Aloke Banerjee, CEO of the company says, "The franchise stores will enable us to have a number of stores in quick succession thus allowing the brand to build up its image and pull in the eyes of the consumers, enabling us to reach out to the maximum consumers in least amount of time, keeping in mind the advertising and marketing support we are giving."

With the ongoing retail boom, franchising is expected to contribute fairly well to retail and present major opportunities to the retailers. In order to serve the consumers even better, the need is to empower them, and franchising aims to offer just those solutions.

India is presently the most sought-after destination for retail business worldwide. The Indian retail market is expected to move up to Rs 17,080 billion in the next three years. In such a scenario, retailers in India have become very aggressive in expanding their businesses, thus creating a huge demand for real estate. Their preferred means of expansion is to increase the number of outlets in a city. This has resulted in real estate prices soaring sky-high. Therefore, to make your brand presence felt in the retail world, franchising is the only option where your expansion rate matches your target without causing great financial investment on the company`s part.

While the franchise industry is dominated largely by the education and training sectors, food and beverages play a major role in retail.

In India, retail franchising started off in the apparel sector and offered to most retail franchisors an opportunity to display their brands in the best commercial space with exclusivity.

Modernising retail

Of late, retail has experienced an unprecedented growth and has attracted the interests of many top companies. At present, organised retail forms only a meagre 3 per cent. The remaining 97 per cent of the market is still in the hands of the unorganised segment which mainly consists of mom `n` pop or neighbourhood shops. These family-run shops have been a part of the Indian retail industry since ages. However, considering the present scenario, the future of retail will be written by those who, after upgradation, continue to serve the needs of the customers in the best possible manner.

An ongoing debate on the future of retail has raised a big question - will retail be run by large business houses and stop the growth of or close down small mom `n` pop shops?

If we go by the kind of experience a small mom `n` pop store can offer and compare it with big retail chains, then, both have their own pros and cons.

However, the main issue today is to make retail organised, as a major chunk belongs to the unorganised segment which cannot be ignored by any retail chain that wants to make it big.

Positively, small shop owners have the necessary knowledge and background needed to serve the consumer well, which might be absent in the case of big corporates that have industry background and enter the retail sector without much consumer-behaviour knowledge.

In the Indian perspective, though the retail industry has come into existence only recently, the small retailers have been on the scene since centuries. India, the second-largest country in terms of population, has a large co sumer base which makes it attractive enough for any corporate to join the retail bandwagon.

Today, organised retail has taken a lead mostly in metros and though tier II and III cities are also fast catching up, most of the consumer base still gets served by the small retail shops.

Retail franchising globally

Retail franchising continues to dominate the US and is set to create a furore in the Indian market. India can learn much from America, since India is a growing economy with rising income levels and higher standard of living. Though franchising was known in India for the last 10 years it has recently started becoming popular, mainly because of the stiff competition given by international franchise chains to the Indian players. In the US, 50 per cent of retail sales are contributed by franchisees.

Real estate - A challenge

Bharti retail has already announced its intension to partner with small convenience stores via franchising as it will help them in getting hold of the existing real estate in the right location and will also get them an entrepreneur cum owner to run the store. When contacted, Bharti Retail agreed on the tie-up with small retailers but refused to specify further the requirements for its franchisees.

Another major retailer in the country, Reliance, has so far acquired over 500 lakh sq.ft via franchise as well as direct route. Reliance Fresh, a retail store chain of Reliance is already available for franchising. The need is to partner with the existing stores, which number over 1.2 crore in India.

But, are small retailers willing to tie-up with the big brands? Talking on behalf of the 1.2 crore existing small retailers, Ashwani Agarwal, a franchisee of Titan in Delhi, says, "I was earlier running a small watch shop and felt that there was no specialised brand in the shop which could attract the customer. Understanding the brand consciousness of today`s consumers I took a franchise of Titan which rightly supports me with its marketing strategies."

Most of the top retailers are planning to tie-up with small retailers. According to a spokesperson from Madura Garments, "The company is open to all kind of distribution models and will also partner with small retailers for the same."

Reliance Fresh`s plans have not received the desired favour from the government or kirana shops as small shop owners fear that their profits will come to nil.

Franchising, however, offers a way out to small shopkeepers by partnering with big brands. This is a two-pronged strategy wherein a small retailer would not only get a chance to upgrade his store with the help of a big brand but will also get the support of the brand.

Another small time retailer when questioned by TFW on whether he would like to partner with a big brand via franchising, said, "If the brand offers me more profits, then, yes."

Who will write the future?

The retail scenario is changing fast and the one who will profit in the end will be the one who serves the consumer the best. While on the one hand there are big business houses who want to make use of their market knowledge and their established I-T systems, on the other, there are large unorganised retailers who have local-market knowledge along with the ability to run the stores with great enthusiasm.

Big retailers still need to devise ways to serve the consumer well whereas the local retailers are already well aware of it. Big retailers have to face a large number of attrition, which is very high in the retail sector, whereas the small retailer does not and has his family to help him in running the business.

Various companies are coming forward to join hands with small retailers and help them to upgrade. Companies like Amul have already partnered with a number of small shops and converted them into Amul booths which stock all Amul products.

S Kumars' exclusive stores are run by small retailers only.

Speaking on the future of retail, Banerjee says, "Franchising is the future of Indian retail. It will play a pivotal role for all the companies venturing into the retail sector."

The way out is to marry the two. While one has the systems and processes best established in place, the other serves the customer and takes care of his needs. Time has changed. Though a small retailer`s next generation will help him in running the store, they will not see it as a career choice. Therefore, to attract the next generation the best option is to upgrade.

More Stories

Free Advice - Ask Our Experts

ads ads ads ads